NEW YORK -- Big investment firms worldwide are churning out buyout funds topping $10 billion each, as pension managers and other institutional investors seek a piece of the action in anticipation of higher returns.
CVC Capital Partners, one of Europe's largest buyout firms, last week closed the fundraising run for a new vehicle after attracting 16 billion euros ($18 billion). The new fund mainly targets European companies, but it also will consider investing in U.S. and Japanese businesses. CVC Capital's recent moves include the acquisition of Swiss luxury watchmaker Breitling, announced in April.
Kohlberg Kravis Roberts, a leading U.S. private equity firm, launched a $9.3 billion fund for Japan and other Asian countries last week, following the creation in March of a $13.9 billion vehicle for investment in North America. Both are among the biggest for such funds specializing in their respective regions.
KKR sees Japan as a key market, purchasing automotive components maker Calsonic Kansei and power tool manufacturer Hitachi Koki this year via tender offers while also announcing such an offer for Hitachi Kokusai Electric. The U.S. investment fund also seeks a partnership with Innovation Network Corp. of Japan in an effort to acquire the memory unit spun off by Toshiba.
Technology-oriented U.S. equity firm Silver Lake has raised $15 billion for a new fund, while Apollo Global Management, another American private equity company, is working to establish a fund with roughly $20 billion in seed money.
Buyout funds typically raise capital from sources such as pension funds and college endowments. They often sell the acquired companies seven to 10 years later after improving their corporate value. Though it takes longer to generate gains than the typical investment in bonds and stocks, buyout funds are likely to produce higher returns. A report by research firm Preqin shows that 57% of institutional investors have put some money in buyout funds.
Record war chests have buyout funds making a splash globally. But market players remember how such funds indulged in large-scale deals over the 2005-07 period, only to suffer massive losses during the global financial crisis that followed.
As stock prices hit records around the world, finding good acquisition deals is becoming more difficult. In fact, now is a good opportunity to sell investment holdings, says William Conway, co-CEO of Carlyle Group, rather than chase new acquisitions.