[E2] LP Magazine Q4 2014

The institutional investor perspective on private equity, venture capital, real estate and infrastructure funds

www.LimitedPartnerMag.com Q4 2014

Co-investment conundrum: why returns are lower

John Holloway: European venture is finally delivering

Connecting LPs & GPs worldwidePublished by

FoF Akina Partners’ macro conviction strategy

Trillion dollar baby: PE’s mighty war chest

Venture evangelist: Bobby Franklin on why

US venture performs well

Small is beautiful: why LPs should target niches

Plus: Expert insights on funds, markets & regions

Diamonds in the rough

How good ESG can really drive private equity returns

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Welcome to Limited Partner magazine. In this issue we have the latest news on the private equity industry tailored for the LP community – funds, people, secondaries, infrastructure,

real estate, buyouts, venture, cleantech, in Europe and the US, as well as dedicated sections for Asia, the Middle East, Africa and Latin America – and perspectives from LPs around the world.

On our cover is John Holloway, head of equity investments at Europe’s largest venture capital investor, the EIF. He argues that Europe’s venture industry needs state support, but also that the hangover from the dot-com bubble – a 20-year nightmare – is finally receding and the technology sector is delivering improved returns to LPs. We have opinion from the other side of the pond, where Bobby Fisher, president and CEO of the NVCA, explains why US venture is such a success.

For buyout investors we take an in-depth look at the hot topic of co-investment. It promises all the benefits of private equity without the fees. It sounds too good to be true and – if recent experience is any guide to the future – it is: direct co-investments have underperformed private equity funds over the past decade.

Elsewhere, we report on the surprising finding that good environmental, social and governance (ESG) practices drive alpha in private equity; show that despite having $1trn in dry powder, private equity is facing a capital shortfall; and explain how GP-initiated secondaries can benefit all parties.

And don’t forget to check out www.AltAssets.net for daily breaking news and comment, as well as our online research and IR tool, the AltAssets LP-GP Network, which is gaining critical mass and in the last six months logged more than 50,000 LP-to-LP and LP-to-GP connections, as it continues to establish itself as the world’s most effective and wide-reaching online private equity network.

Grant Murgatroyd Editor

IntroductionEditor Grant Murgatroyd

Online Editor, AltAssets Mike Didymus

Reporters Sergei Balashov Vita Millers Jack Hammond

Design Olivier Pierre

Production Editor Richard Reed Subscriptions & Advertising [email protected]

Publisher Richard Sachar

Director, AltAssets Richard Sachar

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In the last 6 months over 50,000 LP-to-LP and LP-to-GP connections were made. That makes the AltAssets LP-GP Network the world’s most active and effective online private equity network by far.

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CONTENTS

2 Q4 2014

Venture evangelist

Bobby Franklin, National Venture Capital Association

Features

Industry Profile

04 Co-investment conundrum: returns are lower

Co-investments sound perfect. You back the manager you like, choose the investments you like and there’s no – or lower – fees. That’s the theory, but does it work in practice?

How good ESG can really drive private equity returns16

Far from being a cost to private equity, new research from Pantheon Ventures shows that good environmental, social and governance practices are a driver of value

Trillion dollar baby: Is private equity short of cash?26

The private equity industry has just two years of investable capital at its disposal. Is this the start of a golden era for limited partners?

Auction shows the way forward for secondaries24

Private equity real estate secondaries are rare. Does the general partner-led auction of positions in China’s Trophy Property Development provide a transparent route to liquidity for others to follow?

