Catalyst closes Third Fund at $213 million

14 August, 2012 New York

The firm had to ‘re-invent’ its LP base after many of its existing financial institution LPs skipped out on the third offering because of regulatory restrictions.

Private Equity International – Private equity fundraising is a tough prospect in today’s environment, so try having to re-invent most of your limited partner base.

That’s what Catalyst Investors, a technology-focused growth investor, did to raise its third fund, which closed recently on $213 million. Fund III is the firm’s biggest vehicle to date, though it missed its $250 million target.

Catalyst’s first two funds, which closed on $110 million in 2000 and $115 million in 2007 (the firm also raised a $55 million sidecar vehicle alongside Fund II), respectively, were raised mainly from banks and financial institutions. Those LPs skipped out on the third fund because of the Volcker rule, which restricts banks’ ability to invest in private equity from their balance sheets, according to Brian Rich, managing partner and co-founder of Catalyst.

More than 80 percent of the capital in Fund III is from new investors, Rich said. “We had to re-invent our investor base,” he said.

The firm began the processes of expanding the base beyond financial institutions about four years ago, Rich said. The firm was aware that it needed to expand its base and built up an internal investor relations team led by partner Gene Wolfson.

The team started to meet institutional investors in the market and put itself on the radar, Rich said. When it started asking for commitments, institutions knew the firm’s story and its track record—Catalyst boasts a net internal rate of return in its funds in the high-teens, Rich said.

Catalyst did not engage a global placement agent, but used Gladstone Securities for occasional help in the fundraising.

Fund of funds Pathway Capital Management anchored the first close, and the firm added several other new relationships, including with the Massachusetts Pension Reserves Investment Management board, Liberty Mutual Insurance and Healthcare of Ontario Pension Plan.

Catalyst targets growth investments in the technology-enabled services sector. It has made one investment from the new fund in a wedding and event company called Wedding Wire.

SOURCE: Catalyst Investors