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CVC's bumper new fund shows how low interest rates and cheap
debt have contributed to a boom in private equity fundraising
since the financial crisis, supported by investors' thirst for
high-yielding alternative assets.
The latest fundraising by CVC, which began in January, is the
largest by a European private equity firm, surpassing the $13
billion raised by Advent last year.
As demand reached 25-30 billion euros, the fund cut its hurdle
rate, the minimum rate of return on the fund, to 6 percent from
8 percent, a source familiar with the matter told Reuters.
Since it was founded in 1981, CVC has raised a total of $107
billion, which it has used to invest in companies from Swiss
luxury watchmaker Breitling to Formula One motor racing. It
currently has $65 billion of assets under management.
CVC did not disclose which organizations invested in Fund VII,
but almost half of investors in Fund VI were public pension
funds. Institutions such as pension and insurance funds or
sovereign wealth funds are able to lock up money for years at a
time in the hope it will outperform other asset classes.
For all of its mature funds, CVC has at least doubled the money
of investments net of costs, the source said. Across all its
European funds, it has achieved an average net annual rate of
return of around 20 percent.
The private equity funds charge fees for making the investments
and take a slice of any profits.
Its latest fund had a hard cap of 15.5 billion euros and reached
16 billion euros with commitments from CVC and its employees,
the firm said. Its investment strategy is the same as for its
previous fund with no committed allocations to any sectors.
According to industry data provider Preqin, globally funds
raised $589 billion in 2016, in line with 2013-15 levels.
The number of firms raising more than $5 billion surged to a
post financial crisis high last year. Investors had shied away
from the industry for several years following the 2008 financial
crisis when some were burned by over-ambitious deals.
In January, Permira closed its latest fund at 7.5 billion euros
having initially targeted 6.5 billion euros. Late last year,
Apax raised $9bn – its largest fundraising since the financial
crisis.
European private equity firm Cinven <CINV.UL> raised 7 billion
euros for its latest investment vehicle in 2016.
(This story was refiled to add dropped word "billion" in first
paragraph)
(Additional reporting by Noor Zainab Hussain in Bengaluru;
Editing by David Goodman and Jane Merriman)
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