20

US venture capital is the envy of the world, and Bobby Franklin has a steady stream of politicians and industrialists knocking on his door, eager to find out how it’s done. He tells Limited Partner magazine the secrets of its success

Q4 2014

www.LimitedPartnerMag.com 3

10

It’s Europe’s largest venture capital investor, but while the EIF’s policy is to support SMEs, for John Holloway the bottom line is equally important

Diamonds in the roughJohn Holloway, European Investment Fund

34 Small is beautifulHans van Swaay, Lyrique Private Equity

In 20 years Hans van Swaay has seen the private equity industry as an LP, an adviser and a direct investor. He admires the mega funds, but believes niches are the way to generate outperformance

82Taking a Silicon Valley-style approach to web and mobile-based startups in South-East Asia is what Golden Gate Ventures’ Vincent Lauria is all about

GP Perspective: Golden Gate VenturesVincent Lauria

32

Investors in cleantech face strong headwinds. Vikram Raju believes backing experienced managers in unpopular niches is the key to generating sustainable returns

Climate of changeVikram Raju, International Finance Corporation

LP Perspectives News & Views

Funds42Insider perspectives and exclusive coverage on fundraising, new funds in the market and the latest industry developments

People56Appointments, promotions and people moves from both limited partners and general partners across the globe

Sector Perspectives60Essential news, views and opinions on the most relevant developments, trends and investor activity across the private equity and venture capital industry

Regional insights into emerging markets and key locations within the global investment space

Regional Perspectives88

Asia

Middle East

Africa

Latin America

88

92

94

98

36Successful investment is not about sectors or sizes. Close relationships and a top-down conviction strategy drive manager selection at the $2.2bn Swiss fund-of-funds manager

Why investments go under the macroscopeThomas Frei, Akina Partners

60 Secondaries

64 Infrastructure

72 Real Estate

76 Buyout

82 Venture Capital

86 Cleantech & Sustainability

FEATURE

4 Q4 2014

Private equity is an attractive asset class for many investors. It has generated excellent returns, a long-term time horizon and some degree of diversification away from mainstream

assets. But it’s an expensive game to play. A standard fund has a two per cent management fee and pays 20 per cent in carried interest once a certain hurdle has been achieved.

Add in fees for equity arrangement, investment monitoring, PR, teleconferencing and just about anything you care to think of, and you are talking about a lot of money going from the limited partner to the general partner.

GPs justify the numbers – and counter the media criticism – by saying that fees are transparent and agreed with LPs.

Agreed or not, fees are a major bone of contention for LPs, so it is no surprise that co-investment has become a hot topic among them. At AltAsset’s Limited Partner Summit in June, the room was packed

to capacity for the sessions on co-investment.“Co-investment has become more prominent and more core to

how the industry decides to access private equity,” says Claudio Siniscalco, recently appointed global co-head of co-investments at Deutsche Bank, which has over $11bn of private equity assets under management and is in the process of ramping up its co-investment programme.

“One of the reasons – and it’s not necessarily our reason – is that co-investment is typically undertaken on a reduced fee and carry basis. So there is a cost-reduction component to the appetite. Due to the financial crisis and the better negotiating leverage of the limited partner community, co-investment has been used as a way to lower their weighted average fees.”

Dennis McCrary, partner at global private equity investor Pantheon in the US, agrees. “People recognise they can reduce the

Co-investments sound perfect. You can back the manager you like, choose the investments you like and there are no – or lower – fees. That’s the theory, but does it work in practice?

Co-investment conundrum

CO-INVESTMENT


Partners, says lower fees are a good reason, but is less convinced about the portfolio selection angle.

“The fees are lower and that can enhance the overall portfolio return. But the other, less talked about reason, is that a lot of institutional ventures now believe they have the capability, knowledge and experience to co-invest alongside their general partners. That’s truer for some than others.”

Conversations about the advantages of co-investment always come back to fees, but there are other advantages over blind pool investing. First, it gives LPs the ability to deploy capital more quickly than via fund commitments. Instead of the three to five years it takes a standard fund to be drawn down, co-investments are called as soon as the investments are made.

“When we’re talking to investors that are interested in our co-investment fund, they find the significantly reduced J-curve

fee load of private equity investing by allocating a portion of their capital to co-invest. A big institutional investor might, for example, commit to invest $100m in the fund and $20-30m in co-investment. So instead of being two and 20, their blended overall fees might instead be 1.7 per cent management fee and 17 per cent carry.”

