While it has become commonplace for funds to close below their targets this year, Credit Suisse First Boston did just the opposite last week. CSFB Private Equity closed its third fund, DLJ Merchant Banking Partners III, with a whopping $5.4 billion.
Prior to CSFB’s acquisition of Donaldson Lufkin & Jenrette, DLJ had already raised $3.2 billion by mid-2000, but it then suspended fund-raising activities because of the merger. After working out the kinks that often result from mergers, CSFB resumed DLJ’s fund-raising efforts in March and raised the remainder of Fund III.
Even though raising just $3 billion still would have been enough to qualify it as one of the largest funds of the year, it just wasn’t enough for CSFB. “We are very pleased . . . Our initial target was $3.5 billion although our goal was really $5 billion,” said Thompson Dean, head of CSFB’s leveraged corporate private equity business and managing partner of Fund III.
And when considering DLJ’s fund-raising history, the oversubsciption to Fund III is less surprising – the firm has steadily increased its funds’ sizes over the years. In 1992 DLJ raised a $1 billion, then in 1997, the firm raised a $3 billion fund and invested out of it until it dried up in 2000, thus the reason for coming to market with the new fund.
Fund III is expected to follow the path of its predecessors with a few minor changes here and there. “We’re executing the same strategy, but we are seeking broader diversification in more defined areas,” Dean said. The areas of focus will include the health-care industry, energy sector, the media communications arena and financial institutions, with roughly 30% of fund going to industrials.
Additionally, about 20% of the fund will go to overseas companies, mainly located in London, which should not be a problem because the firm maintains offices in New York, London, Buenos Aires, Hong Kong, Tokyo, Sao Paulo, Chicago, Los Angeles, Menlo Park and San Francisco.
The average investment will range from $100 million to $150 million, but Dean said that if called for in order to get a good deal on a leveraged buyout, CSFB is willing to invest as much at $500 million in one deal.
To date, CSFB has already committed $1.5 billion out of the fund. Thus far, two insurance companies, Atlas Specialty Limited and Montpelier Insurance, have reaped the benefits, in addition to Noveon, which was the chemical division of BF Goodrich. According to Dean, each company received north of $100 million.
While Dean declined to reveal CSFB’s LPs, he said that most of the fund’s capital comes from blue chip groups, state funds, endowments and wealthy individuals. Additionally, CSFB is said to have supplied 20% of the capital in the fund, while other investors reportedly include The New York State Teachers’ Retirement System and the Colorado Public Employees Retirement System.
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