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Cerberus Fund V May Go Bigger than $3.75 Bln

Cerberus Capital Management is looking to raise $3.75 billion with its fifth fund, a person says.

Fundraising for the pool is in the early stages. Cerberus has received lots of interest in Fund V and the New York PE firm may boost the size of the fund, the source says. However, the firm is unlikely to increase the pool to $5 billion or more, the person says.

Monument Group is placement agent for Fund V, the source says.

According to a story in the Wall Street Journal yesterday, Cerberus’s fifth pool is about half the size of its prior fund. In 2007, Cerberus Institutional Partners LP (Series IV) raised $7.5 billion. Fund V is Cerberus’s first major investment fund since the crisis, the WSJ says.

New York-based Cerberus, which took some hits with its Chrysler and GMAC investments, has refocused fund V to target lower-profile distressed companies, the story says. Some are so small that they can’t raise money in the junk-bond market, the WSJ says.

In June, Stephen Feinberg, Cerberus Capital Management’s co-founder, said he expected to reduce the size of Fund V. Being smaller and more nimble means returns can be maximized, Feinberg said at the SuperReturn PE conference.

Cerberus isn’t the first to reduce the target of its newest pool. KKR is targeting between $8 billion to $10 billion for its latest mega fund. This is much lower than its prior pool, KKR 2006 Fund LP, which raised $17.6 billion. Also, another mega-buyout shop, Providence Equity, is scaling back its expectations for its next fund.

Cerberus IV is a relatively recent fund. The pool has a net IRR of 7.99%, according to Dec. 31 data from the Public Employee Retirement System of Idaho. Fund III, which raised $2 billion in 2004, has a13.72% IRR, according to Sept. 30, 2010 information from the CalSTRS.

Boston-based Monument was also the placement agent for Cerberus Fund IV and Fund III.

Officials for Cerberus declined comment.