MidOcean targets $300 mln for bridge to next flagship fund

MidOcean Partners is quietly raising a bridge fund to give it more time to harvest investments in its most recent flagship vehicle before coming to market with its next major fundraising, according to a person with knowledge of the effort.

The vehicle, called MidOcean Partners IV, is targeting $300 million, and will have $300 million worth of co-investment opportunity, for total investment power of $600 million, the person said. Fund IV has only been marketed to select investors and is almost filled up, the person said.

To entice investors, Fund IV is not charging a management fee, and will have a 20 percent carried interest rate and an 8 percent preferred return, the person said.

The investment period on the fund is only two years, compared to the usual five-year stretch for private equity funds. The fund will provide MidOcean with capital while it continues to harvest investments from Fund III. It will “let the latter half of MidOcean III – which is a great portfolio – mature,” the person said.

MidOcean’s third fund closed on $1.25 billion in 2007 and generated a 7.9 percent IRR and a 1.4x multiple as of June 30, 2014, according to theCalifornia Public Employees’ Retirement System.

The firm made several investments prior to the collapse of Lehman Brothers in the fall of 2008, which hurt early performance in Fund III. One of those investments, pizza chain Sbarro Inc, fell into bankruptcy in 2011.

However, MidOcean has sold four companies over the past year for an average multiple of 3.4x, and returned $400 million to LPs during that time, said another source with knowledge of the firm.

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