Oak Hill runs stapled secondary on Fund IV fundraising

  • Oak Hill targets $3 bln for buyouts Fund IV
  • Firm narrowed investment focus
  • Runs process to buy out existing LPs, inject fresh capital

Oak Hill Capital is running a stapled secondary process as part of fundraising for its fourth buyout fund, targeting $3 billion, two people with knowledge of the situation told Buyouts.

It’s not clear whether the firm has lined up outside investors to buy existing limited-partner stakes in older funds. In a stapled secondary, an investor buys interests in older funds from existing limited partners and puts up fresh capital to commit to the new vehicle.

Staples have grown in popularity along with the secondary market overall, which has seen record volume levels over the past few years. While once used mostly by GPs that were struggling to raise new funds, staples are being increasingly used by any fundraising GP to provide liquidity for past investors who choose not to stick with the GP in the new fund, sources have said in interviews.

At least one existing Oak Hill LP that is selling is California Public Employees’ Retirement System, which is in market with a large private equity portfolio in a process run by Greenhill Cogent, a separate source said.

Joe DeAnda, a spokesman for CalPERS, declined to comment.

Lazard is working as placement agent on the fundraising. It’s not clear whether Lazard is also running the stapled secondary process.

Andrea Joseph, head of investor relations with Oak Hill, declined to comment. Judi Mackey, a spokeswoman for Lazard, did not return a request for comment.

Stapled transactions can help with the fundraising process by moving out older LPs that may not want to re-up into a new fund, and bringing in new capital.

Oak Hill is targeting $800 million less than its prior buyout fund, which closed on $3.8 billion in 2009. Fund III was generating an internal rate of return of about 10 percent as of September 2015, Buyouts reported.

Fund II, a 2005 vintage that raised $2.5 billion, was producing a 10.04 IRR as of March 31, 2015, according to performance information from Montana Board of Investments.

The firm narrowed its strategy to four core sectors: industrial; services; consumer, retail and distribution; and media and communications, Buyouts reported. The firm backed away from healthcare and technology, which are no longer considered core.

Departures reflected the narrowed scope: Charles Patton, the firm’s remaining partner on healthcare, stepped down from his full-time job and moved into an advisory role. Robert Morse, who led the firm’s technology group, left in 2013 and formed Strattam Capital, Buyouts reported.

Intermediary Greenhill Cogent estimated GP-led transactions made up $8 billion in volume in 2015, with traditional secondary sales totaling $32 billion.

Action Item: Oak Hill’s Form ADV: http://1.usa.gov/1svm741

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