Centerbridge seeks $3.5bn for fifth flagship PE fund

Centerbridge Partners will target $3.5 billion for its fifth flagship private equity fund, down from previous offerings that closed much higher.

Fundraising targets have been lowered this past year as LPs remain constrained due to overallocations and liquidity concerns. However, the reduction of Centerbridge’s target compared to recent funds stands out.

Centerbridge Capital Partners Fund V was the subject of discussion at the Washington State Investment Board’s September 7 private markets committee meeting. Buyouts watched a broadcast of the meeting.

The committee approved a $400 million commitment to Fund V at the meeting. This is Washington’s first commitment to a Centerbridge private equity fund, although the system has invested in one of the manager’s private debt funds, investment staff said.

The $3.5 billion target for Fund V is on pace with the prior fund, which came down dramatically from the firm’s earlier funds.

Fund IV initially sought $6 billion, according to a Form D fundraising document filed with the Securities and Exchange Commission in November 2020. One year later, Centerbridge amended its initial Form D to state that the fund closed at $3.3 billion.

An industry source said Centerbridge closed Fund IV at that reduced amount for two reasons – timing and an increased focus on co-investments.

“Given the attractive investment opportunities Centerbridge was seeing, they were keen to begin the investment period,” the industry source said.

The industry source said Centerbridge deployed $5 billion in capital in Fund IV and related investments, with 66 percent coming from the primary fund and the remainder from co-investments.

According to Buyouts’ database, Fund III closed in 2014 after raising more than $6 billion. The 2011 vintage Fund II raised $4.4 billion, above its initial target of $3.75 billion.

Concerns over Fund II’s past performance were discussed at the meeting.

“They got a bit over their skis on Fund II and paid the price. But they regrouped and fixed their problems in Fund III and Fund IV. They got things under control again and we felt comfortable committing at this time,” Natale said.

Fund II has a DPI of 0.74x, meaning the manager returned 74 cents for every $1 paid in by its investors, according to Buyouts’ database information last updated for Q4 2022. Fund II generated a net IRR of negative 7.9 percent.

The second fund’s poor results came after its successful debut in 2005. Its first fund booked a 1.76x DPI and 19.2 gain in net IRR, according to Buyouts data.

In response to Fund II, Centerbridge refined its strategy, focus and team.

“The performance of subsequent funds reflect the highly positive impact,” the industry source said.

The 2014 vintage Fund III remains cashflow negative as it enters into the final years of the J-Curve in a tough exit environment. However, the manager has reported a net IRR of more than 19 percent, showing strength in the valuations of its unrealized investments, according to Buyouts’ database.

Centerbridge’s private equity strategy combines traditional buyouts, structured equity and distressed solutions, according to a presentation the manager made at the meeting.

“We call it buyouts++,” said Jeffrey Aronson, Centerbridge’s co-founder and managing principal at the meeting.

According to the presentation, Centerbridge has had one realization this year, which earned $141 million.

The manager saw a combined 14 realizations in 2021 and 2022, booking more than $5.3 billion when the exit market was scorching hot.

Centerbridge’s private equity team is led by senior managing directors Steven Silver and Matthew Kabaker.