Private equity groups are facing mounting opposition from investors over their attempts to raise annex funds, which buy-out firms hope will provide fresh cash to bail out many of the companies they bought during the debt bubble.

Apollo Management had been forced to drop plans to raise an annex fund, after opposition from some of the US private equity group’s biggest backers, according to people familiar with the situation. Apollo declined to comment.

As companies acquired by buy-out firms during the market boom struggle to support their high debts, they need fresh cash. Yet, some private equity groups are running out of capital in their older funds, forcing them to ask investors for more money.

“Many investors are in a difficult position and some will not have the cash to support annex funds,” said Jane Welsh, senior investment consultant at Watson Wyatt, who advises investors on private equity. “Some will ask if this is good money after bad.”

While annex funds are generally unpopular, investors said they might back them if the terms were attractive enough and the private equity group had a strong track record.

Kohlberg Kravis Roberts last month raised a €400m ($574m) annex fund to support its European portfolio, including ProSiebenSat.1, the German pay-TV broadcaster; Pages Jaunes, the French directories group, and NXP, the Dutch chipmaker.

One investor said KKR’s annex fund– at the bottom end of its €400m-€700m target – was completed because the group waived fees on the vehicle and allowed investors to transfer existing commitments into it from its new European fund.

Annex funds often offer preferential returns, so existing investors that do not take part could be diluted.

Apollo floated the idea of raising an annex fund at an investor meeting this year, but it faced opposition from institutions with about a quarter of its capital.

The group suffered a blow last year when Linen’s ‘n Things , the home furnishings retailer it bought in 2005, went bankrupt.

The push by buy-out groups to raise annex funds mirrors moves by venture capital funds after the dotcom bubble burst when they were left short of cash.

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