Lehman Brothers Inc. is expanding its private equity division, adding communications and real estate funds, both of which will be able to invest globally, said Michael F. McKeever, managing director in charge of the division.
The New York-based firm, which is building the division through its relationships with its merchant banking unit, expects to have $4 billion under management by next year, which could grow to $10 billion in five years, Mr. McKeever said. It currently has $2.35 billion under management.
"Our philosophy is to build private equity funds in areas where we have significant capabilities, and those lie in telecommunications, media and real estate," he said.
The communications fund, focusing on early stage communications service providers, was launched in the fall for high-level employees and in January for institutional investors. Lehman expects to hold a final closing on $650 million in a few months. Around $150 million will come from institutional investors.
The real estate fund, which is targeted at $1 billion, will invest in both assets and businesses, mainly in the United States, with up to 20% mainly in Europe with a small presence in Asia. Sources said it already has taken a stake in Vivendi, France's largest residential homebuilder.
Lehman has run private equity funds since 1986 through its merchant banking business. It decided to expand, Mr. McKeever explained, to leverage in areas where it has significant deal flow and knowledge, and where key people are raising money for companies.
Currently, Lehman is investing a $2 billion merchant banking fund, which closed in 1997 and has stakes in such companies as L-3 Communications Holdings Inc. and Peabody Coal Co. Inc. Investors include the $47.2 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, and the $28.1 billion Public Employees Retirement Association of Colorado, Denver.