Fundraising is Hard But Don’t Tell That To JMI Equity

Fundraising has been difficult this year for many PE firms. Just don’t tell that to JMI Equity, which just closed its seventh fund at $875 million.

JMI, which is based in Baltimore and San Diego, started marketing its newest pool in May and held a first close in July. At that time, JMI Equity Fund VII LP stood at $600 million. A final close occurred earlier this month with the pool topping its initial target of $800 million. JMI didn’t use a placement agent. Rufus King of Goodwin Procter was their attorney.

The hard fundraising market didn’t cause JMI to blink, says Harry Gruner, JMI’s co-founder and managing general partner. JMI’s decision to go out in May was part of the firm’s natural investment fundraising cycle, he says. Many firms typically start marketing for a new pool when their current fund is about three fourths invested. The firm’s last fund, JMI Equity Fund VI LP, raised $600 million in 2007 and is about 80% invested, he says.

“We felt comfortable that the timing would work out and it did,” Gruner says.

JMI also saw good interest from existing investors: The Teachers’ Retirement System of the State of Illinois and Commonwealth of Pennsylvania State Employees’ Retirement System both re-upped. JMI also added some new investors, like the State of Wisconsin Investment Board, Gruner says.

The difficult fundraising market has caused some firms to delay marketing for new funds. KKR, for example, plans to begin marketing for its latest North American fund sometime in 2011. JMI’s relatively strong track record helped it move through the market quickly with its latest pool, Gruner says. JMI’s fifth fund, which raised $300 million in 2005, has an IRR of 21.88% as of March 31, according to CalSTRS.

Other funds aren’t as notable. JMI Equity Fund IV LP, a 1999 pool, posted a 4.5% IRR as of March 31 while its sixth fund has a 0.2% IRR, according to CalPERS. Comparable VC funds from 1999 are posting an average IRR of -11%, according to Pitchbook. By comparison, a 4.5% positive return for JMI’s fourth fund doesn’t look as bad, one person says.

As to JMI’s sixth fund, that’s a very young pool and the IRR is not meaningful, a CalPERS spokesman says.

“At the end it’s largely about results,” Gruner says. “Our performance has been good and we are appreciated by our existing investors.”

JMI provides “growth equity”—which is more like late stage VC funding—to companies in software, internet, business services and healthcare IT. The PE firm invests $10 million to $100 million equity per deal.

The firm has scored some notable exits and buys this year. Earlier this year, JMI sold Nimsoft to Computer Associates. IBM, in August, also agreed to buy Unica, another JMI portfolio company, for about $480 million. JMI also owns a small stake in Attachmate, which is buying Novell. Attachmate is owned by Thoma Bravo, Golden Gate and Francisco Partners.