It is no surprise that LPs are keen to reduce fee levels, but the other principal attraction of co-investment is a belief that it gives the investor greater control over portfolio construction, particularly in terms of risk-reward and the level of exposure to certain sectors, geographies or risks.

“They can have a bit more control from the perspective of having the ability to select the deals they want,” says McCrary.

Jonny Maxwell, senior adviser at private equity firm GMT Communications Partners, who has more than 30 years’ experience as an LP at Standard Life Private Equity and Allianz Capital

FEATURE

6 Q4 2014

attractive,” says McCrary.“Yes, it is often about people tackling the question of fees,”

says Graham McDonald, head of private equity at Aberdeen Asset Management. “It’s also tackling the question of deployment of cash. In a fund structure it’s about making a commitment, and typically there’s a five-year investment period, whereas if you’re investing directly alongside a general partner you are deploying that cash within a particular timescale, and that cash is then very much in the ground and working for you.”

Second, proponents argue that co-investment allows for more flexibility in portfolio construction, whether by geography, fund type, sector or any other factor. “You have the ability to stock-pick, so it’s quite a different skillset from that of a fund investor where your due diligence is all around the manager, the process, the sectors

and overall performance,” says McDonald. “As a co-investor you can concentrate on a particular sector or region or, if you want, increase your exposure to a particular asset. So, you’re far more in control of how your capital is deployed.”

Third, co-investment gives the end-investor a feeling of greater control. They can look at individual deals in more detail before making the decision whether to commit. But this has a darker side to it, and the real motives for pursuing direct investment may not be so rational.

“Investing in funds is pretty dull,” says Hans van Swaay, founder of Lyrique Private Equity. “Everyone in the financial industry thinks they’re swashbuckling cowboys, but investors in funds are people in suits behind behind desks with PCs and telephones. They are like the purchasing department of an industrial business.

“If you make a co-investment you are a little more involved than you are when you give money to a fund manager. It gives people a warm feeling and it enables them to talk about this over cocktails, especially if it’s a well-known name – ‘we have just invested in Widget Ltd’. There’s a lot of psychology at work.”

Trickle-down effectSourcing deals is the most difficult aspect of co-investment (see panel, left). Many LPs will find themselves restricted to the very largest deals that are underwritten by a GP and then put into open syndication.

“Certain deals sometimes do trickle through to the widely- syndicated, widely-available market,” says Siniscalco. “Small co-investors without the resources to really employ a proper sourcing strategy will likely be limited in their choice to these widely-marketed syndications. We focus a great deal of attention on sourcing across the entire market, specifically on mid-market opportunities which are much harder to come by and much harder to source. It’s much less likely that a smaller investor is going to be able to access those.”

Co-investments alongside some of the larger funds have been in evidence for quite some time, but it is now becoming more common to see opportunities in mid-market funds. They generally occur where the deal size is large relative to the overall size of the fund.

Mid-market opportunities throw up their own set of difficulties for LPs. “That’s where it becomes more challenging, because you have to understand the dynamics of the individual region and countries in a way you don’t necessarily have to with some of the larger buyout funds,” says McDonald.

Even giant LPs can struggle to hit their co-investment targets. Earlier this year, one of Asia’s largest sovereign wealth funds (SWF) was forced to cut the minimum ticket size on its co-investment programme from $100m to $20m, a move with massive resource implications, since five times more man-hours are required to put the same amount of capital to work.

There are two approaches to co-investment, both of which can be equally valid. “Some LPs will almost formulaicly co-invest in any opportunity they’re shown by their incumbent GPs, subject to

Deal sourcing: feast or famine?It is undoubtedly true that LPs want more co-investment, but how can they go about getting a piece of the action? Here an LP will usually find themselves at one end of a spectrum – they either never see a deal or they can’t get out of their office through the piles of investment memoranda sitting on every available space.

