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Bain Capital raising $8 billion

May 30, 2012: 9:00 AM ET

America's best-known private equity firm returns to market.

Bain Capital has told investors that it plans to begin raising its eleventh general buyout fund sometime next month, according to sources familiar with the situation. The target will be $6 billion, plus a $2 billion "sidecar" fund for co-investments on large deals.

This is significantly smaller than the $10 billion+ Bain raised for its tenth fund in 2010 (plus a $1.8b sidecar), and reflects the firm's belief that super-sized leveraged buyouts are becoming endangered species. Particularly large take-privates. In fact, Bain began signaling such beliefs a couple years back, when it offered LPs the opportunity to cut their sidecar commitments in half.

At the time, Bain's sidecar kicked in when a deal's equity check passed the $600 million mark. This time around, it will be $400 million.

As in the past, Bain's own partners will make a substantial general partner commitment. Expect it to be around 10% of the total.

More interestingly, Bain will offer investors three different fee structures from which to choose:

  • Market standard: 1.5% management fee, 20% carry, 7% preferred return
  • 1% management fee, 30% carry, 7% preferred return
  • 0.5% management fee, 30% carry, no preferred return.

If that looks familiar, it's because Bain provided the first two options to limited partners in its recently-closed Asia fund. The move was well-received, with about half of investors picking the market standard, and the other half picking terms that many believe provides better GP/LP alignment. Bain added the final choice as a way to create even stronger alignments of interest, and based on a belief that few of its investors give much weight to preferred returns.

It's also worth noting that the choose-your-own-fee strategy is, in part, due to Bain's desire to bring more public pension funds into its investor base. Historically, such systems have passed due to above-market fee structures – namely, a 30% carry.

Should be interesting to see how it works this time around. Not only because of the more amenable terms, but also because public pensions are typically overseen by political appointees who may feel inclined to avoid Bain due to Mitt Romney-related headaches ("How could you invest in Bain?" for Dems, "You're a Mitt crony" for GOP).

Perhaps that's why Bain is planning to hold its final close in Q1 2013. By that point, Romney will be president or an afterthought. Either way, Bain should have faded from the public view.

A Bain spokesman declined to comment.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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