Vista Equity’s third mid-market fund to close soon on cap

A final closing of Vista Equity Partners’ third Foundation Fund is imminent, according to two people with knowledge of the fundraising.

Fund III will hit its $2.5 billion hard cap, the people said. The fund remains open to include a few last-minute limited partners, the people said.

Vista’s Foundation Fund series targets investments in small and lower-middle-market enterprise-software companies. Fund III hit the market earlier this year, though when it officially began fundraising is unclear.

A spokesman for Vista Equity did not return a request for comment.

Vista closed Foundation Fund II on $1.1 billion in 2013. That fund was generating a 1.05x total value multiple as of May 31, 2016, according to New Jersey Division of Investment performance information.

Several limited partners said that Vista’s jump in fund size was concerning but that the firm has earned investors’ confidence with its performance.

Since 2009, the firm invested $900 million in 15 small-cap deals that generated a gross internal rate of return of 51 percent and a multiple of 2.3x as of Sept. 30, 2015, according to documents from Arkansas Teachers’ Retirement System.

Because of the increase in fund size in the Foundation Fund series, Vista has been talking to select investors about forming a micro-cap fund that could target $400 million to $500 million, sources told Buyouts in previous interviews. The firm is considering hiring someone from outside the firm to run the micro strategy, sources said.

The micro-cap fund could launch later this year, sources said.

Foundation Fund III will charge a 2 percent management fee during the five-year investment period, and 2 percent of contributions net of distributions, write-offs and write-downs after the investment period expires, according to Arkansas documents.

The fund has an 8 percent preferred return hurdle and a 20 percent carried interest rate. The carry rate ramps up to 30 percent if the fund generates a 3x or greater multiple on realized investments, the Arkansas documents said.

Action Item: Read the Arkansas pension investment report: http://www.arkleg.state.ar.us/assembly/2015/Meeting%20Attachments/000/I14284/Exhibit%20H.7%20-%20ATRS%20-%20Request%20for%20Review%20of%20Investments.pdf

Robert Smith, founder, chairman and CEO of Vista Equity Partners, speaks at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2016. Photo courtesy Reuters/Lucy Nicholson