Vestar requests extension on Fund VI

Vestar’s limited partners are considering the firm’s request to continue marketing its sixth fund on a reduced $2bn target through April 2013.

Vestar Capital Partners has requested a fundraising extension from its limited partners on its sixth flagship fund, according to a source familiar with the matter.

The proposed eight month extension, first reported by Dow Jones, would allow the firm to continue fundraising through 1 April, 2013. As of 1 April 2012, the firm had secured around $1 billion in commitments on a reduced target of $2 billion, according to the source.

LPs have yet to approve the extension, the source said, though they have been receptive to the idea.

Vestar declined to comment on this story.

Mid-market fundraising has become increasingly competitive in recent years, particularly as LPs have reduced their number of relationships with fund managers. Vestar co-founder Norman Alpert hinted at his own firm’s uphill battle on the fundraising trail last November, when he told attendees at a Yale School of Management Conference that the industry needed to shrink to survive.

“In all honesty, we need less firms and less capital. The business got too big,” he said.

Vestar began pitching the sixth fund to existing investors in 2010. The vehicle initially had a $3.5 billion target, which was later reduced to $2 billion after the firm elected to withdraw from its European strategy last summer.

The decision to withdraw from Europe, where Vestar had offices in Milan, Paris and Munich, was heavily influenced by the region’s struggling economy, the source said. At the time of the withdrawal, Vestar had not completed a European investment in at least four and a half years.

The firm announced the lowered target at its annual meeting in October. No LPs have withdrawn from the fund or reduced their commitments since the announcement, the source said.

Although none of Fund VI’s LPs reduced their commitments, some were forced to limit their allocations to the fund to accommodate investment policy caps – which prevent some institutional investors from committing more than a certain percentage of a fund’s total investment capital. Those commitments are expected to grow as fundraising continues, the source said.

Vestar’s fifth flagship fund raised $3.65 billion in 2005. That vehicle was generating a 1.1x investment multiple and 2.39 percent net internal rate of return as of 31 December, according to Washington State Investment Board documents.

According to one LP, while Vestar’s fourth vehicle has performed very well – generating a 1.7x multiple and 13.83 percent net IRR as of 31 December – Fund V’s tepid performance contributed to their decision to not commit to the most recent vehicle.

However, returns on Fund V may improve with Vestar’s recent exit activity, which has allowed the firm to distribute around $500 million to its LPs since the start of 2012, the source said.

Vestar was founded in 1988 by seven principals from The First Boston Corporation’s Management Buyout Group and manages more than $7 billion in committed capital, according to the firm’s website.

Earlier this year, Vestar managing director and consumer group head Brian Ratzan left the firm for Pamplona Capital Management.