The IUF's Private Equity Buyout Watch

SVG, the London-listed private equity fund of funds which is Permira's largest single source of capital, has cut its outstanding GBP 1.2 billion commitment to Permira's most recent buyout fund by GBP 800 million. The fund (now shrinking) was originally capped at around 12 billion. Hit hard by the rapid devaluation of Permira's portfolio companies on its own balance sheets, SVG simply had insufficient cash and credit available to meet their commitment, forcing it to cut back by redeeming its pledge while raising quick cash through a heavily discounted GBP 200 million rights issue.

Early withdrawal, however, doesn't come cheap. Permira announced in December that investors could redeem their pledges by as much as 40% - but would continue to pay full management fees based on the original commitment and renounce 25% of any returns. Many pension funds had been attracted to private equity funds of funds as an alternative to locking investments into illiquid direct stakes in the buyout funds.

Commenting on December 19 on the impact on Permira of a potential investor flight, the UK Guardian wrote: "Sources close to the firm [Permira] said there would be little impact on its ability to buy distressed companies or those that fit its existing portfolio. Until yesterday, only 55% of the £11.1bn IV fund was invested, giving the firm continued access to funds. However, it is understood the firm is in constant talks with banks backing its funds, after a decade-long buying spree that added 180 companies to its portfolio. Banks often agreed to lend five or six times the total equity used by buyout firms in major deals, much of which needs to be refinanced after a period of three-to-five years. SVG's decision to cut its outstanding liability to the fund from £1.2bn to £343m will increase the proportion of bank debt and send a message to the banks that tougher times lie ahead."