“If one has a successful sourcing strategy and platform – and we have the advantage of being Deutsche Bank, with our banking relationships and billions of private equity exposure as limited partner – the difficulty is that you end up sometimes spoilt for choice, and it’s actually quite challenging choosing the best opportunities from such a large deal flow,” says Claudio Siniscalco.

“It’s more challenging than you would think, because in many cases these are co-investment opportunities with some of the most successful managers out there doing what they do best. And typically you’re trying to take only a small fraction of those deals and that’s actually very challenging.”

If you are a small or medium-sized investor or a family office, sourcing is incredibly difficult. You are in competition with institutions like Deutsche Bank, who have a trillion-dollar asset management business, or funds of funds that have billions of private equity exposure and, despite being a charming individual or family office, you have little to offer in exchange for getting your free co-investment.

“You need good relationships to generate deal flow,” says McCrary. “Then you need to make sure you know the manager well and have a level of confidence before you’re comfortable doing a co-investment, because it is typically a more passive role.

“Over 90% of the co-investments that we close are with managers that are in our portfolio of fund investments, and the remaining small percentage where they’re not are, for one reason or another, managers that we have built a relationship with, and know well enough to feel that level of comfort.”

CO-INVESTMENT


their concentration limits,” says Siniscalco. “Our philosophy has always been to source as many opportunities as possible and then apply very strict due diligence – you can call it a layer of additional investment judgement – on that.”

Sometimes co-investors are brought in at the earliest stages of a deal, while the asset in question is in an auction. LPs face an obvious conundrum: “It can get very confusing when you’ve got three of your underlying managers competing for the same transaction,” says Maxwell.

Striking a balance“You have to decide which manager’s got the best long-term approach to the investment, which is a serious judgement call. But it does allow you to understand your underlying managers much better than if you just invest in their funds. So co-investment gives you a much greater insight into the manager’s true ability and strategic planning and value add.”

It is entirely rational to say that you should be conducting your own due diligence, but is a desk-bound LP really qualified to do that? “I’ve always argued, and I still argue, that you do good due diligence on a fund manager, and if you trust him then you should also trust him with a co-investment. It is, after all, a fund investment,” says van Swaay.

“What makes you think you can do it better? How often does an LP’s involvement lead to a better or even a different outcome? It’s nice that you can listen into a management presentation. It brings you a bit closer to it, you understand a bit better how they work, but

it is extremely rare for a co-investor to influence due diligence or a negotiation.”

When making a commitment to a fund, an LP is making decisions about the manager, understanding how they make their selections, and conducting due diligence on the people, the strategy and the track record. When making a co-investment where they are a fund investor, the LP has the benefit of having done that diligence on the manager and so, if it is a company in an industry that the manager has been very successful in investing in, they already have a high level of comfort.

Striking a balance is key. “We still do our diligence on that business,” says McCrary. “We’re not going to hire consultants ourselves, but we will typically have an opportunity to meet with the management team and look at all the work the sponsor has done, including their internal investment memorandum, the consultant reports on the markets, the accounts, etc. We have ample time to talk to the deal team at the private equity firm regarding the business.

“Then we add our own diligence, talking to other sponsors that may be experts in the industry or sector to get their view. We do a lot of diligence on each of the deals, but co-investors need to balance the idea of doing their own due diligence with being a good partner and being easy to work with for the manager.”

There are many differences between making a co-investment and a direct investment, and these cannot be learnt overnight. The temptation – and there is more than a grain of truth to it – is to think

“You have to remember that you are piggybacking on a GP’s hard work. Instead of trying to cut the very best deal for yourself, you should focus on being a supportive deal partner”

Claudio Siniscalco – Deutsche Bank

FEATURE

8 Q4 2014

that good direct deal-makers will make good co-investors. But there are differences. “It takes years to learn those differences,” says Siniscalco. “If you are in the direct-investment business you are typically in the business of creating optionality for yourself. You work on transactions for six months until the deal is absolutely right and fully baked and you have walked away from the table and come back and re-priced it and negotiated every fine line and dotted every I and crossed every T in the contracts, and you walk away one more time and you get a three per cent price reduction. That’s the direct-deal business.

