The Riverside Company recently agreed to reduce its management fee in exchange for an increase in the total size of its sixth flagship fund, which is in the market targeting $1.5 billion, according to public documents from the Los Angeles County Employees Retirement Association.
LACERA approved a $100 million to the Riverside Capital Appreciation Fund VI in December. Fund VI has collected at least $605 million and is expected to close this year. The fund launched last summer.
During term negotiations on the commitment, LACERA staff presented alternative fee options to the fund’s fee structure, which was set at 2.25 percent during the investment period and 2.15 percent after. Both parties eventually agreed to a management fee of 2 percent during the investment period and 2 percent after, and in exchange the pension system agreed to an increase in total fund capitalisation from about $1.4 billion to $1.5 billion, according to a LACERA board memo prepared for the 9 January investment committee meeting.
The fee reduction was put in place for all limited partners in the fund, not just LACERA, according to a person with knowledge of the negotiations.
Also, during the negotiations LACERA staff discovered that Riverside’s co-chief executive officers Stewart Kohl and Bela Szigethy take no salary from the management fee, collecting their pay strictly from carried interest on the funds, according to the memo.
“In addition to agreeing to lower the management fee for a modest increase in fund size, this action further shows the general partner’s alignment with its limited partner,” according to the memo, composed by Christopher Wagner, principal investment officer in private equity for the retirement system.
Riverside declined to comment on its compensation structure or the fund because it’s in fundraising. David Kushner, chief investment officer with LACERA, declined to comment beyond the memo.
Riverside’s prior flagship fund, Capital Appreciation Fund V, closed on $1.17 billion in 2009 and is roughly 80 percent deployed. The firm has made 27 platform investments and 21 add-on acquisitions from the vehicle. Riverside has exited four of the 27 investments, generating a combined net internal rate of return of 33 percent and 3x cash-on-cash multiple, according to a person with knowledge of the firm.
Riverside was founded in 1988 and manages more than $3 billion in assets.