Permira sets modest target for fifth fund

European private equity firm Permira has set a target of €6.5 billion for Permira V, 33 percent lower than the €9.6 billion it garnered for its last buyout vehicle, according to investor sources. One limited partner said: “It’s clearly a very different environment now compared to 2006, and you have to be realistic about fund sizes. They believe it’s a size appropriate for the market opportunity.”

Permira declined to comment.

The firm met with limited partners last week to set out its fundraising goal for Permira V and sketch out an approximate timetable for the fundraising, which will launch in September. Permira will raise the fund using its in-house team rather than relying on a third party placement agent. A first close is expected in the first half of next year, an investor said.  

Terms and fees for the new fund have yet to be finalised, according to an investor, and no hard-cap has yet been set for the fund. It is likely to target investments with enterprise values between €500 million and €3 billion, the investor said. The firm’s last fund is understood to have had an average equity commitment per deal of €450 million.

Permira’s last fund, a 2006-vintage vehicle, originally raised €11.1 billion before the firm slimmed it down to €9.6 billion in response to the credit crisis and the impact it had on limited partners.

The forthcoming fund’s more modest target reflects an increasing trend amongst large buyout firms in response to a scarcity of big deals and a lack of available financing. Many firms, including Permira, have seen some of their largest investments struggle through the downturn. It made a significant loss on its investment in gaming group Gala Coral alongside co-owners Candover Partners and Cinven, although that investment was made using capital from its third buyout fund rather than Permira IV.

On the back of such failures, some investors had questioned whether Permira IV would manage to deliver a return. Yet the strong performance of investments like casino operator Galaxy Entertainment has helped to drag the fund’s overall performance into the black, according to LP sources. The firm has also proven its ability to generate returns from boom-era investment. Several of those exited already from the Permira III portfolio have delivered strong returns, including satellite group Intelsat which generated a 9.8x return when it was sold in 2008.

Permira IV still has €1.5 billion left to invest over the next 18 months before its investment period expires, a source close to the firm said.

Other large European private equity firms in the market include Apax Partners, which has set a €9 billion target for its latest fund, and BC Partners, which is targeting €6 billion.