Buyout firms face tough fundraising choice

LONDON (Reuters) - Crisis-hit private equity firms face the unenviable choice of asking investors for new funds now and get "no" for an answer, or wait until next year and be pushed out by a crowd of rivals.

The industry has been fixing some of the worst deals in its portfolios, and has seen a cautious return of the hallmark leveraged buy-outs (LBO) that ground to a virtual halt when credit dried up in mid-2007.

Investors, hurt by two years of losses, are still understandably shy as the industry starts to spend money on deals again. But the contrarian view is that anybody who asks for cash now may find few competitors.

"If people wait another year, there's going to be a big traffic jam in 2011. I'm not sure the big funds should wait," said Antoine Drean, chairman of placement agent Triago, whose business helps firms raise funds.

BC Partners BCPRT.UL -- seen as a bellwether for the market -- and Montagu Private Equity, are biting the bullet and passing round the hat this year. Lion Capital, with its focus on consumer goods, is also raising money.

BC Partners is targeting around 5.8 billion euros ($8.07 billion) for its ninth fund, the same level as its current fund, and has been warming up investors for some time.

It plans to fundraise and reach a first close -- the point after which a new fund can be spent on deals -- in the second half of the year, one potential new investor said.

A source close to the firm said no decision had been taken on the timing of its fundraising.

Other buyout houses, including Barclays Private Equity, have spent round 60 percent of their funds and are sitting tight because they still have capital at their disposal, according to people familiar with the matter.

TRACK STARS

Fundraising will be a central topic when the industry gathers in Berlin for the annual SuperReturn conference next week, as 2010 promises to be not much better than 2009, when the industry amassed $246 billion in new funds.

That was the lowest since 2004, according to numbers from consultancy firm Preqin, and CVC's fifth buyout fund, closing on 10.75 billion euros, was a high point.

But some insiders say funds will meet resistance to go much over $5 billion this year, and Drean estimates the industry will not raise much more money than last year.

The market could become more competitive in 2011, when firms like Permira PERM.UL, Cinven CINV.UL and 3i Group (III.L), are likely to want to raise new funds.

With pension funds investing more cautiously and embattled banks putting less money into the asset class, success will depend on a firm's track record of returns.

Investors say they will put more money with fewer private equity managers, increasing the focus on those that outperform.

Achieving company sales and being able to show a steady flow of deals throughout the downturn will also be crucial, said Alex White, partner at accountancy firm BDO.

As for this year, BC Partners and Montagu will be hoping they tick the right boxes, having their recent disposals of Unitymedia UNTMDA.UL and Survitec to show.

(Editing by Douwe Miedema and Rupert Winchester)

($1=.7188 Euro)

($1=.6278 Pound)