Tom Lee Lands at Record-Breaking $6.1B –

With the closing of its $6.1 billion fund, Thomas H. Lee Co. appears to be the king of the buyout world . . . at least for now. The Boston-based firm said the unsolicited title is slipping through its fingers faster with each passing day – and the partners could not care less.

“It was never our objective to raise the largest fund. It was an unimportant factor for us and we don’t expect to be the largest fund for long,” said Scott Sperling, a managing director at Thomas H. Lee Co. “We have always made the decision to take an amount of money that we believe is reflective of our strategy and opportunities and that’s where we are today. Our objective is to remain on the same strategy we’ve been successful with for two decades.”

Thomas H. Lee Co. closed Thomas H. Lee Equity Partners V LP on more than $6.1 billion, knocking Kohlberg Kravis Roberts & Co.‘s $5.7 billion KKR 1996 Fund right out of the water as largest buyout fund. However, KKR is well on its merry fund-raising way for the KKR Millennium Fund, which was at first rumored to be targeting as much as $10 billion, but is more likely to close somewhere between $6 billion and $8 billion, although no specific target is even printed on the private placement memorandum that went out last year.

Thomas H. Lee Co. launched its fund in the early spring of last year. The firm originally looked to raise approximately $5 billion, but saw unbelievable interest from limited partners once fund raising got going. The firm then decided to cap Fund V at $6 billion, but ended up taking in some last-minute cash from existing investors with which Tom Lee Co. has long-standing relationships, vaulting the fund over the $6 billion mark. Believe it or not, there were several first-time LPs that wanted in the fund, but got left on the sidelines when the buddy investors pulled rank.

LPs committed to Fund V include the New York State Common Retirement Fund, CalPERS, CalSTERS, General Motors Corp., and Verizon.

To date, Tom Lee Co. has not completed a deal with Fund V money. The group will focus on middle market growth companies – just as it has for the last two decades – with market capitalization ranging from $500 million to $5 billion, and said it would not rule out a $10 billion company, as long as co-investors joined in on the deal.

Although the KKR fund is expected to eclipse the Tom Lee fund, there are other funds in the market that also have potential, namely Forstmann Little & Co., Welsh, Carson, Anderson & Stowe and DLJ Merchant Banking. On the flip side, last month Hicks, Muse, Tate & Furst scaled back its current fund’s target from $4.5 billion to $3 billion (Buyouts Jan. 8, p. 1), citing a depressed public equity market and smaller alternative asset allocations among existing LPs.