Buyouts Wrap: Nothing Doing In Q2 Fund Raising

According to Buyouts, a sister publication to Private Equity Week, 16 buyout firms only managed to raise $7.14 billion during the second quarter of 2001. The vast majority of that total, however, came from the $4.9 billion Kohlberg, Kravis, Roberts & Co.?s Millennium Fund managed to close on.

While sources say the difficult fund-raising market started in mid-year 2000, the second quarter of this year is when the harshness became all too real to GPs. Plenty of mega-funds continued to hit closes in the fourth quarter of 2000 and on into the first quarter of 2001. Merrill Lynch?s Kevin Albert calls the high fund-raising numbers from Q1 2001 “slop over” that really came from commitments rounded up last year that were technically closed this year, skewing the numbers.

Indeed, fund raising in the first quarter reached more than $12 billion and included monstrous closes from Bear Stearns Merchant Banking, Hicks, Muse, Tate & Furst, Madison Dearborn, and the current fund-raising king, Thomas H. Lee. All told, there were closes from 10 firms in that quarter.

What Happened to Whitney?

One of the biggest upsets of the last quarter came in the form of Whitney & Co. missing its Fund V target by $900 million. Although the firm managed to gather a decent $1.1 billion, a nagging question remains: Who is still at the firm to invest it? Just prior to and subsequent to the fund close, the firm began to experience a mass exodus of managers, losing Steve Hines; Barry Hines, co-head of fund-raising; Mark Murphy, now at AIG; Carla Skodinski; William Dawson, who joined Wellspring Capital as a partner; Alexander Cross, a senior associate who went to Wellspring with Dawson; Todd Henrich, a principal; Kerri Cagnassola, who was in Whitney?s finance department and now is CFO of Colt Capital; Joseph McCullen; and David Scherl, who left to rejoin law firm Morrison Cohen Singer & Weistein.

Two other funds that decided to call it quits in the second quarter before reaching their targets were Goense Bounds & Partners, which raised $36 million in Q2 to get it to $224.7 million of a targeted $250 million fund. Likewise, newcomer Mercantile Capital Partners closed on $60 million ? $40 million shy of its target ? blaming the shortfall on the difficult fund-raising market for a debut fund and their eagerness to start doing deals.

Meanwhile, there were other firms who held final fund closes oversubscribed, including Charlesbank Capital Partners, Behrman Capital, First Reserve Corp., FCP Investors and Willis Stein & Partners.

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