A private equity firm spun off from Bank of America Corp in 2010 has raised its first fund, allowing it to continue making investments in mid-sized companies as the No. 2 US bank pulls back from the business.
Ridgemont Equity Partners executives told Reuters that the firm received total commitments of $735 million from institutional investors in the United States, Europe and Asia.
These include AlpInvest Partners Inc and the State of Wisconsin Investment Board, but not BoA. Charlotte, North Carolina-based Ridgemont raised the capital at a time when dollars are scarce for first-time funds. Only 28 reached a final close in the first quarter, the lowest number in any quarter from 2008 to 2013, according to Preqin, which tracks private equity investments. The new funds accounted for just 6 per cent of the $67 billion raised by all funds during the period, compared with 20 percent at the peak.
"It's almost always challenging for first-time funds, and then you add in a tough fund-raising market in general," said Travis Hain, who is on Ridgemont's executive committee with Walker Poole and Trey Sheridan. "But if you have the right story, you'll find support."
Ridgemont is an unusual case because the firm's principals have been making investments together since 1993, injecting more than $3 billion into 115 companies. Before the spinoff, the firm was known as Banc of America Capital Investors and received its seed money from the bank. Bank of America has been winding down its private equity business as Chief Executive Brian Moynihan looks to streamline the company and follow new rules.
The U.S. Dodd-Frank financial reform law limits much capital banks can invest in private equity funds. Bank of America sold a $1.9 billion portfolio to insurer AXA SA's private equity arm in 2010. The bank had $1 billion in private equity investments at the end of the fourth quarter, down from $5.7 billion at the beginning of 2010.
Bank of America's goal is to sell its investments over time as the company focuses on its core businesses, spokesman Jerry Dubrowski said. Ridgemont still manages undisclosed private equity investments for the bank, but they are in "run-off" mode, Hain said. Being independent has advantages for Ridgemont, Hain said.
The firm is not part of a larger bureaucracy and does not face the same regulatory restrictions as a bank. It also has a more focused investment strategy, sticking to mid-sized companies in four sectors ranging from energy to telecommunications, he said. So far, the firm, which has 27 employees, has committed about half of its new fund to investments in nine companies. This month, the bank closed an investment in a software and marketing company called Simpleview Inc. Ridgemont's investments typically range from $25 million to $75 million.
AlpInvest partner Chris Perriello said the investor started building a relationship with the Ridgemont executives before they left the bank and as they were taking steps to become independent. "We felt they had a high-quality team, a strong record," he said. Officials at the Wisconsin investment board were not immediately available for comment. Not every bank is backing away from private equity investments. Wells Fargo & Co has said it can still make investments through two funds that are subsidiaries . Goldman Sachs Group Inc, meanwhile, is trying to do private equity deals alongside investors that keep their funds in separately managed accounts.
