Fund Notes: Blackstone Breaks Record and Other News –

There’s a new fund-raising king. The Blackstone Group has raised $6.45 billion for Blackstone Capital Partners IV, trumping Thomas H. Lee’s $6.1 billion Fund V, previously the largest private equity fund ever raised.

By no means did Blackstone’s partners pull this fund off by themselves. The firm had two placement agents. UBS Warburg pitched the fund to new investors outside the United States, while Credit Suisse First Boston, historically Blackstone’s sole placement agent, marketed the fund in North America.

Blackstone plans for an average deal size between $200 million and $300 million. It won’t do deals smaller than $100 million. This differs from its $4 billion Fund III, which targeted both small and large deals.

Investors representing almost 90% of the capital raised for Fund III reinvested in Fund IV. Almost half of the investors in the new fund are new, and 27% of the capital came from non-U.S. investors.

Limited partners in Fund IV include the New York State Common Retirement Fund, which committed $300 million; the Canadian Pension Plan Investment Board, with $200 million; the Massachusetts Pension Reserves Investment Trust, with $75 million; and the Houston Firefighters Fund, with $20 million, according to a source close to the fund.

The new fund brings Blackstone’s total corporate private equity funds to more than $14 billion. Total committed capital across the firm’s alternative asset businesses has reached about $25 billion.

Champagne for Charlemagne?

European emerging market specialist Charlemagne Capital is marketing its second fund with a target of $148 million. The South East Europe Access Fund has been on the drawing board for the past eight months and is close to securing a cornerstone investor.

Nicholas Edwards, marketing and sales director for the new fund, says that Charlemagne is in discussions with three potential sponsors and is looking for between $25 million to $49 million before it announces a first close, which is expected by year-end. Once the cornerstone investor is locked up, fund-raising should be complete within six to nine months.

Argentinean Crisis Bites Exxel

South American buyout shop The Exxel Group reduced the management fee on its sixth fund effective July 1. The move appears to be a response to an economic meltdown in Argentina that has dramatically lowered the amount of non-distressed investment opportunities throughout the region.

When the $441 million fund closed in August of 2000, Exxel seemed poised to maintain a frenetic investment pace. The Buenos Aires-based firm (whose fund is officially domiciled in the Cayman Islands) committed to three buyout deals by the end of 2000, but it was soon derailed by a steady drumbeat of inflation, market contraction, foreign currency restrictions and political upheaval.

In 2002, Argentina’s industrial production dropped by about 13% from the prior year, unemployment hit 22% and the government raised inflation projections from a budgeted 15% to 80%, according to the Argentinean government.

Exxel has not made a new investment since the end of 2000, but it has continued pumping follow-on money into portfolio companies like Argentinean contract-caterer Grupo Integralco S.A. The firm has invested about $165 million, all of which will maintain its 2% management fees.

The management fees on the as-yet-uncalled commitments will be reduced. The next $200 million of uncalled capital will be charged a 1% fee, while the roughly $70 million of remaining LP commitments will have no fee.

Investors in the Exxel VI fund include Partners Group, the Colorado Public Employees Retirement Association and the Oregon State Treasury. Investors on the fully invested Fund V include the CommonFund, The Ford Foundation, HarbourVest Partners and MIT.

San Bernardino Targets PE

The $3.2 billion San Bernardino County Employees’ Retirement Association (SBCERA) of California plans to allocate up to 7% of its assets, or $224 million, to private equity investments. It hopes to select a consultant to run the operation during the pension fund’s next investment committee meeting.

After SBCERA picks a consultant, it will outline its private equity investment strategy. Adams Street and Pathway Capital Management are up for the job. The pension fund declined to offer a time frame for reaching its new allocation target or say how much of the portfolio will go to venture capital vs. buyouts. The shift into private equity means SBCERA must scale back on domestic public equity and international fixed income positions in the coming fiscal year. Domestic and international equity account for about 60% of the fund’s assets. The other 30% is held in domestic and international fixed income.

SBCERA’s board voted to enter the private equity sector in November, following an annual investment forum in which the board instructed the fund’s staff to investigate the asset class and prepare a feasibility report.

