Negotiations between PAI Partners and LPs in its latest buyout fund have taken a step forward, with the buyout firm now proposing to let investors reduce outstanding commitments by 60 percent. If all LPs took up the offer, this would reduce the fund to €2.7 billion from €5.4 billion.
This goes further than a previous proposal, outlined by chief executive Lionel Zinsou in September, that would have permitted LPs to scale back only their undrawn commitments by 50 percent.
Roughly €1 billion has already been drawn down.
The negotiations between the Paris-based buyout firm and its investors were triggered by the surprise “key-man” departure of Dominique Mégret, a 35-year veteran of the firm and chief executive since 2006. Mégret had been at the helm for the fundraising of Fund V, which was closed in May 2008.
He was replaced late last month by Zinsou, a former banker and adviser to PAI at investment bank Rothschild & Cie, in what sources close to the situation described as an “acrimonious internal coup”.
The most recent proposal has earned the support of some LPs, two sources close to the situation said. Reports surfaced last week that the Canadian Pension Plan Investment Board (CPPIB) was encouraging other LPs to push for a reduction of as much as 70 percent. CPPIB declined to comment.
Other elements of the limited partner agreement, such as fund governance and fee structure, are also being debated.
Other buyout houses, such as Sun Capital Partners, Permira and TPG, have reduced the size of existing funds, but if PAI’s fifth fund was slashed by 50 percent or more it would be one of the largest fund reductions coming out of the financial crisis.