SOURCES: Private equity giant TPG Capital is falling short of its $10 billion fundraising target

For months, private equity watchers have paid close attention to the fundraising process of TPG Capital, the firm led by David Bonderman, its co-founder.

Privately, according to sources, the firm has downshifted its expectations for its seventh fund, as it may only raise $8 billion for its next fund. Although, it isn't yet clear that TPG will be able to secure commitments to clear that hurdle, either.

Image is everything

"TPG has an image problem right now," says a source that has met with Bonderman.

According to a source, TPG is said to have secured investments in its new private equity fund from pensions in Oregon and Washington state. And, according to a recent report, it also has the backing of the Teachers' Retirement System of Louisiana, as well.

Bad bets in the era of mega-buyouts

Part of the private equity firm's ongoing troubles come from its having invested in some of the biggest PE-backed blowups from the pre-crisis era: this includes Washington Mutual and Energy Futures Holdings, which, before it went through the biggest leveraged buyout in Wall St. history, was known as TXU Corp. TPG also invested, with a consortium of LBO shops, in Caesars Entertainment, which earlier this year filed Chapter 11.

For TPG, which already agreed to reduce fees to lure leery LPs back on board for its seventh fund, failure to hit a $10 billion target could also stunt TPG's tentative initial public offering plans.

A look at TPG's fund performance shows its three most recent funds have underperformed compared to its first three flagship funds.

Falling internal rate of return isn't helping TPG

Using Oregon Public Employees Retirement Fund pension data, averaging out TPG's first three funds, all from the 1990s, the private equity firm generated a mean rate of return of 23.63%, far beyond the industry average.

But the following three flagship funds posted an average rate of return of 10.63%, which is about the industry average, according to Oregon data. This may account for why some of TPG's limited partners are opting to not invest for a seventh fund, which the private equity firm hoped to close this year. Below, CalPERS data (far right) tracks the investment multiples of TPG's four most recent funds.

According to a prior report in Fortune, TPG - which raised more than $16 billion in 2008 for its sixth fund - was seeking $10 billion, this time around. Two sources said it is unlikely TPG will hit that target.

One source speculated whether Bonderman would even be with the LBO shop at the close of its seventh fund; the typical life of a PE fund lasts roughly seven years and Bonderman will turn 72 this year.

While some speculated Bonderman might reduce his role with the private equity firm, sources who have attended fundraising meetings with TPG says he continues to meet with investors to pitch TPG's seventh fund.

A TPG representative declined to comment.