Boston buyout firm Thomas H. Lee Partners LP has amassed a $10.1 billion fund to invest in North American companies, an industry professional briefed on the fund-raising said yesterday, a vote of confidence for the private equity business at a time of tighter credit.
The fund, Thomas H. Lee Equity Partners VI, which has yet to be disclosed publicly, consists of $8.1 billion in core commitments from institutional investors known as limited partners along with $2 billion in co-investment commitments from other private equity firms and parties that will collaborate on some bigger deals, the industry figure said.
It's the largest fund ever raised by THL Partners and the first since its $6.1 billion Equity Partners V fund closed in January 2001, when the economy was similarly slowing after a long expansion. That fund has generated an average annual return of 23 percent for its investors, according to data released by one limited partner, the California Public Employees Retirement System, or Calpers.
Equity Partners VI will be the first fund for THL Partners since the departure of its founder, Thomas H. Lee, who left in March 2006 to start an investment firm in New York. THL Partners declined to comment on its new buyout fund yesterday.
"This is the first fund without Tommy," said former venture capitalist Howard Anderson, a professor at MIT's Sloan School of Management. "It's a testament that this organization is viewed by the most sophisticated investors to have capability beyond Tommy. It's seen as a franchise firm that will make money in good and bad markets."
THL Partners' fund comes on the heels of a $21.7 billion investment fund raised by New York buyout giant Blackstone Group LP in August. Together, they signal that big-block investors, such as mutual funds, pension funds, and university endowments, continue to clamor for high-risk "alternative" investment vehicles that promise high returns, despite the higher cost of borrowing that has forced buyout firms to withdraw from or renegotiate dozens of deals so far this year.
"There's still a voracious appetite for alternative investments," said Josh Lerner, a Harvard Business School professor specializing in private equity. "Historically, the best time to be investing in private equity is when there's the proverbial blood in the street. There's a sense the frothiness is out of the market and there will be less competition for deals and fewer overpriced transactions in the next few years."
Lerner said co-investment commitments like those obtained by THL Partners have become more common in the industry. They give buyout firms the ability to join with other firms and some limited partners to invest more money in certain deals than the overall group of investors in the core fund might be comfortable with. That could prove especially useful at a time when buyout firms will have less access to cheap bank debt, which has fueled some of the largest deals in recent years.
Unlike bigger buyout firms with a global reach, such as Blackstone and Boston's Bain Capital, THL Partners has historically focused on North American investments in sectors ranging from healthcare to media and communications to business and information services. It typically buys a controlling stake in its portfolio companies, using money from its funds to borrow heavily from banks, and revamps their operations before selling them for large profits.
Robert Weisman can be reached at weisman@globe.com.
