London-based buyout firm BC Partners has rounded up more than €4 billion for the first closing of its ninth fund, which is targeting €6 billion, sources told PEI. It officially began marketing the fund in autumn last year.
Raising two-thirds of its targeted total in the first close, in an environment that is not widely thought of as conducive to quick fundraisings, was indeed an impressive feat. And the firm worked hard to ensure it would happen: it assembled a sizeable in-house fundraising team led by the ex-head of Goldman Sachs’ European financial sponsors group, Charlie Bott, and also offered a 5 percent discount on fees to LPs committing before the first close.
BC also had another key advantage in its favour – performance. Its prior fund, which collected €6 billion in 2005, was generating a 24.5 percent internal rate of return as of 31 March 2010, according to performance data from the California State Teachers’ Retirement System.
The firm’s success on the fundraising trail thus far, despite LPs cutting back on commitments and mostly focusing on re-ups with existing investors, is welcome news for many of the other GPs currently fundraising or planning a return to market this year. For it shows that LP appetites are indeed healthy if they like the terms and track records on offer. BC’s progress points to that being true even for large buyout funds that fall into the “mega-fund” category. Kohlberg Kravis Roberts has also demonstrated that this year, quickly raising $1 billion from the first two LPs it visited for its 11th North American buyout fund, which launched fundraising this year.
The story, in my view, is going to be a polarisation in the marketplace. You will either be a strong success or a complete failure.
While much attention has focused on the pressure to lower fees and give LPs greater power, the most crucial factors to potential LPs remain track record and performance. ABRY, for example, raised a $1.35 billion Fund VI in 2008 that was generating a 24.7 percent IRR and a 1.3x investment multiple as of 30 June, 2010, according to data from the California Public Employees’ Retirement System. Its $900 million Fund V was producing a 19.1 percent IRR and a 1.90x multiple. Sources tell PEI the firm’s consistent track record makes investors comfortable signing up to a fund that pays the GP 30 percent carry, above market standard.
Other elements, too, come into play in convincing LPs to commit these days. One thing many LPs say is key to consider is how the GP tended to its portfolio companies in the downturn and communicated with investors during challenging times.
By year’s end, many of the 1,500-plus estimated funds expected to come to market will have reason to be disappointed. A few like BC and ABRY will have found great support. But an even greater number will not. Targets will be missed, investment strategies adjusted, terms made even more favourable to attract interest.
“The story, in my view, is going to be a polarisation in the marketplace,” one industry insider told PEI. “You will either be a strong success or a complete failure, and that comes down to investors’ due diligence these days.”