Sept. 13 (Bloomberg) -- Permira Advisers LLP, the private equity firm that owns Hugo Boss, is seeking to lure investors to its latest 6.5 billion-euro ($9 billion) buyout fund by cutting fees for those who sign up early and big.
Investors who pledge money before the fund’s first close, when the firm decides it has enough money to start investing the fund, will be given a 5 percent discount on Permira’s annual management fee, according to a prospectus obtained by Bloomberg News today. Those who commit more than 200 million euros at any time will be offered a 5 percent reduction in fees on any investment exceeding that amount, Permira said in the document.
The firm follows competitors including BC Partners Ltd. and Cinven Ltd. in sweetening terms to secure money from investors, known as limited partners, as they reduce commitments and invest in fewer funds. Buyout firms are seeking more than $170 billion globally this year, more than what they sought in 2006 at the height of the private-equity boom, according to London-based research firm Preqin Ltd. In Europe, five of the largest buyout firms are seeking to raise a total of 31 billion euros, with Apax Partners LLP setting the biggest target at 9 billion euros.
“Those early-bird incentives show that limited partners have a much stronger bargaining power and that the fundraising environment is tougher, even for the large well-regarded firms like Permira,” said Oliver Gottschalg, associate professor of strategy and business policy at the Paris-based HEC School of Management. “Those discounts help make fundraising a little less painful and a little less time consuming for the firms.”
Valentino, New Look
A spokeswoman for Permira in London declined to comment. The firm, which owns stakes in companies including Valentino Fashion Group SA, retailer New Look Group and Macau-based casino operator Galaxy Entertainment Group Ltd., raised its first pan- European fund in 1997. Previously known as Schroder Ventures Europe, the firm took the Permira name in 2001.
BC Partners, which is trying to raise 6 billion euros, offered a 5 percent discount on fees for investors who committed money before the first close. While London-based Cinven and Stockholm-based EQT followed with similar discounts, Apax hasn’t offered any similar discount, according to the fund’s prospectus. An Apax spokesman declined to comment.
Buyout firms such as Permira typically use loans secured on the targets they acquire to finance more than half of the purchase price and cash from their own funds for the rest. The firms seek to improve performance at the companies they acquire or expand them before selling them within about five years.
The firms get money from investors including pension plans and endowments with a mandate to invest it within five to six years and return it with a profit after about 10 years. Permira will charge an annual management fee equal to 1.5 percent of the fund, and keeps 20 percent of profit from investments, according to the prospectus.
Permira was forced to return money investors pledged to its most recent fund during the credit crisis in December 2008. That reduced the pool to 9.6 billion euros from 11.1 billion euros.
The fund, Permira IV, had an annual return of 3 percent net of fees as of June 30, according to the document. That places it in the second quartile basket of funds raised the same year in terms of relative performance, according to the document, which cites data compiled by Thomson One.
“The recent financial crisis and its impact of public markets let to volatility in the Permira funds’ valuations,” Permira said in the document. “Permira IV is now held above cost and Permira believes there will be significant continuing value creation in this fund’s investment portfolio over the coming years.”
Since June, Permira sold part of its stake in Galaxy Entertainment for about twice what it paid for the shares. In August, the firm agreed to sell animal-feed additives company Provimi to Cargill Inc., the largest closely held company in the U.S. Permira expects to reap about 2.3 times its original investment from the sale, according to the prospectus.
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