For the fiscal year ending June 30, the fund posted a loss of 4.3%, leaving it almost 12% short of the returns needed to meet its fund obligations. It expects its private equity portfolio to return at least 10%.

Advent Believes in Latin America

Six years after making its debut in the region, Advent International closed its second Latin American private equity fund with $265 million in commitments. Latin American Private Equity Fund II (LAPEF II) will make late-stage investments primarily in Argentina, Brazil and Mexico.

Like its predecessor, a $225 million fund raised in 1996, Advent’s latest fund will take controlling positions in late-stage, cash-generating companies, with a bias toward services deals. The new fund will continue to invest about two-thirds of its capital in Mexico and the remainder in Argentina, Brazil and possibly Chile.

At the end of 2001, Advent’s first Latin American fund posted a 20% net IRR.

Due to Argentina’s financial crisis, several banks have pulled out of the area or scaled back, including J.P. Morgan Chase & Co.

Almost 70% of LAPEF II’s limited partners are return investors. About two-thirds of the fund’s LPs are from the United States, while the remainder comes from Europe. Investors include GE Capital, HarbourVest Partners, Inter-American Investment Corp. and International Finance Corp.

Psilos Sets New Health Fund

Psilos Group Managers, a New York-based health-centric venture capital firm, has closed a $75 million subsidiary fund to Psilos Fund II.

The firm received a Small Business Investment Company (SBIC) license from the Small Business Administration (SBA) in May. For every dollar Psilos put into the fund, the SBA provided two.

While the firm’s previous funds have invested in early-stage companies, Psilos Group Partners II SBIC L.P. will place more emphasis on late-stage health care and device companies that are close to being cash flow positive.

The fund expects to invest $2 million to $5 million in 10 to 15 companies over the next three years.

Asian VC Stumbles

Asia Pacific venture funds raised $1.3 billion in first half of 2002, a significant decline from the $3.5 billion recorded in the same period last year, according to Thomson Financial/Venture Economics.

Of the total funds raised, $517.5 million went to 16 balanced stage funds. Expansion stage funds were next most popular, with four funds raising $226.9 million.

Venture capitalists disbursed $545.2 million to companies located in the Asia Pacific during the first half of the year. A total of 123 companies received investments, but the total represents a sharp dip from the same period last year, when more than $2 billion was invested in Asia Pacific companies.

For the first half of 2002 China attracted 21% of venture dollars. Communications/media emerged as the favorite sector, with $141.9 million flowing into it.

Springboard Dives into VC

Springboard Capital LLC has jumped headfirst into the venture capital arena. The Jacksonville, Fla.-based startup firm just closed its first fund with about $7 million worth of capital. However, the newly formed fund will only call down the capital as needed. To date, Springboard hasn’t made any investments.

Springboard, which has no relationship to Springboard 2000, the limited partnership that invests in women and minority-owned businesses, held an initial close in May and a final close in August. The fund is not a limited partnership, but an LLC made up of 27 Florida-based accredited investors who will all play an active role in managing the fund.

Springboard expects the fund to be fully invested in two years’ time, with anywhere from $200,000 to $700,000 making its way into each early-stage company. “When I say early-stage company, I mean ones that are just pre revenue or have just started getting revenue,” says Alan Rossiter, the fund’s administrator. “We find that to be the most attractive market and there is also a lot of companies like that here in the Jacksonville area where we will primarily operate.”

Springboard expects the fund to be invested in 10 companies with no particular sector focus. “We have no sector in mind because [Northern Florida] has produced a number of sound businesses that do not fall into one sector. We really believe we should leave our criteria quite broad,” says Rossiter.

CalSTRS Triple Play

Staffing up to keep on pace with its growing private equity portfolio, CalSTRS plans to add three people to its alternative investment team in the next two years.

If the state grants the $100 billion Sacramento-based pension fund its budget requests, CalSTRS will add a single private equity investment officer to its team this year. The other two would be added in 2003, one to support secondary investments and the other to support investments in limited partnerships.

Compiled by