Cerberus Capital Management

Cerberus Capital Management has pared back its fund sizes and shifted its management style to earn solid returns over the past year. The firm has launched a fund targeting mid-market buyouts, a popular strategy with private equity investors, expanded its executive roster and posted internal rates of return from the high teens to the high twenties. It also increased the number of partners at the firm and reorganized the compensation structure to better align management’s incentives with investors.

Cerberus had gotten a reputation as a giant during the buyout boom but the firm is now imposing discipline on its fundraising efforts, keeping funds small and nimble. The firm’s last big buyout fund, Cerberus Institutional Partners Series IV, was raised in 2007 and had about $7.5 billion in assets. It’s now aiming to keep fund sizes about half that size. Even the ‘07 vintage has fared well, though, earning an 8.1% internal rate of return. Cerberus is currently raising funds for Cerberus Levered Loan Opportunities Fund I, which will focus on mid-market buyouts.

The firm also impressed with its handling of the acquisition of Chrysler, and sent back more than $4 billion of distributions to investors over the past year. “They have very good sourcing on deal flow,” said an investment staffer at a Southern university endowment. Cerberus’ nonprofit investors include Dickinson College and University of California, Berkeley Foundation.