“Co-investing shares all the important characteristics of having to understand the fundamentals, valuation and all the things that are incredibly important across those disciplines, but the actual deal process is completely different,” Siniscalco continues.

“It’s usually four to six weeks rather than four to six months. And you have to remember you’re being offered a the privilege of piggybacking on the lead GP’s hard work and getting access to their deal. So instead of trying to cut the very best deal for yourself, you should use the time you have to be as focused as possible with your due diligence, while being as user-friendly and supportive a deal partner as possible.”

Being easy to work with means that a separate team is needed to do anything other than ‘blind’ co-investment. “It is resource intensive over a shorter period of time, so you have to have a dedicated team and you have to have a team that understands the nuances of investing directly with the GP,” says McDonald.

The onus is on the LP to be as transparent and as quick and as

responsive as they possibly can be. GPs don’t mind a quick no, but mess them around and you’re unlikely to be on the invite list when the next opportunity comes around.

“If I see that I am not going to get there, I need to give a quick ‘no’, rather than engage in a prolonged kicking of the tyres,” says Siniscalco. “The biggest flaw – and I’ve seen this in several market participants who’ve joined the co-investment community from the direct investment business – is that if you’ve spent a decade creating optionality for yourself and trying to work a deal from all angles, you will increase the risk of having a reputation as a ‘back-seat driver’ as opposed to a supportive partner.”

Maxwell agrees. “There’s no point in saying, ‘We’re going to look at this, and we need two months and we’ll come back and let you know if we want to take it further’.

“You’ve got to be able to react very quickly – you need to be tooled up in terms of personnel and experience and systems to be able to approve the initial stages and the due diligence, and then press the ‘go’ button if you’re going to do it. And if you screw the GP around, you tend not to get the call next time round.”

There are two basic types of co-investment, and each has markedly different characteristics. If it is a larger transaction with one of the larger firms, the GP will commit the entire amount, close the deal and then after the fact they may look to reduce their exposure by bringing in their co-investors. The process is very ordered, with a book drawn up and potential co-investors given the opportunity to meet with management.

“It’s a defined and relatively quick syndication process, sometimes just two or three weeks. You have to move quite quickly and I think the more experienced your team, the better you can respond to the situation,” says McCrary. “But there can also be deals where you actually join the private equity firm when they’re meeting the management for the first time. And you get more involved in the earlier part of the process and it might be three months from that first time until you actually commit or close.”

It is a timetable and process that many institutional investors are not suited to. “You need to understand the drivers of the companies concerned. You need to understand the capital structure. You probably have to have the ability to move in a lot tighter time frame. If you’re underwriting alongside a GP you need to be able to perform in line with the timescales associated with the transaction. Even if it’s a post-syndication exercise, there’s a fairly prescriptive period of time, usually three to six weeks. You have to have a reactive investment committee, you have to have the resources and team available to act within these deadlines, and to be able to come to a view very, very quickly as to whether or not you want to proceed or not,” says McDonald.

Forget the idea of taking August off. One well-known European private equity fund operated a ‘waterfall’, where co-investment opportunities were offered first to its cornerstone investor, a large French institution, then to a second tier of fund-of-funds. The problems came when they tried to syndicate the equity on a deal

Dennis McCrary: “Co-invest reduces blended fees”

CO-INVESTMENT


“As a co-investor you can concentrate in a particular sector or region or increase your exposure to a particular asset. So you’re far more in control of how your capital is deployed”Graham McDonald, Aberdeen Asset Management

after it had closed. The French institution was on holiday and didn’t respond until the team was back at work in September, politely declining the offer. The funds of funds were wary, asking why they should invest if the fund’s cornerstone backer wasn’t interested. The GP was left holding a covenant-breaching amount of investment.

But co-investors do need to be available at unsociable hours. “I got an email this morning asking me if I was interested in co-investing with a US mid-market buyout group,” says one European investor. “There’s a management conference call in a week, and it’s pretty inconvenient because it starts at 9pm, because it’s US time. Then I’ll have a fortnight to decide whether I want to invest. It’s all a bit of a hurry.”

