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 The fundraising comes as other private equity firms such as
Blackstone Group LP and Silver Lake Partners LP take between four to
six years on average to spend their investors' money in global funds
of similar size.
Private equity investors, which usually include public pension
funds, insurance firms and sovereign wealth funds, prefer their
money to be deployed quickly, assuming it's invested wisely.
The sources asked not to be identified because the fundraising
process is confidential. Warburg Pincus declined to comment.
Warburg differs from most of its rivals because, in addition to
investing in leveraged buyouts, which use debt to boost returns in
acquired companies, it also makes venture capital and growth equity
investments. These investments, requiring little or no debt, help it
deploy capital when leveraged buyouts are too expensive.
Leveraged buyouts have become pricier in recent years, partly
because of the strong equity and debt markets, but also because of
competition from buyout firms to spend the capital they have raised. Undeployed capital reached an industry record of $1.2 trillion in
2014, according to market research firm Preqin.
Warburg Pincus focuses more on venture capital and growth equity
deals, which are typically smaller and less expensive, because they
tend to be less visible and attract fewer rivals. No other fund of
Warburg's size combines leveraged buyouts with venture capital
investing. The strategy requires Warburg to do more deals to put its
funds to work.
Warburg Pincus Private Equity XI, the $11.2 billion fund that
Warburg finished raising in 2013, has carried out more than 50 deals
to date, with the average equity commitment at between $100 million
and $200 million, according to the sources.
By comparison, the average deal of private equity funds sized
between $8 billion and $12 billion has a value of $1.8 billion,
according to Preqin.
FUND RETURNS
Private equity funds have a typical lifespan of ten years, and so it
takes longer than two years to judge one's performance. Yet Warburg
Pincus Private Equity XI's results so far have been encouraging.
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Warburg Pincus Private Equity XI reported a net internal rate of
return of 18.5 percent as of the end of September, according to
State of Hawaii Employees' Retirement System, a public pension fund
investor. This compares to a 9.3 percent net internal rate of return
for that public pension fund's entire private equity and venture
capital portfolio.
The fund has invested in companies that include Venari Resources, a
start-up focused on deepwater oil exploration and production in the
Gulf of Mexico; China Auto Rental, a car rental company in China;
and InComm, a global prepaid product, services and transaction
technologies company.
To be sure, not all Warburg Pincus funds have done as well. The
previous fund, the $15 billion Warburg Pincus Private Equity X, had
a net internal rate of return of 9 percent as of the end of
September. The $8 billion Warburg Pincus Private Equity IX had a net
internal rate of return of 15.7 percent.
Warburg Pincus funds typically charge a management fee of 1.5
percent or less of the investor's capital and a performance fee of
20 percent of the fund's profits, according to the sources.
(Reporting by Greg Roumeliotis in New York. Editing by Dan Wilchins
and John Pickering.)
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