LONDON CVC Capital Partners has raised a record 16 billion euros ($18 billion) for its latest fund for private equity investments in Europe and North America, it said on Thursday, highlighting a rush by investors to back buy-out deals in a search for higher returns.
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 organisations 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 raised 7 billion euros for its latest investment vehicle in 2016.
($1 = 0.8898 euros)
($1 = 0.8913 euros)
(Additional reporting by Noor Zainab Hussain in Bengaluru; Editing by David Goodman and Jane Merriman)