GPs have a variety of reasons for bringing in LPs. “The fundamental reason is that the deal’s larger than what works for the fund, but I think more and more you’re seeing GPs use this as a tool to build LP relationships, because they recognise that many LPs want co-investors,” says McCrary. “Sometimes you have groups that are in the process of raising the fund and they’re trying to develop relationships with LPs that will subsequently invest in their primary fund. They may use a co-investment as an opportunity to have that LP get to know them and vice versa, and that may be an enticement then for someone to ultimately come into their primary fund.”

For LPs, a co-investment with a GP where they have no existing relationship can give them insight into how the manager conducts themselves, because the LP has access to the investment paper, the

Lower returns – how co-investments perform

It’s pretty simple economics. Reduce the fees and you increase the return. “Historically people have assumed that co-investments were better than fund investments,” says Hans van Swaay of Lyrique Private Equity. “Why? Simply because you pay no fees, or at least far less fees. But most money went into co-investments during peak years like 2006-07. Why? Because everybody wanted to keep up with the Joneses, do the biggest possible transaction and raise a bigger fund. Many of these deals didn’t work out very well at all.”

In a September 2014 paper that will be published in the Journal of Financial Economics, Lily Fang of INSEAD, with Josh Lerner and Victoria Ivashina of Harvard University, looked at the actual performance of private equity co-investment. The dataset comprised detailed cashflows for 390 direct investments made by seven institutions from 1991 to 2011.

“We examined the investing patterns, as well as the performance of these direct investments. We compared them against that of public market indices and private equity funds, thus directly assessing whether the trend towards ‘going direct’ is economically justified,” they said.

Their findings were “surprising”:Direct investments perform better than tailored public market indices. The best performance is concentrated in the buyout fund investments and those made in the 1990s.There is limited evidence of outperformance of direct investments relative to the corresponding private equity fund benchmarks. For venture capital (VC) deals, direct investments underperformed the fund benchmark, especially in the1990s.Co-investments underperform the funds with which they co-invest, with the performance gap widening in the latter half of the sample. This under-performance of co-investments, which are executed alongside private equity groups and are the cornerstone of most direct investment programs, is surprising.Underperformance is driven by selection. Institutional investors can only co-invest in deals that are available. In particular, these transactions appear to be concentrated at times when performance is relatively poor.

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deal team, board packs and management team. “You get up-to-date referencing on how the GP is behaving, how the GP conducts themselves, how they influence the growth in the company and how they influence the governance of the company,” says McDonald.

Whether or not you can improve your returns through co-investment relative to typical fund investing is a function of whether you think you can choose deals that are going to outperform. History would seem to show that LPs cannot stock-pick (see panel above). McCrary says: “But it makes sense to do it, even if you felt you were going to basically perform the same way as the underlying funds, because the overall fee level is lower.”

LIMITED PARTNER PERSPECTIVES

10 Q4 2014

Diamonds in the rough

John Holloway runs Europe’s largest venture capital portfolio for the European Investment Fund. The policy remit is to support SMEs, but for Holloway the bottom line is equally important

JOHN HOLLOWAY – EUROPEAN INVESTMENT FUND


W hatever you do, don’t call John Holloway a bureaucrat. Factually accurate it may be – as head of equity investments at the European Investment

Fund (EIF), the small and medium sized business (SME) support arm of the European Investment Bank (EIB), Holloway is directly employed in Luxembourg – but the affable Yorkshireman is a private equity guy through and through.

Holloway is on the front foot as we meet in London. His conversation is peppered with phrases like “commercial return” and “profit motive”, and his passion for the job is undiminished after 14 years. In fact, you get the distinct impression that he would still be doing it if he wasn’t paid, and despite just celebrating his 60th birthday with the birth of a first grandchild, Holloway is not likely to be retiring any time soon.

