Billionaire Wilbur Ross Jr. raised about $640 million from investors for a new private-equity fund to buy distressed assets, falling short of a $2 billion goal.
WL Ross & Co. (IVZ:US), a New York-based unit of investment manager Invesco Ltd., closed the fund in June after cutting its original $4 billion target in half and receiving a nine-month extension to continue raising money. WLR Recovery Fund V LP will carry a 1.5 percent management fee for investors, known as limited partners, Loren Starr, chief financial officer at Invesco, said yesterday on the company’s earnings conference call.
Genstar Capital LLC cut the target on its latest private- equity fund to $1 billion from $1.5 billion and Natural Gas Partners LLC may fall short of its $4 billion goal this year as investors turned more selective and the number funds seeking money increased. Ross, 74, also faced questions from investors about succession plans at the firm, according to two people familiar with the situation, who asked not to be identified because they didn’t want to jeopardize their relationship with the firm.
“The office of the chairman, myself, Jim Lockhart and Steven Toy, is functioning very well,” Ross said in an e-mailed response to questions about succession and fundraising.
WL Ross raised $2.2 billion when including about $560 million in separate accounts and about $1 billion from clients who invested alongside Fund V, Starr said. The co-investments don’t carry annual management fees, while fees on separate accounts are a “more complicated structure than the fund itself,” Ross said in the e-mail.
“The smaller fund size itself has a beneficial effect on rate of return because there is less of a J factor,” he wrote. The J-curve effect describes the negative impact of fees and initial expenses on returns in the early years of a private- equity fund.
“We believe that in the future those major investors who have staffed up to do so will be emphasizing separate accounts and co-investment arrangements and de-emphasizing their participation as limited partners,” Ross wrote. “Co-investment has always been part of our product offering. It is simply the mix that has changed.”
Fund V, which is more than half invested, was producing a 1.08 times multiple as of March 31, according to performance data by Oregon Public Employees Retirement Fund. Ross’s previous distressed fund raised $4 billion in 2007 and was producing a 1.21 times multiple as of the same date.
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