Cerberus Is Said to Seek Up to $1.2 Billion for New Fund

Aug. 8 (Bloomberg) -- Cerberus Capital Management LP, the private-equity firm led by Stephen Feinberg, is seeking $1 billion to $1.2 billion for its next distressed real estate fund, according to two people with knowledge of the matter.

Cerberus Institutional Real Estate Partners (Series 3) held a first close on more than $200 million on July 23, said the people, who asked not to be identified because the fund isn’t public. The fund will target U.S. mortgage-backed securities and European nonperforming loans.

John Dillard, a spokesman at Weber Shandwick in New York, declined to comment on behalf of Cerberus. Greenhill & Co., based in New York, is acting as placement agent.

Private-equity firms are positioning themselves to take advantage of Europe’s debt crisis. They expect sales from banks that need to offload loans, repay government bailouts and meet new regulatory requirements. Apollo Global Management LLC is seeking capital to purchase European nonperforming loans in the residential, commercial, consumer and corporate areas from stressed and distressed financial institutions.

Cerberus, which is based in New York, gathered about $900 million for its prior fund in December 2008, the people said. That fund was generating a 16 percent net internal rate of return as of March 31.

Main Fund

The firm also has been seeking commitments for its main private-equity fund, which targets $3.75 billion. Cerberus Institutional Partners V LP has raised about $1.3 billion for European nonperforming loans and structured investments, U.S. distressed mortgage-backed securities and U.S. private equity coming from divestitures of assets from large corporations, one of the people said.

Trading in mortgage securities drove most of the performance of the prior flagship fund, which closed at $7.5 billion in 2006.

Cerberus, with more than $20 billion in assets under management, focuses on four strategies: distressed securities and assets, control and non-control private equity, commercial mid-market lending and real estate-related investments.

To contact the reporter on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net