PAI prepared to cut buyout fund

French private equity firm PAI Partners would be ready to scale down its €5.4bn buyout fund by half, following a recent management bust-up, two sources familiar with the situation said.

Any shrinking of the fund, which bought stakes in IT services company Atos Origin and building materials firm Xella last year, would echo similar moves by peers TPG and Permira, who have faced pressure from investors keen to reduce their exposure to private equity.

The move, which the sources said was outlined in a letter to investors, follows the shock early retirement of Dominique Megret as chief executive last month, twinned with the departure of his right-hand man, Bertrand Meunier, last month, after a boardroom battle with other partners.

Megret’s exit triggers a so-called “key-man” clause, allowing investors to renegotiate their commitments to the PAI’s fifth European buyout fund. In extreme situations, the clause allows for investors to withdraw all commitments and call for the wind-up of a fund.

“The one thing that investors have made clear is that they want everything to be done as quickly as possible,” said one of the sources.

The clause has frozen PAI’s ability to make new investments as investors decide whether they want to reduce commitments and support the new management team.

PAI declined to comment.

(By Simon Meads)