Cerberus settles on $2.61bn for Fund V

The firm has held a final close on $2.61bn, below its original $3.75bn target and well under the $7.5bn raised for its Fund IV.

Cerberus Capital Management has held a final close on $2.61 billion for its fifth flagship fund, according to a source with knowledge of the situation.

Cerberus launched Fund V in 2011 with a $3.75 billion target and $4 billion hard-cap. The firm held a first close on $1.1 billion in April 2012. The fund focuses primarily on turnaround and distressed investments and can also invest in distressed debt. 

Fund V reached $2.61 billion by attracting commitments from both existing and new limited partners, the source said. Monument Group acted as the fund’s placement agent. 

Reuters reported on the fund close Wednesday.

Fund V received a significant vote of confidence by attracting a $400 million commitment from the California Public Employees’ Retirement System, which committed to the fund prior to the first closing. The Pennsylvania Public School Employees’ Retirement System is also an investor in the fund, according to Private Equity International’s Research & Analytics division.

During the fundraising process, Cerberus announced it would exit its stake in firearm manufacturer Freedom Group, citing the horrific tragedy at Sandy Hook Elementary School as motivation for the firm’s decision. Cerberus formed Freedom Group in 2006 after acquiring Bushmaster and several other firearm and ammunition manufacturers, such as Remington, DPMS Firearms and Marlin Firearms.

Cerberus’ prior offering, the $7.5 billion Cerberus Institutional Partners IV, was generating a 1.33x multiple and 7.3 percent internal rate of return as of 30 June, 2012, according to documents from the  University of California, an investor in the fund. 

Fund IV made headlines related to the high profile bankruptcy of US automaker Chrysler and the bailout of GMAC Financial, two investments from the fund. Cerberus broke even on its Chrysler investment, sources told Private Equity International in previous interviews.

Distressed debt 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. 

While Cerberus did not hit its $3.75 billion target for Fund V, the firm has raised about $11 billion of capital for a variety of funds and strategies during the past two years, including buyouts, real estate and debt, the source said.