Diamond Castle Holdings is seeking investment that would allow investors the option to exit its 2006-vintage Fund IV and potentially go on to raise Fund V, according to sources.
The firm’s $1.85 billion Fund IV is nearly fully deployed on 14 North American mid-market investments, with $200 million remaining in unfunded commitments, one source said.
Nine portfolio companies remain unrealised. These include financial services company Everbank, healthcare company Beacon Health Strategies and mid-market TV broadcasting company Bonten Media Group.
The portfolio’s net asset value amounts to $700 million, according to a source familiar with the restructuring plans.
Secondaries Investor understands Diamond Castle aims to revitalise Fund IV at the same time as raising fresh capital for a new fund.
It isn’t the first time that the firm’s LPs have been asked to consider changes to the fund; a key-man clause was triggered in 2010 when co-founder Larry Schloss (now president of private equity firm Angelo Gordon) left to become the chief investment officer for the New York City Retirement System. According to a Bloomberg report, investors allowed the fund to carry on investing in exchange for more advantageous economics, including changes to fee offsets and the waterfall.
LPs in the fund include the Canada Pension Plan Investment Board, Harbourvest Partners, Minnesota State Board of Investment and Oregon Public Employees Retirement System (OPERS), according to PEI data. OPERS committed $100 million to Fund IV’s fundraise in 2005; as of 30 September 2013, its investment was producing a 1.08 multiple and an IRR of 1.7 percent.
Diamond Castle was set up by Larry Schloss, Mike Ranger and a number of other colleagues who’d all worked in the private equity group for Donaldson, Lufkin & Jenrette (DLJ), which was acquired by Credit Suisse First Boston in 2000. Other founding personnel included Andy Rush, Mike Ranger, Ari Benacerraf and David Wittels. Rush, Ranger and Benacerraf remain at the firm in 2014.
The restructuring process is being advised by Park Hill Group. Diamond Castle and Park Hill did not respond to requests for comment at press time.