TA Associates cuts its carry to raise $4B

Boston-based TA Associates has closed its 11th fund with $4 billion, exceeding its $3.5 billion target. The firm began marketing the fund in January.

Backers in TA XI include City of Philadelphia Board of Pensions and Retirement; Fire and Police Pension Association of Colorado; Indiana State Teachers’ Retirement Fund; Los Angeles City Employees’ Retirement System; Los Angeles Fire and Police Pensions; Montana Board of Investments; Purdue University and San Francisco Employees’ Retirement System.

The firm raised $3.5 billion for its previous fund. which closed in 2006. Fund X posted a net IRR of negative 17.5% with an investment multiple of 0.80x as of Dec. 31, 2008, according to performance data from the California Public Employees’ Retirement System. Fund X is about 75% deployed.

To attract limited partners, TA Associates, known for its growth equity investments and small buyouts, cut the carried interest in fund XI to 20% from 25 percent. Other LP-friendly terms include a management fee that averages 1.74% of commitments per year over the fund’s life; transaction and director fees that go 100% to a management fee offset; and a no-fault divorce clause.

“We felt that it was 2009 and the private equity world and our LPs were under pressure, and we think long term it was the right thing to do” says Managing Director Brian Conway.

The firm has made similar concessions in the past. Following the burst of the Internet bubble in 2001, the firm voluntarily gave up a management fee increase because its investment pace had slowed. During that same time, the firm underwent a voluntary “make well,” in which its general partners returned money to investors early to ensure that GPs and LPs earned the same return from the funds. —Nancy Gordon