Have Buyout Fund Size Cuts Begun?

Yesterday I asked when private equity firms would begin cutting their fund sizes, in light of: (a) Layoffs which reduce management fee needs, (b) Less work because of reduced deal-flow and (c) Limited partner capital constraints.

Apparently, all I had to do was ask. Check out the following statement from SVG Capital, which is a cornerstone investor in Permira IV, an €11.1 billion fund closed in 2006:

Permira has approached its investors with a proposal whereby, subject to the requisite investor approval, an investor may elect to cap its commitment to Permira IV at 60% of an investor’s original commitment (against a current called amount of 52%). Those investors who do not elect to cap their commitment to Permira IV will continue to participate in all new Permira IV investments. An investor may elect to cap all or part of its commitment. The proposal would require electing investors to accept a 25% reduction in their entitlement to distributions from the fund, which would accrue to continuing investors, and to continue to pay management fees based on original commitments during the investment period of Permira IV.

A Permira spokesman confirmed the statement in an interview with Reuters, adding: “Based on the conversations we have had to date, we expect only a small number of investors to take up this proposal.”

LP sources I spoke with yesterday still don’t believe that U.S. firms will cut existing fund sizes (which is different than lowering targets for funds currently in market or coming to market, a la Blackstone or KKR). But I heard the same thing about private equity layoffs just a few weeks ago, before Carlyle fired its opening salvo. Once the damn has been broken, it’s a lot easier for others to slide through…