Feb 26 Clayton Dubilier & Rice LLC has amassed
$6.25 billion for its latest flagship private equity fund after
it got oversubscribed, turning down as much as $2 billion from
investors, according to two people familiar with the matter.
The firm attracted $8 billion in investor commitments for
the fund but stuck with the fundraising limit of $6 billion it
had originally agreed to, referred to as hard cap, the people
said this week. It had previously pledged $250 million of its
own partners' money towards the fund as well.
The fundraising will be formally completed next month once
documentation is finalized, the people said. CD&R launched the
fund, Clayton Dubilier & Rice Fund IX, a year ago with a $5
A so-called "third close" for $5.7 billion of the capital in
the fund, formalizing investor commitments, took place this
week, one of the people added.
The sources spoke on condition of anonymity because they
were not authorized to discuss details of the fundraising
publicly. CD&R declined to comment.
Low interest rates and U.S. Treasury yields have driven up
investors' appetite for high-performing, riskier and illiquid
assets in recent years, including private equity.
Global private equity fundraising totaled $431 billion in
2013, up 13 percent on 2012 and the largest annual amount raised
since the 2008 financial crisis, according to market research
Strong investor demand presented a dilemma for CD&R, which
approached investors with a $6 billion hard cap on the basis of
the opportunity it saw in the market, yet could have earned more
fees if the fund was bigger.
Apollo Global Management LLC, a peer that went
public in 2011 and shares some of its fees with public
shareholders as dividends, raised the hard cap on its latest
flagship fund from $15 billion to $17.5 billion. It ended up
raising the largest private equity fund since the financial
crisis due to a strong investment track record.
Some private equity fund managers and investors believe too
much capital can diminish fund returns by making funds more
likely to overpay in order to deploy the capital.
Others argue that an increase in the hard cap does not mean
that the fund cannot find enough opportunities to spend the
CD&R's previous fund, which was launched in 2007 at the
onset of the financial crisis, raised $5 billion, missing its
$7.5 billion target. But it has proved very lucrative for
investors that backed it, with an internal rate of return as of
the end of September of 24.4 percent, according to New Mexico
Educational Retirement Board, one of its investors.
Among Fund IX's investments are Ashland Inc's water
technologies unit, which CD&R said last week it would buy for
$1.8 billion, and drug compounding firm PharMEDium Services LLC,
which was acquired last month for a little less than $1 billion.
CD&R specializes in partnering with companies either to buy
their non-core divisions or enter in joint ventures, thereby
aiming to avoid some of the frothy auctions for entire companies
that are up for sale.
For example, Fund IX also invested in Brand Energy &
Infrastructure Services, which was acquired and combined with
the infrastructure division of Harsco Corp. In exchange,
Harsco received $300 million in cash and a 29 percent equity
stake in the new company.
Since its inception in 1978, New York-based CD&R had raised
$16 billion through its eight previous funds. The firm counts
former General Electric Co CEO John Welch and former
Tesco Plc CEO Terence Leahy as advisors.
CD&R is led by Donald Gogel, who has been with the firm for
25 years and became chief executive in 1998. Gogel also became
chairman when co-founder Joseph Rice retired in 2012.
LBO Wire reported in January that CD&R aimed to close Fund
IX at its $6 billion hard cap by the end of the first quarter.