Yesterday, the Boston PE firm announced that its most recent fund, Berkshire Fund VIII, had closed at $4.5 billion. This comes after peHUB reported in May that the fund was red-hot and clocking in at $4 billion.
Berkshire’s official target was $4 billion back in January, a source says, but the PE firm knew it could get to $4.5 billion. A first close, of $3 billion, occurred in May and a final close, adding another $1.5 billion, happened yesterday, the person says.
“The interest level was there,” the person says. “They had pretty good conviction [that they could reach $4.5 billion] when they started.”
One change with fund VIII? The pool will have a “tiered carry structure” that allows it to receive a premium 25% carried interest if it hits a certain benchmark. By comparison, Berkshire’s fund VII had a flat 25% carry. To attain the premium 25%, fund VIII must perform in the top quartile of the PE industry, the source says.
Berkshire took only months to raise the $4.5 billion. But fundraising in 2011 is still more difficult than it was in 2006 or 2007. LPs, this time around, were more selective about what they were investing in and performed more diligence than they did five or six years ago, the source says. “It’s certainly a better environment than it was in 2009,” the person says
There’s been much talk about how large buyout funds are no longer in vogue with LPs. Investors now are supposedly more interested in smaller, middle market funds. But its performance that draws LPs to Berkshire’s funds. The firm’s last pool, Berkshire Fund VII LP, raised $3.1 billion in 2006. The firm’s sixth fund collected $1.7 billion in 2002. Fund VII has a net IRR of 6.9 percent while the sixth fund touts a net IRR of 23.9 percent, according to Dec. 31 data from CalPERS.
“If a firm has a great record over a number of years they can raise whatever size fund is appropriate,” the source says.
What else do LPs like about Berkshire? The firm has strong continuity of management, I’m told. Berkshire puts much effort into keeping execs and has developed a good culture for decision making, the source says. In Berkshire’s 25 year history, only three MDs have stepped away from the firm. One exec retired and passed away. Another, Garth Griemann, became Berkshire’s chief administrative officer. And, J. Christopher Clifford was an MD at Berkshire until 2008. He is now an advisory director. “The continuity of staff is pretty remarkable,” the source says.
Berkshire is considered an upper middle market PE firm. About half of its investments are in consumer/retail, while 20% goes into business services. The firm also invests in transportation, industrial manufacturing and telecommunications infrastructure. The firm typically invests between $50 million to $500 million equity per deal.
Berkshire declined comment.
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