Peak-Era Fund Sponsors Seek Extensions

  • TPG is latest firm to secure extension for fund
  • Record level of uninvested capital set to expire
  • Financial crisis slowed pace of deployments

Many large pools raised prior to the financial crisis are nearing the end of their five-year investment periods, one placement agent said. “Most of the funds raised at the market peak have either gone through the extension process or have raised (or are raising) a follow-on fund,” the source said. Investment period extensions aren’t new, but the fundraising boom of the mid-2000s, and the bust that followed, left many firms facing deployment deadlines with large amounts of dry powder still waiting to be put to work.

TPG, the buyout shop founded by David Bonderman and James Coulter, asked investors last month to extend the life of its last fund, Reuters reported. TPG Partners VI LP collected $19 billion in 2008 and reportedly has $3 billion left to invest. TPG VI is generating a 5.22 percent IRR since inception as of Sept. 30, according to the California State Teachers’ Retirement System, an investor.

TPG asked investors to extend the investment period by 12 months to February 2015. Fund VI’s LPs have agreed to the extension, Reuters reported.

TPG isn’t the only buyout shop that needs more time. Thomas H. Lee Partners also received an extension for its last fund, peHUB has reported. THL closed its sixth pool at $8.1 billion in 2007, plus another $2 billion for co-investment vehicles. THL now has until mid-2014 to invest Fund VI, peHUB has reported. Thomas H. Lee Equity Partners VI LP is generating a 3.2 percent net IRR as of Dec. 31, according to the California Public Employees’ Retirement System.

Irving Place Capital, the former Bear Stearns Merchant Banking, has received two extensions for its current fund. Irving Place Capital Partners III LP collected $2.7 billion in 2006 and has about 25 percent left to invest, peHUB has reported. The fund is generating a 1.69 percent IRR since inception, according to CalSTRS.

Irving Place initially asked for a one-year extension on Fund III investment period until 2013. Earlier this year, LPs granted Irving Place a second extension—for two years, until February 2015—to invest its current fund, peHUB reported.

Bridgepoint, the British buyout shop, also asked investors in July for more time to invest its biggest buyout fund, Reuters reported. Bridgepoint’s last buyout fund collected 4.8 billion euros ($6.35 billion) in 2008 and is set to expire in November. Bridgepoint has asked for a 12 month extension, Reuters said. Bridgepoint Europe IV LP produced a net IRR of 9.4 percent as of Dec. 31, according to CalPERS.

Private equity firms across the world are reported to be sitting on a record level, about $145 billion, of uninvested capital that is set to expire this year. Some say buyout firms need more time because many stopped doing deals during the financial crisis. However, one private equity executive said these firms may have just done a poor job managing their business within the permitted term. Also, some of the larger buyout shops raised “much more money than they could reasonably deploy except in a crazy market like 2007 and now it shows,” the source said.

But one LP countered that investors should support extensions so GPs “don’t feel the pressure of deploying capital willy nilly.”

Luisa Beltran is a senior writer for peHUB.

(Correction: On third reference TPG’s Fund VI was referred to as Fund IV in the original version of this story.)