In general, the bigger the target, the easier it is to hit.
But in private equity fund-raising, a bigger target often means a higher failure rate. However, for Texas Pacific Group (TPG), the daunting prospect of raising a $5 billion-plus buyout fund in today’s stingy market proved anything but difficult as the firm recently held its final close on TPG Partners IV at $5.3 billion.
Some potential investors were even left out in the cold, according to a source, who indicated the fund was oversubscribed by between $800 million and $900 million.
Most of the fund-raising was accomplished last year. TPG launched the fund in March 2003 and by year’s end closed on $4.7 billion, which is about 20% of all the buyout capital raised by U.S. funds during that time.
The $5.3 billion close represents a jump over previous TPG funds. TPG Partners III, a 2000-vintage fund, had $4.5 billion of capital, while the firm’s second fund in 1997 closed on $2.5 billion. The latest effort also marks a departure for TPG from raising an accompanying tech fund alongside the general buyout vehicle.
“We will still invest in technology companies, we just put it all back together in a single fund now,” says TPG Partner Jamie Gates.
While the tight fund-raising market presented one hurdle, the firm had to battle a number of other high-profile buyout shops that have also been in the market raising multi-billion funds, such as Hellman & Friedman, Kelso & Co. and Silver Lake Partners.
Perhaps giving itself a leg up on the competition, TPG benefited from having completed several successful exits last year. Thus, the firm returned about $1.5 billion to its limited partners.
Of note, the firm completed a $685 million sale of Internet airline-ticket vendor Hotwire to InterActiveCorp and also exited its IT services platform Crystal Decisions in an $820 million sale to Business Objects. TPG also consummated a number of block sales, including Punch Taverns, Petco Supplies and Denbury among others.
In its latest fund-raising drive, TPG made an effort to procure new partnerships, and the firm made a point to reach European investors. “In the last fund, we filled up so quickly that we didn’t have the opportunity to target European investors,” says TPG Founding Partner James Coulter. “This time, we started with select European investors.”
TPG did not likely have to spend too much time introducing itself to Europe, as the firm has been especially active on the other side of “the pond.” Last year, the buyout shop dominated U.K. headlines with acquisitions of Debenhams and Scottish & Newcastle’s managed pubs division.
The latest fund saw 95% of the investor base from Fund III re-up, and in all TPG took in 39 new institutional partners, which contributed about 30% to the fund. The total capital coming from outside the United States, meanwhile, increased from “the high teens [in the third fund] to just around 30% [for Fund IV],” Gates says.
While Gates would not comment on the firm’s new investors, limited partners in past funds include the University of Washington, Aetna Insurance Group, and the retirement trusts of Boeing Co., Gannet Co. and Eli Lilly & Co., among others.
This story originally appeared in Buyouts, an affiliated publication.