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November 23, 2012 3:35 pm
Permira has told investors that the London-based private equity group expects to raise at least a third of the €6.5bn targeted for its fifth buyout fund by early next year, as its previous fund stages a recovery.
In a letter to investors this week, the buyout group said that it had strong indications for about a third of the fund’s target and expected this to increase as it moved towards the so-called first close date set for the end of January 2013.
The update is the first time Permira has given a formal indication on the timing of its first close since the start of its fundraising plans 14 months ago.
Faced with a sharp slowdown in the amount of money flowing into private equity since the financial crisis, Permira has accepted that its next fund will be much smaller than the previous one it raised near the top of the market.
The buyout group, which faces some scepticism over whether it will even reach its €6.5bn target, will be unable to start investing from its fifth fund until its first close in January. There is less than 10 per cent of its earlier €9.6bn fund left to invest.
Permira also told investors it would increase the investment made by its own partners to 3 per cent of the fund, up from 2 per cent last time.
SVG Capital has historically been Permira’s biggest investor with a €2.6bn commitment to its last fundraising. But recently SVG set a new strategy to diversify its holdings beyond Permira, so it is likely to invest much less in the new fund.
The announcement comes amid intense competition to secure money. Private equity fundraising is running at less than half the level of the peak years of the credit boom, in 2007 and 2008, with only $309bn raised last year, according to Preqin, a data provider.
In its letter Permira told investors that its previous Fund IV, which it raised in 2006, was “in good shape”, according to one person with knowledge of the letter.
The group said in its letter that it had achieved very strong cash realisations for its investors with €3.7bn generated through disposals since August 2011 via the sale of Dutch animal feed producer Provimi, Macau casino operator Galaxy Entertainment Group and set-top box maker NDS.
The person said Fund IV, which was initially worth €11bn and whose valuation fell below par during the financial crisis, was now valued at 1.3 times cost, returning 7 per cent on an annual basis. “Clearly it’s been a challenging time to raise money but Permira expects with the indications it’s had to date, that it has a good platform to raise the remainder of the fund.”
After its first close in January, Permira will have another 18 months to raise the remainder of its planned €6.5bn fund.
While fundraising conditions have been tough, some buyout funds are still able to raise large funds. This month Advent International, the Boston-based private equity group, said it had raised €8.5bn for its largest buyout fund to date.
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