PE Hub article on Wellington Financial Fund V

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Wellington Financial, a Toronto-based specialty finance firm, has raised nearly all of its target of $300 million for its fifth innovation-focused private debt fund.

Wellington President and CEO Mark McQueen told PE Hub Canada that Wellington Financial Fund V secured $285 million of committed capital in a first close held earlier this month. That’s 95 percent of the way to the fund’s hard cap of $300 million. If the firm reaches its target, the new partnership would be 50 percent larger than its predecessor.

Sixteen institutional investors, most of them pension funds and financial institutions, signed up for Fund V, McQueen said. The vast majority are repeat limited partners, several of which re-upped at higher commitment levels than in the past.

Fund V investors included Canadian private equity firm Clairvest Group, which has been an anchor LP in every fund raised by Wellington since its founding in 2000.

McQueen expressed gratitude for the support shown by LPs in Wellington and its investment team. He added that Fund V’s strong showing in its early days of fundraising will not cause Wellington to revise its target.

“Our goal is to keep the fund as small as we can to make sure limited partners are not wasting money on fees,” he said. “Fortunately, we have the luxury of going back to investors for additional capital should we need it down the road.”

Wellington provides term, venture and amortizing loans to North American companies, the bulk of which are in technology sectors. Deals range from $2 million to $40 million in size and typically engage companies with current year revenue in excess of $5 million. Most are venture-backed.

McQueen describes Fund V as a $900 million investment program because capital is recirculated as companies pay off their loans when they are bought, go public, become cash flow positive, or raise a large equity round. The average term of a Wellington loan is about 36 months.

Fund V will show continuity with the firm’s long-standing investment strategy, McQueen said. A larger capital pool will allow it to undertake larger investments. This capability is important to Canadian and U.S.-based entrepreneurs and VC firms who partner with Wellington on a recurring basis.

“The average venture round is getting larger, supporting innovative companies of greater size,” he said. “A larger fund helps us meet the needs of our portfolio companies. It allows us to grow with them and provide financing across their entire investment lifecycle.”

The launch of Wellington Financial Fund V is welcome news to Canada’s VC industry, which has seen improved fundraising of late. Domestic funds accounted for $878 million in committed capital in the first half of 2015, up 21 percent from a year ago, according to Thomson Reuters.

Along with fundraising, Wellington has been an active on the deal front. In September, it invested US$13 million in Aquam, a provider of water infrastructure support and rehabilitation. And this month it contributed to a US$10 million financing of FilmTrack, a media and entertainment content platform.

Wellington has been just as active exiting portfolio companies. To date this year, it has chalked up six closed realizations, including the recent sale of app manager Wmode to AppDirect. Since inception, Wellington has generated a net return of 9.5 percent.

In a PE Hub Canada interview in August, McQueen said Wellington’s innovation-focused lending model offers an all-weather alternative to traditional bank debt and equity. It affords the firm new opportunities in an uncertain market environment.

Since 2004, Wellington has raised $720 million for its funds, including its fifth partnership.