CVC Capital Partners Ltd., one of Europe’s biggest private-equity firms, dropped plans to raise a 2 billion-euro ($2.6 billion) infrastructure fund after struggling to attract investors, said two people with knowledge of the talks.
CVC, which started the fundraising in 2008, had pledges from three external backers, said the people, who asked not to be identified because the talks are private. Those commitments will be allowed to lapse and the fund wound up, the people said.
The fundraising by CVC’s infrastructure group contrasts with those of CVC’s leveraged buyout and debt teams: CVC Credit Partners raised 351 million euros in an IPO of a credit fund last month, while the firm is seeking more than 10 billion euros for Europe’s biggest buyout fund. Investors are increasingly scrutinizing the fees the funds charge for returns that are less than traditional LBO funds, according to Andrew Sealey, a managing partner at London-based Campbell Lutyens & Co., a private-equity advisory firm.
“Before the financial crisis, the market was led by some investment banks and large private equity groups, who typically used private equity fund structures and fee levels which didn’t always reflect the longer term and lower risk return nature of the underlying assets,” Sealey said. “Following the crisis institutions became more focused on the alignment of interest with general partners in terms of structure and fees.”
A spokesman for CVC based in London declined to comment. The firm’s most-recent buyout fund, the 10.8 billion-euro CVC European Equity Partners V LP, has generated a net internal rate of return of 10.4 percent, data compiled by Bloomberg show. CVC’s credit arm oversees about $8.5 billion of funds.
CVC’s team of infrastructure executives, led by Stephen Vineburg, will now advise investors on potential targets, the people added. Investors will be able to commit money on a deal-by-deal basis, with CVC retaining an option to invest alongside them, they said.
Private equity firms like CVC typically pool money from pension plans and endowments with a mandate to buy companies within five to six years, then sell them and return the money and a profit after 10 years. The firms usually charge a management fee of as much as 2 percent and keep 20 percent of the profits from investments.
CVC’s investments range from Formula One racing to Virgin Active gyms and Merlin Entertainments, the owner of Legoland parks in the U.K., Germany and Denmark.
Infrastructure funds typically acquire assets such as utilities, schools and toll roads. Pension funds are attracted to such assets because they offer long-term earnings that often come from governments.