Kelso Said to Aim Lower for Buyout Fund With $2.5 Billion

Jan 15, 2014 12:58 pm ET

(Updates with investing principals in fifth paragraph)

Jan. 15 (Bloomberg) -- Kelso & Co., a money manager that has been investing in private equity since 1980, has scaled back its ambitions with a buyout fund that is expected to be almost half the size of its predecessor, according to two people familiar with the matter.

Kelso plans to raise $2.5 billion to $3 billion for its ninth fund, less than the $5.1 billion gathered by the predecessor fund in 2008, according to one of the people, who asked not to be identified because the information is private. The New York-based firm is seeking a smaller fund mostly because it’s taking longer to deploy money in the current market, the people said.

Kelso joins Thomas H. Lee Partners LP and Warburg Pincus LLC in raising smaller funds than those gathered during the market boom era. Thomas H. Lee Partners told investors it expects to seek $3 billion for its next private-equity fund, less than half the amount it raised for the prior pool that closed in 2007, according to two people briefed on the matter in December. Warburg Pincus raised $11.2 billion in May, less than the $15 billion the predecessor fund raised in 2008.

Trevor Gibbons, a spokesman at public-relations firm Edelman, declined to comment on behalf of Kelso.

The firm, which is led by Frank Nickell, has 11 investing principals, according to its website. The firm makes investments in U.S. and Canadian mid-sized companies. It was founded in 1971 as an advisory firm that helped companies with deals structured using employee stock ownership plans. Since 1980, the firm has managed eight funds with more than $10 billion in committed capital.

IGPS Bankruptcy

Kelso Investment Associates VIII LP, raised in 2008, was generating a 4.4 percent net internal rate of return as of Sept. 30, according to one of the people familiar with the matter. One of the companies that the fund invested in, IGPS Co., declared bankruptcy last year. Kelso in 2007 invested in IGPS, a renter of pallets equipped with tracking technology.

Fund VIII made the bulk of its investments in 2010, so deals have had less time to mature, according to one of the people. The firm’s 2004 fund was producing a 12.8 percent net IRR as of the same date, the person said.

Recent investments include the purchases in September of Progressive-PMSI, a provider of pharmacy benefit-management, and 4Refuel Canada LP, a Canadian fuel logistics company. Kelso last year also bought Eacom Timber Corp., a Canadian lumber manufacturer.

--Editors: Sree Vidya Bhaktavatsalam, Christian Baumgaertel