Funding for growthThe EIF exists to fund start-up, early-stage and mid-cap businesses, which it does exclusively through intermediation, investing in private equity funds such that 96 per cent of the organisation’s €9bn of committed capital is in primary funds, with a tiny – albeit growing – percentage allocated to secondaries and co-investment.

“Our whole aim in life is to facilitate access to finance for small and medium-sized and small mid-cap businesses,” he says. Typical of the lower mid-market funds the EIF will support is UK player Dunedin. The Edinburgh and London-based buyout house raised £300m for its third fund in 2013. The fund, which will invest in companies with an enterprise value of £25m-£75m, attracted significant interest from international investors and hit its hard cap. But Holloway is quick to point out that the EIF is not simply following the crowd and that funds such as Dunedin sit firmly within its policy objectives.

“Dunedin is one of many I could mention as a classic example of what we would call lower mid-market,” he says. “They’re investing in still small and medium-sized companies towards the mid-cap definition. They’re growing companies. They buy them, they build them, they sell them at a bigger exit valuation. It’s as simple as that. We look at it from a policy point of view because that creates confidence and economic growth.”

By value, lower mid-market investments account for an increasing proportion of the EIF’s investment, today representing less than one half of the total investment portfolio.

If it follows that the majority of the value of the EIF’s investments are in early-stage companies, then it can be said that the vast majority of its relationships are with smaller managers. The institution supports technology transfer from universities,

“You want to support new things and you want your money back. The concept that this is public sector money being poured down a drain is an absolute fallacy”

incubators, and early-stage and late-stage venture capital, as well as smaller buyouts and growth investments.

“There is not an awful lot of money going into early stage from the private sector,” says Holloway. “Europe wants an early-stage VC industry and I think that’s absolutely right. But the sector is still suffering the legacy of 2000 when the bubble burst and returns have not been sufficiently attractive to bring in a large number of private investors. There are some funds in the VC space that will raise good fund sizes, but there are very few VCs – genuine VC funds in Europe – that can raise money without public sector support. That’s just a fact.”

The end of the beginningWhen it comes to supporting European venture, the EIF pursues return generation, but it is also mandated to make that return from investing in smaller businesses and has the strength of being able to absorb the losses of the past and continue investing in what Holloway believes is now a more promising market.


12 Q4 2014

“Returns from venture in the first part of the millennium have been, as you would expect, extremely poor,” says Holloway. “The old VC portfolio is largely in run-off. More than half the managers who were in that portfolio are no longer here.

“What I am really proud of is the performance of early-stage funds from 2008 onwards. They have had some good realisations and TVPIs are holding up, valuations are holding up. There are a lot of companies in portfolios that could realistically be bought, but one of our realisations for the period from 2008 onwards is that GPs don’t sell companies, buyers acquire them.

“That might sound facetious, but it’s true. Our GPs have in their portfolios a large number of super-looking companies that will ultimately make a satisfactory return for investors. Even now there is real evidence of exits being achieved, with 2014 looking to come out as the best year yet for returns from VC, and with more to come.

“I said that the ridiculous situation of 2000 would cost the European venture and early-stage industry 20 years. Nobody else has a portfolio that is as big and as clear a pointer to where this industry is heading as us. The good news is that we’re in year 14.”

Holloway believes that around €100m is a normal minimum size for a VC fund to be viable for the fund to be able to make its first investments, follow the companies it has backed and provide the necessary support throughout the growth phase.

“We support VC funds of less than that, particularly if it’s a first-time team, because the industry will only be self-perpetuating if new people come in. Anyone looking to raise a first-time fund

‘The only EU organisation with a profit motive’This year the European Investment Fund (EIF) is celebrating its 20th birthday. “The EIF is a remarkable animal because it’s a European Union organisation that was born in Britain, or Scotland to be more precise,” explains John Holloway, director of private equity investments for the Luxembourg-based organisation.

“The fund’s main job in life was to write guarantees in favour of the lenders to the TENs, the Trans-Europe Networks, which were the big infrastructure projects of the 1990s – roads, railways, ports, airports and the likes.

