As Expected, Madison Dearborn Closes Sixth Fund

Last year we reported that Madison Dearborn Capital Partners was stuck at “just a tick above $4 billion,” in its efforts to raise a sixth fund. Erin followed up in February, saying that a final close was expected by the end of April.

Now comes word, via Dow Jones, that the final close has indeed occured with $4.1 billion in capital commitments.

This is well below Madison Dearborn’s original $10 billion target, and not even close to its revised $7.5 billion target. More importantly, it signals that the Chicago-based firm hasn’t secured any significant new commitments in nearly a year (despite having hired Credit Suisse placement vet John Knutsen to succeed retired investor relations chief David Mosher).

From my perspective, $4.1 billion may be a perfectly reasonable fund size for Madison Dearborn — with those original targets an outgrowth of bubble-era delerium. After all, the last time Madison Dearborn raised around $4 billion was in 2002, for its fourth fund. According to limited partner CalPERS, that vehicle had an IRR of 15% through the end of Q3 2009. A $6.5 billion fifth fund raised in 2006, however, had a -11.8% IRR.

More importantly, Madison Dearborn is a victim of its own high expectations more than it is of failed fundraising. The new capital pool is plenty deep — particularly since some of its first deals used co-investments from Fund V — and will generate tons of fees. And it’s also a lifeline to a seventh fund and beyond. Kind of like some of its investors are saying: “You’ve got one more chance. Don’t blow it.”