Lone Star seeks $500m more than predecessor for latest mega-fund

Lone Star Funds is back in the market with its latest diversified fund, according to a Monday filing with the Securities and Exchange Commission.

The Dallas-based firm is seeking to raise $6 billion for Lone Star Fund XI. That figure is about $500 million more than its predecessor vehicle, which closed above its $5 billion target in November 2016, as PERE previously reported.

A spokeswoman for the firm declined to comment.

Lone Star is not planning any major strategy shifts for the latest vehicle, a person with knowledge of the fund said.

The fund series has a varied strategy, targeting private equity control investments in companies; single-family residential real estate secured debt; corporate and consumer debt; and single-family residential real estate assets, according to meeting documents from New Mexico Educational Retirement Board (NMERB), an investor in Fund X.

While the fund series can be invested globally, Lone Star will continue to look to Europe, in particular, for opportunities for Fund XI. The firm views the region as delayed in its recovery from the global financial crisis compared with the US, a person with knowledge of the firm’s strategy said.

In real estate, for example, the firm had no publicly-available US acquisitions last year, according to data provider Real Capital Analytics. However, in Europe, the firm purchased five assets and two portfolios in 2017, per RCA.

Investments from the predecessor vehicle included the purchase last year of an 80 percent stake in Spanish bank Caixa’s property business. To fund that acquisition, according to a statement at the time, Lone Star used capital from both Fund X and its latest real estate fund, which closed on $5.9 billion in April 2016.

Fund X is over 85 percent committed, PERE understands. As of December 31, the vehicle’s capital was invested in nine deals, according to Lone Star’s website. Fund IX, a 2014 vintage that closed on $7.2 billion, was invested in 33 deals as of year-end. Lone Star’s fund sizes, including Fund XI, are in keeping with its opportunity set, a source with knowledge of the series told PERE.

Fund X is targeting a gross internal rate of return of 25 percent, according to NMERB, but return targets for the latest fund are not yet available. Fund IX generated a 1.21x multiple as of December 31, according to investor documents from the Oregon Public Employees’ Retirement System. Neither Fund IX or Fund X are generating publicly-available IRRs.

Lone Star ranked fourth on the 2018 PERE 50, the list of the world’s largest private equity real estate firms by value-add and opportunistic fundraising in the last five years. The firm is the largest privately-held company on the list: Blackstone and Brookfield Asset Management, ranked first and second respectively, are publicly-traded, while the third-largest firm – Starwood Capital Group – is partly owned by external investors.

The firm manages $70 billion, according to its website.