Advent International Corp., a Boston-based buyout firm that invests in Europe and the U.S., is raising money faster than Cinven Ltd. and Permira Advisers LLP as the sovereign debt crisis slows dealmaking.
Advent has taken less than nine months to raise more than 7 billion euros ($9.2 billion) for its latest pool, according to two people with knowledge of the talks. Permira, which has been fundraising for more than a year, has struggled to secure half of its 6.5 billion-euro target, while Cinven has taken 13 months to amass 4 billion euros, putting it 80 percent of the way to its target, said the people, who asked not to be identified because the negotiations are private.
Investors have been left with less money to plough into other funds after the sovereign debt crisis made it harder for firms to sell assets. That and concern that the single European currency may break up are making them focus on fewer funds that have generated bigger returns. Both Permira and Cinven, two London-based firms whose returns from their latest funds have lagged Advent, have tried to woo investors by offering fee cuts.
“It’s difficult to maintain momentum along the fundraising trail, even for the large established names in Europe, and we’re just beginning to see now how binary the market is,” Jeremie Le Febvre, founder of Singapore-based TBG Capital Advisors, which advises firms on fundraising, said in an interview.
Private-equity firms led $44 billion of buyouts in Europe this year, l2 percent less than in the year-earlier period, and a fraction of the $195 billion of deals they led in the same period in 2007, according to data compiled by Bloomberg. That drop means firms have struggled to return cash to investors, starving them of money to fund new commitments, said Antoine Drean, head of Paris-based Triago SA.
“Almost half of the $4 trillion that private equity has raised over the last four decades was raised between 2005 and 2008,” said Drean, whose firm helps private equity firms raise money. “About 80 percent of the money invested in those bubble years has yet to be returned.”
Sixty-four buyout firms are raising $70 billion for Europe, including Apax Partners LLP. A further 28, including Luxembourg-based CVC Capital Partners Ltd., may start gathering $38 billion more within the next nine months, London-based Preqin Ltd. estimates. Firms have only raised $18 billion this year, the research firm says.
Apax had secured 4.3 billion euros as of March, less than half its 9 billion-euro target after a 10-month fundraising effort. The total has since climbed to more than 5 billion euros, the people said. The 11.2 billion-euro pool the London-based firm raised in 2007 had generated a 6 percent net internal rate of return at the end of March, according to the website of the Washington State Investment Board, one of its backers.
“Some of the European firms started informal pre-marketing long before the official fundraising to show positive momentum during the first close,” said Erik Kaas, a partner at Partners Group, a Swiss money manager. “Now, slowly but surely, you’re beginning to see who really have the track record to attract money.”
Advent, founded by Peter Brooke, started marketing its pool targeting 7 billion euros formally in March. The fund can invest half of the money in North America and accepts pledges in both dollars and euros. Advent increased the maximum it could raise, or so-called hard cap, to 8.5 billion euros from 8 billion euros in response to demand, a person with knowledge of the talks said. That would make it the 28-year-old firm’s biggest fund.
The company’s 6.6 billion-euro 2008 fund generated a 13 percent net annual return as of the end of March, according to the Washington State Investment Board. An official at Advent declined to comment on the money-raising.
The firm has made 28 investments and sold six companies, including Takko, a discount clothing chain in Germany, and Raet, a Dutch human-resources adviser, since January 2011, according to data compiled by Bloomberg. Advent returned $2.3 billion to investors in 2011 and spent $2.8 billion, according to its website. The firm on Oct. 15 bid 1.5 billion euros for Douglas Holding AG, a German retailer.
“U.S. pension plans, big providers of money, are taking a very cautious stance on Europe,” said Mounir Guen, head of MVision Private Equity Advisers Ltd., which helps firms raise money. “They are trimming down their relationships, and when they commit, those who were writing $500 million checks are writing $200 million checks.”
Permira, which began its fundraising 13 months ago, has told investors it expects to secure about 3.3 billion euros by November at the earliest, when the firm may hold a so-called a first-close that would allow it to start spending the money, three people with knowledge of the matter said. Permira has asked investors to allow it seven more months to complete spending its existing fund until March. A London-based spokeswoman declined to comment on fundraising.
The company, which owns the Hugo Boss fashion designer, gathered 11.1 billion euros in 2006 for what was then Europe’s largest leveraged-buyout fund. It was forced to shrink it to 9.6 billion euros in December 2008 as its biggest investor struggled to meet its commitment to the pool.
The fund also marked down the value of its holdings by as much as 60 percent as profit at the companies it owns fell and the market values of comparable publicly traded companies declined. Returns have since recovered and the fund was making a 4.7 percent annual return as of March, according to data from California Public Employees’ Retirement System, another backer.
Many European fund managers will try to stick to “unrealistic targets,” according to Helen Steers, head of Pantheon’s European primary funds group. “Very quick fundraisers are probably the exception rather than the rule. Limited partners have the luxury of time.”
European firms have offered discounts on management fees to secure early or large commitments, while some such as Apax have sought to assuage investor concern that the euro may break up by accepting commitments in dollars, people with knowledge of the matter said.
Permira offered investors who pledge money before the fund’s first close a 5 percent discount on the annual management fee, which will equal 1.5 percent of the fund’s total assets, according to the fund’s prospectus. Those who commit more than 200 million euros will get a 5 percent cut in the fee on pledges of more than that amount.
Cinven also offered a 5 percent discount on management fees for commitments made before the first close, following London competitor BC Partners Ltd., which raised a 6.5 billion-euro fund this year. A Cinven spokeswoman declined to comment.
The firm’s previous 6.5 billion euro pool, raised in 2007, generated a 7.6 percent average annual return as of the end of March, according to the Washington State Investment Board.
Such tactics may only be of limited help, said Rhonda Ryan, who manages more than $1.3 billion of private-equity assets at PineBridge Investments LLC.
“If the performance isn’t good, it won’t convince me,” Ryan said. “If I already like this fund manager, I’ll put it on top of the pile.”
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