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Cerberus Closes Fund V At $2.61B

Firm: Cerberus Capital Management

Fund: Cerberus Institutional Partners V

Original Target: $3.75 billion

Amount Raised: $2.61 billion

Cerberus Capital Management LP has completed fundraising for its latest flagship private equity fund, raising $2.61 billion to invest in distressed assets, two sources told sister news service Reuters, bringing the capital Cerberus has raised from investors in the last two years to more than $11 billion.

Cerberus Institutional Partners V is also the first Cerberus private equity fund to complete fundraising after the firm said in December it would sell Freedom Group Inc., the maker of the Bushmaster rifle that was used in the shootings at Sandy Hook Elementary School in Newtown, Conn.

Cerberus started marketing CIP V in 2011 with a $3.75 billion fundraising target, and later moderated its expectations to between $3 billion and $3.5 billion. There is no evidence that the Freedom Group controversy weighed on the CIP V fundraising, one of the people familiar with the matter said. Both people spoke on condition of anonymity because the details of the fundraising are confidential. A Cerberus spokesman declined to comment.

Following the Newtown massacre, Cerberus came under public pressure to sell Freedom Group and moved quickly to announce it would divest it. The firm’s chief executive and co-founder Stephen Feinberg, along with other Cerberus partners, may make a bid for the gun maker to ensure the sale does not occur at an unfairly low price for its investors, sources told Reuters last month.

The capital of more than $11 billion Cerberus has raised from investors in the last two years includes fund offerings in structured products, non-performing loans, mortgage-backed-securities and distressed corporate debt.

CIP V invests in private equity assets that include operational turnarounds and distressed situations and securities that include distressed corporate debt and mortgage investments. CIP V’s predecessor, the $7.5 billion Cerberus Institutional Partners IV that was raised in 2006, was valued at 1.33x its investors’ money and had a net internal rate of return of 7.3 percent as of the end of June 2012, according to the University of California, a Cerberus investor.

This was a stronger performance than most of the private equity funds of a 2006 vintage that the University of California had in its portfolio. The university’s total private equity portfolio, across all vintages, was valued at 1.6x the cost its original investments. In the first quarter of 2013, 129 private equity funds reached a final fundraising close, raising a total of $67 billion, compared to the 203 funds that raised a total $79 billion in the first quarter of 2012, according to market research firm Preqin.

Founded in 1992 and named after the mythical three-headed dog that guards the gates of the underworld, Cerberus has specialized over the years in investing in distressed companies and debt. It now has more than $20 billion of assets under management.

Cerberus, which is best known for its one-time investment in Chrysler, has investments in a range of sectors including banking, retail and real estate. Most recently, it acquired a chain of stores from supermarket operator Supervalu Inc. It also has a number of investments in Europe and Japan.

Dow Jones reported on the completion of the CIP V fundraising earlier on May 1.

Greg Roumeliotis is a correspondent for Reuters in New York.