Market wrap up: Q2 fund-raising was meh

The second quarter fund-raising environment remained weak as buyout and mezzanine funds collected $18.3 billion in capital commitments during the period, up slightly from $17.9 billion in the first quarter.

The $36.2 billion raised in the first half of 2009, of which $35.6 billion went to buyout funds and $623 million to mezzanine vehicles, represents only about one-fourth of the $141.4 billion raised in the first six months of 2008. At the current pace of fund-raising, the annual tally for buyout and mezzanine funds would roughly mirror the $72 billion raised in 2004, a fraction of the $300 billion that was collected at the height of the boom in 2007.

A number of firms contributed to the fund-raising effort during the most recent quarter, but the largest contributor was The Blackstone Group. The New York-based firm closed its third European real estate fund with $4.4 billion in commitments. Park Hill served as placement agent for Blackstone Real Estate Partners Europe III, which is seeking to raise $3.5 billion.

Other notable fund-raisers in the last quarter include Walton Street Capital, which secured $1.7 billion in commitments for Walton Street Real Estate Fund VI, and Oaktree Capital Management, which raised $1.5 billion for its OCM Principal Opportunities Fund V, which is targeting $5 billion to take control of companies through debt positions.

Part of the fallout of the tough fund-raising climate has been the outright abandonment of some funds. In April, Jacobson Partners, a New York-based turnaround firm, indefinitely gave up its plans to raise JP Acquisition Fund V. Jacobson Partners had set a target of $250 million for the fifth fund, having raised about $125 million for its predecessor. Jacobson Partners invests in underperforming companies and non-core divisions of large corporations with enterprise values of $25 million to $150 million.

Other firms have trimmed targets, or extended their fund-raising cycles to suit the times. GI Partners modified the target for its GI Partners Fund III, reducing its original $2.5 billion target by $250 million. As of June, the Menlo Park, Calif.-based firm had collected $1.94 billion. GI Partners, a mid-market firm, invests in the United States and Western Europe, in a variety of industries. The predecessor fund, GI Partners Fund II, closed in September 2006 with $1.45 billion.

CapitalSouth, a Charlotte, N.C.-based lower-mid-market firm, aimed to close CapitalSouth Partners Fund III with at least $330 million in May 2008. But when potential investors began delaying pledges as the economy worsened, the firm, which now has about $300 million in commitments, extended the fund-raising period until May 2009. CapitalSouth began raising the fund in May 2007.

Other firms have changed marketing tactics to improve their fund-raising prospects, as the folks at Toronto-based Imperial Capital have done. As of early June, the firm had raised $101 million for Imperial Capital Acquisition Fund IV on a target of about $300 million, according to a source familiar with the fund-raising effort. The firm, which began raising the vehicle in early 2008, saw about $175 million in likely pledges from U.S.-based institutions shrink to less than $50 million when the economic crisis worsened in the fall of 2008.

Another firm contemplating a change in marketing tactics is PNC Equity Partners, which may hire a placement agent to help expand the investor base of a third fund expected to hit the market in 2010 or 2011. The Pittsburgh-based firm did not use a placement agent on PNC Equity Partners II, which closed in August 2007 at $272 million.

Deal Flow

Thomson Reuters (publisher of PE Week) tracked 101 LBO deals during the second quarter. The 17 transactions with known financial terms had a combined value of $2.19 billion.

The period’s largest transaction involved the $889.8 million merger of an indirect Fortress Investment Group unit. Torre SGR SpA combined its real estate fund management business with the same business of Pioneer Global Asset Management SpA, a provider of investment management services. After the combination, Fortress Investment’s Fortezza RE Sarl business owned 62.5% of the merged company and Pioneer Global Asset held the remaining 37.5% stake.

The year-to-date deal count is at 221 deals with the total disclosed valuation at about $7.2 billion. —Nancy Gordon and Eamon Beltran