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(Reuters) - Oak Hill Capital Partners LP, the private equity owner of restaurant and arcade chain Dave & Buster's Inc, is considering raising a smaller fund than its previous $3.8 billion flagship buyout fund, according to people familiar with the matter.
While no fundraising target has been set, Oak Hill has told prospective investors it may raise between $2 billion and $3 billion once it starts fundraising by the end of the year, the sources said this week.
The New York-based firm's previous fund, Oak Hill Capital Partners III, raised $3.8 billion in 2009, including $350 million that came from Oak Hill employees. Oak Hill wants to make sure it can spend its next fund's capital over a reasonable time frame, one of the people said.
Oak Hill may rely on co-investments from its fund investors, known as limited partners, should it need additional capital for attractive opportunities, the people said. It has not set a hard cap and may yet decide to accept more money, they added.
The people asked not to be identified because the discussions are confidential. An Oak Hill spokesman declined to comment.
Oak Hill Capital Partners III had an internal rate of return (IRR) as of the end of March of 7.8 percent, according to Oregon Public Employees Retirement Fund, one of its investors. The $2.5 billion Oak Hill Capital Partners II fund, raised in 2005, had a 9.9 percent IRR.
By comparison, the entire Oregon Public Employees Retirement Fund private equity portfolio averaged a 15.9 percent IRR to the end of March.
Oak Hill has agreed to sell several companies since March that are not reflected in those numbers.
It inked agreements to sell jet engine components maker Firth Rixson Ltd to Alcoa Inc for $2.85 billion, hardware products distributor Hillman Companies Inc to CCMP Capital Advisors LLC for $1.48 billion, data center provider ViaWest Inc to Shaw Communications Inc for $1.2 billion, and third-party logistics firm Jacobson Companies Inc to Norbert Dentressangle SA for at least $750 million.
Earlier this year, Oak Hill also revived plans to take Dave & Buster's public after scrapping preparations for an initial public offering in 2012, people familiar with the matter told Reuters in June.
Private equity firms typically charge a 1.5 percent management fee on the capital that investors commit and take 20 percent of the profits, assuming returns exceed a certain threshold, usually 8 percent. A bigger fund can therefore result in higher management fee revenue for a private equity firm.
Launched in 1999 by Robert Bass after he invested more than $1.2 billion in private equity deals in the previous 13 years, Oak Hill manages more $8 billion in investor commitments, according to its website.
Bass, a Texas businessman, has a net worth of $2.9 billion, according to Forbes.
Reporting by Greg Roumeliotis in New York; Editing by Sonya Hepinstall