Sun Capital Partners, MatlinPatterson Global Advisors LLC. and Kleiner Perkins Caufield & Byers, either through raising annex funds or by reopening old funds, gave new investors preferential terms over existing ones, according to consultants and other industry insiders.
Katrin C. Lieberwirth, Sun Capital spokeswoman, said the firm is raising $150 million; half of the money will be from the $6 billion Sun Capital Partners V and half from the $1.5 billion Sun Capital Partners IV. “The preferred investors (committing the $150 million) have a guaranteed return of 25% internal rate of return and twice their cash investment,“ which was approved by the overwhelming majority of the limited partners in Sun Capital Partners IV, she said. “The purpose of the preferred investment is to develop the maximum investment potential” for Sun Capital's fourth fund, Ms. Lieberwirth said.
MatlinPatterson executives and Jennifer Graham, Kleiner Perkins spokeswoman, could not be reached by deadline.
What's more, many cash-constrained investors do not have the money to make an additional commitment to an annex fund or to invest in a reopened fund selling off preferred positions.
But private equity firms also are stuck between a rock and a hard place. The recession is forcing them to own companies longer and pump more money into them than they had planned. They prefer to get the capital from investors because debt is still scarce and — when available — extremely expensive.
Some 18 annex funds now are being raised by private equity firms, according to estimates from NYPPEX Private Equity, a consulting firm specializing in the secondary market. NYPPEX officials do not know how much in total is being raised by these funds, but they include some of the biggest names in the business: Kohlberg Kravis & Roberts, Apollo Management LP and Sun Capital.
KKR is using the €400 million ($562 million) in new capital it raised to support portfolio companies in its third European buyout fund, said a source close to the firm. So far KKR is not contemplating raising an annex fund in the U.S, the source said.
(KKR is expanding beyond its current investor base to raise growth as well as investment capital for the firm. On June 24, KKR announced it is seeking to merge with KKR Private Equity Investors LP. The move, in effect, would take KKR public in Europe. KKR Private Equity Investors, an investor in KKR funds, is publicly traded on Euronext Amsterdam. Under the terms of the merger proposal, which need to be accepted by KKR Private Equity Investors' board of directors and by the fund's unitholders, KKR could list the merged company on the New York Stock Exchange.)
The $61.3 billion Washington State Investment Board, Olympia, and the Oregon Investment Council, Tigard, Ore., which manages the $42 billion Oregon Public Employees' Retirement Fund, both opted to commit capital to KKR's annex fund. In both cases, though, the annex fund commitment came from uncalled commitments to KKR European Fund III.