Lone Star revises targets on funds to $4bn each

Tough fundraising conditions have forced the Texas-headquartered firm to revise its prior plan to raise a combined $20bn for Lone Star Real Estate Fund II and Lone Star Fund VII.

Lone Star Funds has halved the amount of capital it is targeting for its latest private equity and real estate funds “due to the current challenges in the marketplace from a fundraising perspective”, a source with knowledge of the situation has confirmed.

The firm went to market in April 2009 with plans to raise $10 billion for each fund, but has now lowered the targets to $4 billion a piece, with hard caps of $5 billion.

Lone Star declined to comment.

The firm has reportedly collected at least $1 billion for each fund, having reached first closes last year. It’s unclear exactly when it revised its targets.

Lone Star Real Estate Fund II will focus on investments in distressed commercial real estate. Fund VII, meanwhile, will target distressed residential mortgages, defaulting corporate bonds and loans and acquisitions of “real estate entities such as banks”, according to board documents from the Oregon Investment Committee, which committed $400 million to the funds last year.  Each fund has a target internal rate of return of 25 percent.

Lone Star collected $7.5 billion for its sixth fund, and $2.5 billion for its debut dedicated property fund in 2008.

Along with Oregon, other limited partners in the funds include the State of Wisconsin Investment Board and the Dallas Police and Fire Pension System.