- Platinum cut time between first close and document deadline
- Fund beat both $4.5 bln target and $5.5 bln cap
- Fund IV was in market for about nine months
Platinum Equity managed demand for its fourth fund, which recently closed on $6.5 billion, by reducing the time between first closing and deadline for LPs to file final commitment documents to 90 days, according to Mark Barnhill, partner at the firm.
“A number of large investors couldn’t make the deadline [and] they were winnowed out,” Barnhill, who leads investor relations activities at the firm, told Buyouts in a recent interview.
Generally, limited-partner agreements mandate a final close be held no more than 12 months after the first close. This period can be “negotiated if, towards the end, the GP needs a little more time to round out LPs that are already in heavy due diligence,” according to Kelly DePonte, managing director at Probitas Partners.
Platinum spent the next two months, from late December through late February, fitting LP allocations together like a puzzle, Barnhill said.
In the end, the firm beat its original $4.5 billion target and eclipsed its $5.5 billion cap. Fund IV closed 73 percent above the prior fund, which raised $3.75 billion in 2013. Fund III was generating a 35.4 percent net internal rate of return as of June 30, 2016, performance information from Los Angeles City Employees’ Retirement System shows.
This level of fund-size increase can raise concern among LPs. A survey of executives at institutions last fall by Probitas found 45 percent of the 86 responses to the survey named fund-size caps as one of the most important terms on which they focus when assessing a new commitment.
Barnhill said the firm chose to raise $1 billion over its cap because of three factors: deal pipeline, capacity to invest the capital, and investor demand for the fund.
“As we looked at mid-year  from a pipeline standpoint and a capacity standpoint, $6.5 billion was well within reach,” Barnhill said.
Last year, the firm deployed between $2 billion and $2.5 billion in equity, he said. Deals included the acquisition of Network Power from Emerson; International Textile Group; Fabcon; the Chinese manufacturing arm of Broadway Industrial Group; Electro Rent and JM Swank.
“It’s not only about how many deals are there [in the pipeline] but how many can you execute,” Barnhill said. “This fund is in the middle of the fairway.”
Platinum was formed by billionaire Tom Gores in 1995. The firm has more than 160 employees, of whom more than 100 work on the investment process, including operational specialists.
Fund IV was in market for about nine months. The firm targets investments in underperforming or undermanaged companies and looks at corporate divestitures, special situations, public-to-private transactions and restructurings.
Fund IV includes LPs like LACERS, Illinois State Board of Investment, Pennsylvania State Employees’ Retirement System and Teachers’ Retirement System of Louisiana.
And while the economy remains robust, Platinum has been able to find companies that fall within its strategy: “businesses that are undermanaged, underperforming, need some operational heft to help them realize value.” This strategy also provides a cushion for a market correction because of the operations focus, he said.
The market may be in the late part of the cycle, heading for dislocation, Barnhill said. Citing global automotive sales and housing starts, as well as the Fed starting to increase rates, “there are suggestions that at some point, over the life of this fund, there could be some dislocation,” Barnhill said.
Action Item: Check out the LACERS’ investment report here: http://bit.ly/2n0YAq7
Photo of Mark Barnhill courtesy of Platinum Equity