Hicks Muse Tate & Furst Inc. is certainly feeling the brunt of the limited partner community’s increasingly skittish attitude toward behemoth investment funds. The Dallas-based investment firm expects to fall way short of its $4.5 billion goal for its U.S. fund, and hasn’t even come close to hitting the $500 million target originally set for its Latin American fund.
Since launching its U.S. fund early last year, Hicks Muse has raised slightly more than $1.5 billion for its fifth U.S. fund. Anticipating that LPs aren’t likely to be in a giving mood this holiday season, the firm is gearing up to pull out of the fund-raising trenches and hold a final close on its existing commitments at the end of December, said Daniel Blanks, a partner at Hicks Muse.
That’s a far cry from the $4.5 billion it ambitiously set out to raise during the heady days of 2000, when the markets were still churning out IPOs and money was free-flowing.
“Originally, this fund was going to be as big or bigger than [the $4.1 billion] Fund IV, but everyone has reasons for carefully reexamining their investments and they need to retain their capital right now,” Blanks said. “The biggest thing was not that our people didn’t invest, but that they didn’t have the same amounts to put in as they did in the past. They have to ration their investments.”
Not Everyone Joined The Party
While that may be true for most of Hicks Muse’s limited partners, at least one of its investors did not re-up in Fund V. The $35 billion Oregon Public Employees Retirement Fund -which had invested as much as $350 million in previous Hicks Muse offerings – declined to participate, citing concerns about Fund IV’s less-than-stellar performance.
And rightly so. Fund IV’s three most notable flops – ICG Communications, Rhythm NetConnections Inc., Viatel Inc. – have seen their shares plummet more than 50% from their offering prices. What is more, ICG and Rhythm NetConnections recently filed for bankruptcy.
Needless to say, the investments in Fund IV did not perform as well as expected, Blanks said.
“The burden of proof is now on Fund V that they’ve learned their lessons. Given a smaller pool of capital, they’ll be careful of the investments they make,” said Jay Fewel, the senior equities investment officer for the Oregon pension system, in a Dallas Associated Press story.
To save itself from losing face with other investors, Hicks Muse plans to pull out of cash-burning investments it has made in the telecommunications, movie theater and Internet sectors, and has pledged instead to stick to media, branded foods and industrial manufacturing plays.
Proving its heightened commitment to those areas, Hicks Muse has already made three investments in those sectors out of Fund V.
Grim Story In Latin America
While all may work out in North America for the struggling firm, it is not yet clear what the ultimate outcome will be in Latin America. Hicks Muse’s Latin American fund, which is nearing a $125 million close, has only raised a fraction of its $500 million target.
“We have not closed on that yet, but we are pretty sure it will be $125 million. That is a disappointment for us,” Blanks said. “It is a shame to be limited on capital for Latin America because there will be good investments we can’t take advantage of but, really, neither can anyone else right now. At least for the U.S. fund, $1.5 billion is still a lot to invest.”
All in all, Blanks blames Hicks Muse’s fund-raising foibles on bad timing.
“Raising money in this environment is so difficult. Things just haven’t worked out,” he said. “Our biggest investors are in a pinch, we are at war, the economy is falling, everything is a mess. These are not normal times, but we will put this fund to work and then we will be back for Fund VI.”
Danielle Fugazy can be contacted at: Danielle.Fugazy@tfn.com