Leonard Green fund terms revealed

Leonard Green & Partners plans to commit 4 percent of aggregate commitments to its latest fund, Green Equity Investors VII, according to documents from Los Angeles City Employees' Retirement System (LACERS).

Two sources familiar with the fundraising said that the fund will soon hold a final close on nearly $10 billion. The fund's target was raised to $8.5 billion at the beginning of the year, while the hard-cap was set at $9.1 billion.

Its predecessor, Green Equity Investors VI, closed in 2012 on $6.25 billion.

LACERS has agreed to commit $25 million to Fund VII, which began raising in the autumn, according to LACERS documents detailing the fund's terms prepared by consultant Portfolio Advisors. 

The pension plan will pay a management fee of 1.5 percent of aggregate commitments during the investment period, a 1 percent management fee of net invested capital during the first two years after the investment period and 0.75 percent of net invested capital thereafter. The carry fee is 20 percent while the hurdle rate is 8 percent.

The firm declined to comment.

Other limited partners in the Fund VII include Teachers' Retirement System of the State of Illinois, which committed $200 million in December, the state of Oregon , which committed $250 million at its February meeting and the New Mexico State Investment Council, which committed $100 million in November.

The LACERS documents also said the key-man clause for the fund includes managing partners John Danhakl and Jonathan Sokoloff and partners John Baumer and Jonathan Seiffer.

The key-man clause will be triggered if both managing partners or if one of them and both partners “cease to devote substantially all of their business time to the affairs of the investment funds, separate accounts and other vehicles sponsored or managed by the firm or become incapacitated.” 

Leonard Green will invest predominantly in North American companies with enterprise value between $500 million and $5 billion in industries including retail and consumer, healthcare and wellness, business and consumer services, and distribution. It plans to make between 15 and 20 investments out of the fund ranging from $250 million to $750 million per transaction.

Leonard Green, which was founded in 1989 and is based in Los Angeles, is not using a placement agent for the fundraising.

Documents prepared by Portfolio Advisors also included information pertaining to diversity at the firm as of January. Among full-time employees, less than 18 percent of the workforce are minority employees, with seven Asian or Pacific Islander professionals and one Hispanic office/clerical employee. There are no African-American employees at Leonard Green. Women represent 31 percent of the total number of employees.

Green Equity Investors IV, which closed in 2003 on $1.85 billion, had a net internal rate of return of 11.2 percent and was generating a return of 1.94x as of 30 September, according to Oregon Public Employees Retirement Fund. 

Green Equity Investors V, which closed on about $9 billion in 2007 had a net IRR of 18 percent and was generating a return of 1.88x. Returns for Fund VI are not meaningful yet.