Buyout firm Lightyear Capital raises $1.6 billion flagship fund

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NEW YORK (Reuters) – Financial services-focused private equity firm Lightyear Capital has closed its fifth flagship fund at $1.6 billion, drawing in more money than it initially targeted as investors seek out specialist capital managers amid high valuations.

The New York-based buyout firm, established in 2000 by former PaineWebber bankers including Donald Marron after the investment bank’s acquisition by UBS Group, had earlier planned to raise around $1.25 billion, well above the $950 million Fund IV that Lightyear closed in 2017.

“Specialization means a differentiated story for investors, but it also means better opportunities and significantly better results because we understand the companies and the industry in which we’re participating,” Lightyear Managing Partner Mark Vassallo told Reuters.

A larger fund will allow Lightyear greater flexibility to invest in companies with earnings before interest, taxes, depreciation and amortization (EBITDA) of between $30 million and $40 million, up from the $10 million to $20 million range it targeted with its third flagship fund, according to Managing Director Stewart Gross.

Fund V is expected to be around 40% invested by the end of 2021. Lightyear has already used the fund to make four investments and is about to close a fifth deal, Gross added.

Investors have plowed money into private equity firms to secure higher returns during a period of historically low interest rates and readily-available cheap debt.

This huge pool of cash has pushed up valuations of companies that private equity firms typically target, as well as heightened competition for such assets.

To help combat this, Vassallo said Lightyear has been pursuing thematic investing within financial services, including embedded finance, where payments functions exist within non-financial businesses such as healthcare platforms.

This allows Lightyear to not only make targeted investments in the financial services sector, but also scout smaller, disruptive startups that might emerge as competitors to existing investments.

The tactic also identifies businesses which can be acquired later to supplement an existing Lightyear investment.