Scoop: Aurora Capital Expects LPs to See the Light With its Next Fundraising–UPDATED

Aurora Capital, the Los Angeles-based private equity firm with about $2 billion under management, is preparing now to raise its latest fund, a source tells peHUB. The private equity firm earlier this year became embroiled in the California Public Employees’ Retirement System (CalPERS) pay-to-play scandal when investment staff told auditors that former pension CEO Federico Buenrostro Jr. steered funding to Aurora Capital. The private equity firm has been dependent on CalPERS for substantial portions of its prior funds, according to pension data.

The source declined to talk about the size of the fund, or its timeline for completion. But looking back at past Aurora Capital vehicles, this fifth fund could be the one that crosses the $1 billion mark. Prior Aurora Capital funds have been pools of $900 million (2005), $765 million (1998), $220 million (1994) and $150 million (1991), peHUB’s source said. Generally, the private equity firm does not publicize its fund values.

CalPERS has been a substantial contributor to Aurora Capital. The pension backed the 1994 fund with $25 million, according to published data, committed $75 million to the follow-up fund and, then, doubled down with a $150 million commitment in the most recent $900 million fund. The most recent CalPERS data, current as of year-end, says that for the three investments, net IRR was 7.7%, 4.9% and 13.5%, consecutively. For those same three consecutive funds, investment multiples repaid to CalPERS were 1.4x, 1.4x and 1.3x.

While the figures are positive, they do not reflect superior performance. Every fall peHUB sister magazine Buyouts evaluates global buyout fund performance (those with vintage years ranging from 1981 to 2005); in its most recent analysis, the magazine determined median performers generated a multiple of 1.5x and a median IRR of 12.1 percent. (That said, performance tends to vary according to fund vintage year.)

Aurora Capital typically invests in manufacturing companies, distribution and services. The PE firm recently expanded portfolio company RecoverCare through its 2009 merger with MedaSTAT USA; the company continues to seek out acquisition targets.

Aurora Capital has also been an active seller in the run-up to its fundraising. This week, the firm dealt its Anthony International after a hold of about seven years to Avista Capital Partners. Last year, the PE firm took Douglas Dynamics, which makes snow plows and related equipment, public on the NYSE; since its debut in May 2010, shares are up more than 33%, afternoon trading statistics show. In late November of last year, Aurora Capital’s Porex Corp. sold its surgical division to listed medical technology company Stryker Corp., and the firm’s NuCO2, which provides beverage-grade carbon dioxide to restaurants and hospitality companies, has filed for a still-pending IPO.

Aurora Capital declined to comment on the fundraising, as did one of its partners, Gerald Parsky. However, Parsky told peHUB that the firm’s investment strategy has it putting 45%-50% of the needed equity into deals itself, and that it generally seeks out LBOs with enterprise values ranging from $150 million to $1 billion.

“We are at the low end of the risk profile for PE firms because we buy stable businesses… [that] are not dependent on leverage or cyclicality,” he says.

CalPERS also backed Aurora Capital’s 2007 Resurgence Fund, which operates separately from its private equity funds. It focuses on control investments, turnaround plays and investing in distressed debt. That fund, according to CalPERS figures, returned 17.2 percent and generated an investment multiple of 1.2x as of year-end.

UPDATE:

Regarding fund performance, which was publicized by CalPERS Tuesday, a representative for Aurora stated: “Aurora notes that the Resurgence fund investment has achieved an annualized return of approximately 39% from September 2007 through December 31, 2010. Aurora is proud of these returns.”

Regarding Aurora Capital’s inclusion within the Steptoe & Johnson CalPERS report, the private equity firm quoted the report, through a representative: “Despite these actions by Buenrostro, the [CalPERS] investment staff appears to have evaluated these proposals on their merits independently from his overtures, and we understand that the fund investment that was made has, to date, fared well.”

Regarding the CalPERS’s participation in existing, as well as future funds, the private equity firm said: “CalPERS remains an investor in both Resurgence and previous Private Equity funds. It would be inappropriate to speculate about future funds or comment on investor decisions.”