Providence to raise $8bn fund for deals

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Providence Equity Partners, the US buy-out group focused on media and telecommunications investments, is rapidly raising a fund worth at least $8bn for new deals, highlighting the ravenous appetite among pension funds for private equity.

People familiar with the matter say letters marketing the new fund to potential investors were sent out less than a month ago, and Providence is gearing up for a “first close” as early as next week.

On a fundraising drive of that scale, a “first close”, allowing Providence to begin drawing down money from the new fund for deals, would only be set once the firm had raised about $2bn, observers said. Providence declined to comment.

The speed of Providence’s fundraising efforts offers further evidence of the attractiveness of private equity to pension funds, university endowments and specialist fund-of-funds.

These investors have become increasingly ready to accept the higher risks of the buy-out industry in exchange for returns that typically exceed traditional equity and bond portfolios.

This year more than $300bn has been poured into private equity, with most of the largest buy-out funds, from Blackstone to Texas Pacific Group in the US and Permira in the UK, benefiting from the inflows.

Providence is targeting at least $8bn for its new fund, but could raise as much as $10bn if interest from investors continues to be strong, several limited partners said.

The Rhode Island-based group, founded in 1990 by a trio of Brown University alumni, raised its most recent fund last year, worth $4.25bn.

Providence has differentiated itself from larger rivals such as TPG and Blackstone by focusing exclusively on one area of expertise: media, telecommunications, and information technology.

According to the Oregon Public Employees Fund, Providence’s 2000 fund returned 1.56 times its money, for a 30 per cent internal rate of return.

It is too early to evaluate the performance of the 2005 fund, because many of the investments have not been exited.

“We have a long-standing relationship with Providence and will be a cornerstone supporter in the new fund,” said Jim Leech, head of the private investment arm of the $88bn Ontario Teachers Pension Plan. “They have been a top performer.”

Some of Providence’s most notable deals include its takeover of Casema, the Dutch cable group, that offered a return of about five times its money after it was sold this year. In addition, Providence is an investor in Metro-Goldwyn-Mayer, the film studio, and Warner Music, the US music group that went public last year. Providence is also part of a consortium that won the auction for Univision, the Spanish-language broadcasting group, and is bidding for Tribune.

This week, Michael Angelakis, one of Providence’s top dealmakers, announced he would leave the company after seven years to become co-chief financial officer at Comcast, the cable group.

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