Cerberus holds first close for Fund V

The firm has collected $1.1bn for its fifth flagship fund following a rebound in performance for Cerberus Institutional Partners IV.

Cerberus Capital Management has held a first close on $1.1 billion for its fifth fund, according to a person with knowledge of the situation.

Cerberus Institutional Partners V is targeting $3.75 billion with a $4 billion hard-cap. The fund came to market last April and will focus primarily on turnaround and distressed investments. Last month, the Pennsylvania Public School Employees’ Retirement System committed up to $200 million to Fund V.

Monument Group is acting as the fund’s placement agent.

Cerberus’ fundraise comes following the high profile bankruptcy of US automaker Chrysler and the bailout of GMAC Financial, two investments from the firm’s $7.5 billion fourth fund. Cerberus has broken even on its Chrysler investment, sources told Private Equity International in previous interviews.

Cerberus Institutional Partners IV, which in 2009 had been generating a negative 10.13 percent IRR, according to the Public Employee Retirement System of Idaho, has rebounded and is returning 1.2x with a net IRR of 6.2 percent as of 31 December 2011, according to an industry source.

Distressed debt has played a significant role in helping Cerberus turn around its fourth fund. During the financial crisis of 2008 and 2009, the firm invested in residential mortgage debt at steep discounts. Those investments paid off, giving the firm gains of $952 million in 2010 and at least $850 million in 2011.

Cerberus is also in market with its first mezzanine fund, Cerberus Loan Opportunities Fund I, which is targeting investments in secured debt obligations. The Pennsylvania Public School Employees’ Retirement System committed up to $200 million to the fund, which is targeting $750 million, according to data provider Private Equity Connect.

In December 2011, Cerberus formed a separately managed account with New Jersey’s $68 billion pension system that will make loans to mid-market companies, The customised vehicle will be a $300 million fund, with a 1 percent management fee and a 17 percent carried interest rate, according to pension documents from the New Jersey Division of Investment, and will invest alongside Cerberus Loan Opportunities Fund I.