Vista Equity Said to Offer Fee Choices Amid Record Fundraising

  • Firm's cap for latest buyout fund said set at $10 billion
  • Tech-focused firm has a history of strong fund performance

As Vista Equity Partners sets the cap for its latest buyout fund at $10 billion, people familiar with the fundraising say investors in the fund will have the ability to choose how their fees are structured.

For its Vista Equity Partners Fund VI LP investors can opt for a 1 percent management fee and 30 percent carried interest with a 10 percent performance hurdle -- the preferred return investors must receive before Vista can collect a share of gains, one of the people said.

Alternatively, they can choose a 1.5 percent fee and 20 percent carried interest above an 8 percent hurdle.

For a second, small-cap fund it’s raising, the technology-focused private equity firm has set an escalating scale that will give it 30 percent of the profits instead of the industry standard of 20 percent if it performs especially well, these people said, asking not to be named discussing private information. Investors have no choice in the fee structure for this fund, which seeks to raise $2.5 billion.

Fundraising Targets

Vista has set a $10 billion cap for its seventh buyout fund, above its $8 billion target, and held a first close on more than $5.7 billion this month, according to a person with knowledge of the fundraising. The Wall Street Journal reported the cap and first close Wednesday.

For the small-cap fund, Vista Foundation Fund III LP, if returns are less than 2.5 times its investments, Vista will collect the standard 20 percent of gains. But the carry rises to 25 percent if investors get back between 2.5 and three times their money, and the rate moves up to 30 percent if the multiple of invested capital, or MOIC, is more than three, the two people familiar with the fundraising said.

The firm will charge a standard 2 percent management fee and the fund has an 8 percent hurdle, they said.

Fund Performance

Vista has chalked up a strong fund performance record. Three of its earlier buyout funds -- from 2000, 2007 and 2009 -- that are wrapped up or maturing have earned net internal rates of return of more than 30 percent and MOIC of more than 2.6, according to data compiled by Bloomberg. Its $3.5 billion 2011 buyout fund has a net IRR of 21.4 percent and an MOIC of more than 1.6 to date, although it is still relatively early in its life. All four funds rank in the first quartile by returns among peers, according to data compiled by Bloomberg.

VintageSize ($M)Net IRRMOICx
Vista Equity Partners Fund V 2014$5,78010.30%1.06
Vista Foundation Fund II 2013$1,0006.30%1.06
Vista Equity Partners Fund IV 2011$3,50021.40%1.63
Vista Foundation Fund I 2009$40034.80%2.9
Vista Equity Partners Fund III2007$1,30031.70%2.68
Vista Equity Partners Fund II2000$1,00030.49%2.8
Source: Data compiled by Bloomberg

Last year, Vista announced its biggest deal since its 2000 founding, acquiring insurance claims software provider Solera Holdings Inc. in a $6.5 billion deal, including debt, alongside Koch Industries Inc. and Goldman Sachs Group Inc.’s private equity arm.

Fee Changes

Vista has used non-standard fee structures on some prior funds and some other fund sponsors have also deviated from the 2-and-20 formula for recent vehicles. Excellere Partners last year set a 25 percent carried interest on its third mid-market buyout fund, following top-quartile performances from its predecessors. Harvest Partners and Bain Capital have offered investors different combinations of fees and carried interest rates on recent funds.

Vista Co-founder and Chief Executive Officer Robert Smith hopes to benefit from dislocation in the startup market if venture capital firms cull their portfolios, he said at Oregon Investment Council’s Feb. 3 meeting.

“When they have to make a pivot because they can’t raise any more capital, it can be challenging for those organizations,” he said in recorded remarks available on the council’s website. “We have been quite effective at buying those businesses at spectacular valuations.”

Vista, which has offices in Austin, Chicago and San Francisco, has about $15.8 billion in assets under management, according to data compiled by Bloomberg.

Smith and Vista President and Co-founder Brian Sheth did not respond to e-mailed requests for comment.

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