Los Angeles’ largest private equity firm by assets under management, Leonard Green & Partners, has closed two funds totaling $14.75 billion.
The largest, at $12 billion, was through the firm’s eighth flagship investment fund, Green Equity Investors VIII.
The remaining $2.75 billion was through the firm’s first dedicated middle-market fund, Jade Equity Investors.
Fundraising for both vehicles kicked off in May. It concluded within seven months, according to a person familiar with the firm. The funds were both oversubscribed and closed at their hard caps.
Jade will be co-led by John Baumer, a senior partner who joined the firm in 1999, and Evan Hershberg, who joined last year, according to the individual close to the firm. Baumer will also continue to lead Leonard Green’s health care investments across platforms.
The $12 billion flagship fund will target equity investments between $400 million and $1 billion. The inaugural middle-market fund will focus on equity investments ranging from $50 million to $250 million.
Sawtelle-headquartered Leonard Green & Partners was founded in Los Angeles three decades ago by Leonard Green. The firm has backed major names such downtown-based apparel company Lucky Brand, burger chain Shake Shack Inc. and retail giant J. Crew Group Inc.
Although indisputably large, the L.A. firm’s latest flagship fund is roughly half the size of the record-breaking amounts raised by private equity titans in recent years.
Blackstone Group Inc. raised the largest private equity fund in history this year with a fund that topped $25 billion. That beat out the $24.6 billion mark set by Apollo Global Management in 2017.
Craig Everett, professor of finance at Pepperdine University and director of the school’s Private Capital Markets Project, said several factors have driven the rise of what have become known as megafunds — private equity funds worth $10 billion or more. First are caps on how much large institutional investors can invest in a single location. Intended to ensure a diversified investment portfolio, these rules often limit the percentage of a single fund that institutional investors, such as major insurance companies or large university endowments, can buy.
Megafunds allow these investors to invest large sums in a single fund without exceeding their buy-in limit.
Another key factor, Everett said, is the growth in deal size. As company valuations rise, private equity firms need larger raises to conduct huge buyouts while still keeping their funds diversified.
“If you have a $1 billion fund, for example, you might be able to invest in one unicorn,” Everett said. “That’s obviously not diversified.”
These factors are layered on top of the ongoing low-interest rate environment, which has driven investment to alternative asset classes such as private equity for much of the last decade.
As fund managers search for higher yields to meet investor obligations, venture capital and private equity funds have become increasingly in-demand investment vehicles.
“For as long as we have been in a low-interest environment, there has been flow to alternative investment,” said Everett. “I don’t see that changing any time soon.”
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