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Ironwood details capital-call-facility terms for new fund

  • New fund targets $400 mln; March close planned
  • Ironwood offers discounted fees on uninvested capital
  • Connecticut mulls $50 mln commitment to Ironwood IV

Ironwood Capital shed light on how it plans to use capital-call facilities to boost internal rate of return for limited partners in its fourth flagship fund, documents obtained from the Connecticut Office of the State Treasurer via a records request show.

Treasurer Denise Nappier is considering a $50 million commitment to Ironwood Mezzanine Fund IV, according to spokesman David Barrett. The firm set a $400 million target for Fund IV.

The fund will use a 364-day funding facility to defer and manage capital calls, with the ability to draw up to 30 percent of LP commitments, a memo says. The fund would have to repay the facility within 364 days. Ironwood III used a 90-day funding facility.

Ironwood expects to fund all investment for the first year through this funding facility,” one memo says. “The funding facility is expected to accelerate distributions on drawn capital and enhance net IRR” by as much as 3 percentage points.

The firm netted an aggregate 1.4x multiple and 11 percent IRR across its previous funds, Connecticut documents show.

Fund IV had raised $135 million toward its target as of December and is expected to hold a second close at the end of March, according to state documents.

The firm declined to comment.

In addition to outlining its capital-call facility, Ironwood also introduced a tiered management-fee structure that rewards the largest LPs in its latest mezzanine fund, according to the memos.

Fund IV marks the first time Ironwood has offered LPs management-fee discounts in exchange for larger commitments, the memos say. Investors who commit less than $7.5 million will pay a 2 percent fee on invested capital. LPs will pay a 1.875 percent fee on commitments of $7.5 million to $20 million, and those who allocate more than $20 million pay 1.75 percent.

The steepest discount is offered to Fund IV’s largest LPs. Investors who allocate more than $35 million will pay a 1.625 percent management fee.

At each tier, Ironwood offers an additional 40 percent discount for every dollar of uninvested capital during Fund IV’s five-year investment period. For example, if an LP is being charged a 2 percent fee on invested capital, the amount charged to their unfunded commitment during the investment period is 1.2 percent.

The added discount reduces the effects of Fund IV’s J curve, which refers to the period in which new funds charge fees without delivering a return, according to the memos.

Previous Ironwood funds charged a 2 percent management fee on committed capital during the investment period, the memos show. Afterward, the management fee fell to 2 percent on the initial cost of their funds’ portfolio company investments.

Ironwood Capital, Avon, Connecticut, is led by Marc Reich and Carolyn Galiette. The firm has invested $600 million across more than 100 companies over the previous 15 years.

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A ladle of iron is poured into a basic oxygen steelmaking vessel at the SSI steel plant at Redcar, England, on May 29, 2012. Photo courtesy Reuters/Nigel Roddis