A Cincinnati private equity firm has raised a $150 million investment fund that ranks as one of the largest funds ever raised in Greater Cincinnati.
Hauser Private Equity, based in the penthouse of the Tower at Kenwood Collection, wrapped up the first closing on the fund about a week ago. It has already received commitments for $115 million and can begin investing that money now. It expects to fully raise the $150 million by the end of September, Paul Swanson, co-managing director of Hauser Private Equity, told me.
The fund is Hauser Private Equity’s third, and each fund has gotten significantly bigger.
“We’re using the exact same strategy with this fund because the previous funds have been so successful,” Mark Hauser, co-managing director, told me. “The only thing that’s changed is we have more money.”
Hauser created the investment model a decade ago and raised its first fund of $44 million in 2010. It raised another fund totaling $100 million in 2014.
To put the fund size in perspective, just two of the six main funds raised by Blue Chip Venture Co., Cincinnati’s largest venture capital firm, have topped $150 million. Cincinnati-based River Cities Capital Funds, the other large local venture capital firm, raised just one larger fund out of the five it has raised.
It’s never easy raising money, Hauser said, but the firm’s previous investment success made it a smoother process than it might have been. Hauser Private Equity’s funds have historically ranked in the first or second quartile in terms of investment performance. Hauser and Swanson wouldn’t provide specifics beyond that.
Investors consist of high-net-worth individuals and family offices, Hauser said. They’re from across the country, although more are from Cincinnati than any other city. He wouldn’t divulge the names of any investors.
More than 90 percent of prior investors came back to invest in this fund.
“It’s clear we have more demand for our product, which is why our funds keep growing,” Hauser said.
But Swanson said the firm is also happy with the number of new investors that put money into the newest fund.
The strategy that’s been so successful involves investing in controlled buyout funds as well as directly in individual companies. That’s why Hauser calls the firm’s investment vehicles hybrid private equity funds. Its last fund invested in 35 funds and 17 individual companies.
The newest fund will invest in about the same number of companies and funds, Swanson said. It’ll put more money into each deal.
“Having more money gives us more leverage in the marketplace,” Swanson said.
When it puts money in individual companies, it invests along with those controlled buyout funds. It’ll put money in companies anywhere, but it has invested in four locally based companies, Hauser said. He wouldn’t name those companies. None of the buyout funds in which it invests is local. The nearest one is in Chicago.
When Hauser Private Equity invests directly in companies, it targets five sectors: consumer packaged goods, industrials, health care, retail and financial services. It typically invests in companies with annual revenue ranging from $100 million to $300 million and earnings before interest, taxes, depreciation and amortization (EBITDA) between $10 million and $50 million.
“We’re providing the first institutional money in privately held companies to allow them to grow faster than their cash flow and EBITDA allow,” Swanson said.
The company exits its investments after an anticipated four-year holding period through either a sale to a financial or strategic buyer or a company going public through an initial public offering.
David Willbrand, a venture capital lawyer and partner at Cincinnati law firm Thompson Hine, said the fund is significant because it creates more local capital to be invested in high-growth companies.
“They have been important players in this community for a long time,” he said of Hauser Private Equity. “They have steadily grown their enterprise into one with formidable size and scale. As a community, their success is our success. It’s a big and important piece in the overall capital pie.”