UPDATE 3-Providence Equity sells management firm stakes-source

By Soyoung Kim and Greg Roumeliotis

NEW YORK, Sept 25 (Reuters) - Media-focused buyout firm Providence Equity Partners has sold minority stakes in the company that manages its funds in a deal aimed at propelling its expansion.

The Providence, Rhode Island-based buyout firm sold a stake of less than 10 percent in its management company to two longtime limited partners, Chief Executive Jonathan Nelson said in a letter to investors that was seen by Reuters.

The investors are a U.S. pension fund and a sovereign wealth fund, said a person familiar with the matter who asked not to be named because the matter is confidential.

A spokesman for the Florida State Board of Administration said the pension fund bought a stake. Dennis MacKee, confirming an earlier report in Fortune, would not specify the size of the stake the fund acquired.

"We have committed $150 million," MacKee said when asked about the value of the transaction.

The sale of minority stakes provides capital that Providence will use to grow and invest in its business, and the firm may accept additional small passive investments in the future for similar purposes, Nelson said in the letter.

Providence declined to comment.

Providence is among private equity firms that have chosen a private placement of the general partner, instead of an initial public offering, as a way to raise capital.

CVC Capital Partners Ltd has sold a 10 percent stake of the firm to a group of investors, a source familiar with the situation told Reuters last week.

"This does give people an advantage relative to their competition. What happens in private equity, like every other industry, is that once the market leaders do something, everybody wants to follow, and so we will see strong franchise firms do more of this," said David Fann, chief executive of TorreyCove Capital Partners LLC, a private equity advisory firm.

Some of the more diversified alternative asset managers have taken the IPO route. Carlyle Group LP was the latest major private equity firm to pursue a stock market flotation, completing a $671 million IPO in May.

"While many of our peers have chosen to seek capital in the public markets, we believe a private transaction is a better fit for Providence and have no plans to go public, nor does this transaction require Providence to go public," Nelson said in the letter.

All of the capital provided in the transaction will stay within Providence and the firm will use the proceeds for growth-oriented initiatives, including investing in current and future Providence funds and developing its global capabilities, Nelson said.

Providence manages around $27 billion in equity commitments and has invested in more than 130 companies since its inception in 1989 - focusing on media, communications, education and information companies around the world.

Significant current and previous investments include AutoTrader.com, Blackboard, Bresnan Communications, Hulu, Warner Music Group and Yankees Entertainment and Sports Network.

Thomson Reuters peHUB reported in May that Providence had raised $4 billion to $4.5 billion for its seventh fund, which has a $6 billion target.