Private equity firm Warburg Pincus has told investors it will seek to raise a new $12bn global fund, just two years after amassing a $11.2bn fund, according to people familiar with the matter.
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.
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.
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.