Desperately trying to assuage the fears of its limited partners, and simultaneously wrap up its fifth fund, Hicks, Muse, Tate & Furst Inc. recently announced that it will guarantee a 20% annual return to investors on the $200 million of early-stage investments it plans to make out of its new fund.
As one of many buyout firms on the market with a mega-fund, Hicks Muse is facing a difficult fund-raising market as investors reach their allocation limits. Now targeting at least $4.5 billion, the fund originally was to have a separate “stapled” technology fund raised, but the stapled fund idea was thrown out several months ago, with the firm saying any technology investing would come from the main fund.
In addition, Hicks Muse reportedly has shifted more than $500 million worth of poorly performing investments into previous funds.
The firm ran into some trouble earlier this year when it invested $230 million in ICG Communications and $250 million in Rhythms NetConnections Inc., and shared a $325 million investment in Viatel Inc. with Chase Capital Partners. Shares in all of these publicly traded companies have plummeted in the past few months. In fact, ICG filed for bankruptcy last week.
Media attention focused on the floundering investments, as well as the still-pending Johns Manville acquisition with Bear Stearns & Co., has Hicks Muse founder Thomas Hicks concerned about investors’ peace of mind.
While supportive, Hicks Muse’s LPs were reportedly starting to react to a spate of bad publicity about the firm’s investments.
“It almost became a sad joke,” Hicks said in a statement. “Obviously, people were reading a series of stories that were not accurate. I think we’ve got great support and that by taking this action [of guaranteeing 20% IRR on technology investments], we’re making a statement that we’re looking out for investors.”