Summit Partners closes $2.7bn growth fund(2)

Summit Partners has closed its eighth growth fund on $2.7 billion, beating its revised $2.5 billion target, according to two sources with knowledge of the fundraising. The firm has also closed its third venture capital fund just above its $500 million target on $520 million.

The firm on Thursday officially confirmed the closure of the two funds on a combined $3.22 billion. Eaton Partners worked as the placement agent on the fundraising.

The firm held a final close on Fund VIII in December, after about nine months on the market, one person said. Summit Partners Growth Equity Fund VIII launched in March and by July had collected about $1.8 billion. The firm reduced its initial $3 billion target, one person said.

Summit was also raising the third venture capital fund at the same time as the growth fund, but closed it this month. The growth fund focuses on investments of more than $45 million, while the venture fund focuses on making equity commitments of up to $45 million.

The nine-month marketing process for Fund VIII was relatively brief considering the challenging nature of the fundraising environment last year. According to data provider Preqin, the fundraising tally for 2011 stands at about $264 billion, slightly less than 2010.

LPs have become very selective choosing managers to invest their capital, and generally only top performers have been able to move quickly through fundraisings.

Summit has had a solid performance record, according to an LP who spoke to Private Equity International in a prior interview, who also said the firm’s prior growth fund still needed to prove itself.

Summit’s seventh growth capital fund closed on $3 billion in 2005, along with the firm’s second venture fund, which raised $310 million. Fund VII was generating a 6.61 percent internal rate of return as of 31 March, 2011, according to performance data from the California State Teachers’ Retirement System. That was up from the 1.30 percent the fund was producing as of 30 September, 2010, according to CalSTRS numbers.

The second venture fund was producing a whopping 17.08 percent IRR as of 31 March, according to the pension system’s information, up from 8.68 percent in 2010.

Summit was founded in 1984 and has raised some $14 billion. The firm has 85 employees in offices in Boston, Palo Alto and London. The firm manages private equity, venture capital and subordinated debt funds.

Summit has also been raising a credit-related fund, which has a target of $300 million, according to documents from the US Securities and Exchange Commission. The fund will focus on recapitalisations, rescue financings, distressed situations/debtor-in-possession financing, bridge loans and growth capital. The fund is separate from Summit's subordinated debt vehicles, which provide mezzanine financing into Summit deals.

Summit joins a select group of managers who raised billion-dollar funds in under 12 months last year, including TSG Consumer Products, which collected $1.3 billion in 60 days; Norwegian firm HitecVision, which raised $1.5 billion in about four months and Northern European buyout shop EQT, which closed its fourth fund on €4.75 billion after less than nine months on the market.