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American Securities closes $3.64B midmarket vehicle

by David Holley | Published June 26, 2012 at 4:29 PM

American Securities LLC has closed a sixth private equity fund at $3.64 billion, surpassing its $3 billion goal.

While oversubscriptions have been common enough in recent months, American Securities appears to have done so on American Securities Partners Fund VI LP without giving the same kind of concessions to limited partners as some other firms. Leonard Green & Partners LP was reported to have offered 100% of deal fees, instead of the typical 80%, to limited partners when it closed its oversubscribed $6.3 billion fund in late May. American Securities would not comment on the specifics of its new fund's structure, but indicated that it had maintained a standard 80%-to-20% split in the fund.

One characteristic that may have kept American Securities in a strong negotiating position is the return it has showed so far on its fifth fund. A person familiar with the matter said the 2008-vintage fund has a net internal rate of return of 58.2% so far. American Securities declined to comment on returns.

American Securities CEO Michael Fisch said in an interview that terms on the sixth fund were similar to the fifth. The firm received "very strong support from our existing investors," he said, as well as commitments from select new investors.

"During a time where many investors are looking for special deals, we have no separate accounts, no side pockets, no special deals," Fisch said. "All of our investors invest shoulder to shoulder with the same terms in the same fund."

American Securities invests in companies with $50 million to $200 million of Ebitda, focusing on niche industries that can maintain growth in turbulent macroeconomic conditions, Fisch said. The firm often looks to businesses that support the broader industries.

While some private equity funds have reported strong subscription rates, firms appear to be on pace to raise less in 2012 than last year, according to alternative asset data provider Preqin Ltd. Private equity funds in the U.S. raised $161.2 billion in 2011, up from $159.2 billion the year before. So far in 2012, firms have raised only $70.6 billion.

Preqin spokesman Alex Jones said that although there have been "quite a few firms" that surpassed their fund size in 2012, "it is worth noting that many GPs have started to come to market with smaller, more realistic target sizes."

Jones said the number of firms looking to raise capital and to close funds has created competitive and challenging market conditions.

"The global fundraising market for private equity is depressed and overcrowded at present, particularly in comparison to the pre-crisis private equity boom period," Jones said. "While institutional investor sentiment toward private equity remains positive, with large proportions of LPs intending to maintain or increase their allocations to the asset class, the prevailing mood following the crisis has been caution."

Fisch declined to name investors in the funds. American Securities has received investments from numerous public institutions previously, including the State of Wisconsin Investment Board, the San Francisco City and County Employees' Retirement System and the Los Angeles Fire and Police Pension System. He noted that investments made in the sixth fund have a potential 25-year investment term.

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