Providence Equity’s Fund VII Hits Fundraising Problems, May Fall Short of $6B Target

Jonathan Nelson, Providence CEO
Jonathan Nelson, Providence CEO

Providence Equity Partners might not be ringing in a happy New Year.

The private equity firm is currently out fundraising for its seventh pool, Providence Equity Partners VII LP. The fund has a $6 billion target, half of Providence’s prior pool, sources say.

A first close for the fund was reportedly expected over the summer. But Providence VII finally crossed over $3 billion in commitments in November, one LP says. More importantly, the fund is having problems getting past that $3 billion and is nowhere near $6 billion, several sources tell peHUB.

“I don’t know if they’ll get to $6 billion,” the LP says. “Six billion is a big number for anyone. I’m not sure anyone should be that big.”

Still, fund VII is attracting investors. The State of Wisconsin Investment Board and the Massachusetts Pension Reserves Asset Management have each committed $100 million to Providence’s fund VII. The Public Employee Retirement System of Idaho is also targeting $40 million for the fund. Earlier this year, the Washington State Investment Board committed up to $300 million to fund VII.

Providence is a media-focused PE firm that also invests in communications, information and education deals. The buyout shop began fundraising for fund VII in early 2011. Providence had initially sought an $8 billion target for the fund, according to press reports.

The firm previously raised $12.1 billion for fund VI in 2007. That fund, has a net IRR of 3.2%, according to March 31 data from CalPERS, which is lower than the average IRR for all vintage 2007 buyout funds as of June 30, according to Thomson Reuters (publisher of peHUB). Based on a sample size of 47 funds, the average IRR for buyout funds raised in 2007 was 5.77% as of June 30, Thomson Reuters reports. The top-quartile IRR for a 2007 buyout fund was 14.1%, the median-quartile IRR was 3.54% and the lower-quartile IRR was -3.84% as of June 30, according to Thomson Reuters.

Providence’s fifth fund raised $4.25 billion in 2004 and has a net IRR of 5.4%, CalPERS says.

The firm’s fourth fund, which collected $2.8 billion in 2000, has a net IRR of 23.85%, according to March 31 data from the Public Employee Retirement System of Idaho.

One deal that Providence participated in that hasn’t resulted in an exit is Hulu, the online video site. Hulu’s owners can’t seem to make up their mind whether to exit. Providence invested $100 million in Hulu in 2007. (News Corp., Walt Disney and NBCUniversal are also investors.)

Hulu was expected to file for an IPO last year, but it pulled those plans in late 2010. In June, Hulu reportedly received an “unsolicited offer” and the LA Times reported that Yahoo had also made a bid to buy Hulu. Hulu then began talking to potential bidders, which reportedly included Google, and DirecTV. Those plans also cratered. In October, Hulu announced it had decided not to sell.

Several PE firms who invested money from 2006 to 2008 made some bad deals, the LP says. “Providence is being pretty frank in talking about the mistakes they made in fund VI,” the source says.

Officials for Providence declined comment.