Warburg Pincus Wraps $5 Billion Giant

At its final close on $5 billion (ecu 4.2 billion) in September, Warburg, Pincus Equity Partners ranked as the second-largest private equity fund ever raised, behind Kohlberg Kravis Roberts & Co.’s $5.7 billion 1996 Fund.

EM Warburg, Pincus & Co set a $3 billion target for the latest vehicle at its launch last autumn. Although industry observers at the time viewed this target as ambitious, investor appetite for the fund was no doubt enhanced by the $5 billion Warburg Pincus returned to limited partners during the three years before the launch. When raising its previous domestic fund in 1995, lacklustre returns from a previous effort prompted Warburg Pincus to drop its share of the carry to 15%. This time, no such incentive was necessary.

Besides the healthy returns generated by Warburg Pincus of late, part of the fund’s appeal to investors lay in its broad remit, which offers exposure to venture and turnaround investments as well as buyouts.

New investors included ABP and PGGM of the Netherlands. Louisiana State Employees’ Retirement System and Ohio Teachers’ Retirement System. Repeat investors included AT&T Investment Management, Bell Atlantic, BellSouth, Bristol-Myers Squibb, Colorado Public Employees’ Retirement System, Cornell University, General Electric Capital, GTE Investment Management, IBM Retirement Fund, Illinois Municipal Retirement Fund and Illinois State Board of Investment, the Mellon Foundation, Michigan Department of Treasury, Minnesota State Board of Investments, New York State Common Retirement Fund, PNC Equity Management Corp. and Washington State Investment Board.

Although labelled a domestic fund, Warburg Pincus Equity Partners will also invest outside the US, splitting its investments pari passu with the group’s $800 million Warburg, Pincus Ventures International fund raised in 1997.

Warburg Pincus managing director Douglas Karp said that, despite the mammoth size of the new vehicle, the group intends to maintain its focus on deals in the $25 million to $100 million range within its domestic market.

Outside the US, however, Warburg Pincus is likely to forsake the middle market for larger transactions, given the need to deploy the new fund alongside Warburg, Pincus Ventures International.