Exclusive: Cerberus seeks over $3 billion for private equity fund

Thu Apr 2, 2015 1:23pm EDT
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By Greg Roumeliotis

(Reuters) - Cerberus Capital Management LP is seeking more than $3 billion for its latest flagship private equity fund to invest in distressed assets such as non-performing loans and ailing companies that need to be restructured, people familiar with the matter said.

This will be the first global private equity fundraising initiated by Cerberus since one of its private equity investments, Freedom Group Inc, was mired in controversy. Freedom Group is the maker of the Bushmaster rifle that was used by Adam Lanza when he killed 20 children and six adults at Sandy Hook Elementary School in Newtown, Connecticut, in December 2012. 

Cerberus has told investors it is targeting between $3 billion and $3.5 billion for the new fund, dubbed Cerberus Institutional Partners (CIP) VI, the people said. The fund's size will be capped at $4 billion, the people added, noting that the fundraising process had just started.

At the time of the Sandy Hook shootings, the fundraising process for the previous private equity fund, CIP V, had already begun and was only a few months away from completion, with most investors already having made their minds up on whether to invest based on Cerberus’ investment track record. That fundraising ended in April 2013, raising $2.61 billion, short of Cerberus' original $3.75 billion target.

To be sure, the New York-based firm manages other non-private equity funds and has raised more than $12 billion from investors in several funds in the last two years. These include direct lending and real estate funds.

The sources asked not to be identified because the fundraising process is confidential. Cerberus declined to comment.

Founded in 1992 and named after the mythical many-headed dog that guards the gates of the underworld, Cerberus is not known for its big leveraged buyouts, though in January it led a group of investors that combined their Albertsons supermarket chain with peer Safeway Inc in a $9.2 billion merger. Other notable investments include Japanese railway and property company Seibu Holdings Inc (9024.T: Quote) and U.S. yellow pages owner YP LLC.

The firm has strong returns to show investors in its last flagship fund. CIP V reported an annualized net internal rate of return of 29.3 percent as of the end of September, according to California Public Employees' Retirement System (CalPERS), the largest U.S. public pension fund investor.   Continued...