“A short while later they started doing equity investments as a fund-of-funds, and built up a small portfolio and a small team of people through to the year 2000. By that time it also had a small business guaranteeing portfolios of SME loans to allow banks to offset risk so they could do more SME loans.”

The year 2000 was a turning point for the EIF, which underwent a significant restructuring of its shareholder base. When it was established in 1994 the European Investment Bank (EIB) had a 40 per cent stake, the European Commission 30 per cent and a group of 80 public and private financial institutions held 20 per cent with the rest unallocated.

As the new millennium dawned, the EIB decided that, as the principal shareholder, it wanted to increase its stake to a genuine controlling position, which it duly did – buying out the other shareholders and ending up with a stake of approximately 60 per cent.

The EC retained a 30 per cent stake. Many of the financial institutions sold out, leaving a total of 28 organisations holding around ten per cent.

“The EIF is the only European Union organisation with outside shareholders,

and it’s the only European Union organisation that has a profit motive. Not only do we have to do policy, we have also to return money to our shareholders,” says Holloway.

As part of the restructuring process, the EIB, whose raison d’être is to finance large-scale infrastructure projects, took control of the EIF’s project finance guarantee business, while the equity portfolio – then valued at about €100m – was transferred to the EIF, along with a team of ten executives, including Holloway.

That equity business now has 55 employees, commitments of more than €9bn in 450 investments in private equity funds and 280 live GP relationships.

Compared with most LPs, the EIF has an awful lot of GP relationships. It is, Holloway explains, in the very nature of the EIF.

CVJOHN HOLLOWAYJohn Holloway is director of the European Investment Fund, a position he has held for the past 14 years.

His role gives him responsibility for the development of the Venture Capital and Portfolio Guarantee transactions in support of European small and medium-sized enterprises (SMEs).

He is currently responsible for all equity transactions entered into by the EIF, with approximately €12.5bn of assets under management, invested in over 300 fund managers.

Holloway is a member of the EVCA LP Platform Council, and a former vice-chairman of the board of directors of the EVCA.

He joined the European Investment Bank (EIB) in early 1980, and in more than 20 years with the organisation has had different responsibilities in a number of EIB lending departments in Luxembourg and Rome.

Before joining the EIB, Holloway spent four years at the London-based international division of National Westminster Bank.

JOHN HOLLOWAY – EUROPEAN INVESTMENT FUND


money back. In other words, you are a market-orientated investor. The concept that this is public sector money being poured down a drain is an absolute fallacy.”

For the EIF, manager selection is the determinant of asset allocation. “We don’t have a top-down system that says this year we are going to invest 12 per cent in a particular country or early-stage or whatever else,” says Holloway. “We don’t do it because we can’t do it and it wouldn’t be wise to do it. Why?

“Imagine we had decided 12 per cent of the portfolio would be invested in a particular country and by October we’re only at nine per cent. Then three general partners from that particular country walk in the door and, we say great, our target has been met even if they are not up to the required standard. What do you do? Do you meet your target by investing in something you don’t think is right, or do you do it the other way round and say this year the particular country is nine per cent?”

That is not to say the EIF doesn’t have a plan, and the EIF is currently working on its 2015 investment plan. “I’ve got the basic figures for next year. The plan is built bottom-up from the investment managers, through their team leaders and into me. There are three teams – tech transfer, VC and lower-mid market – and they know who is going to be raising money in their market next year. That feeds the plan, not just geographic or stage allocations.”

in Europe will come to us and, if the team convinces us, we will support them substantially. They still have to find support from other sources, but the EIF’s strong support, frequently around one third but sometimes more, does act as a bit of a reference. Certainly, without the EIF many funds would not find a first close.”

Reference or not, raising early-stage VC is still a struggle. The traditional pension funds and insurance companies that support the wider private equity industry tend not to look at early-stage, but Holloway says there is increasing interest from family offices and business angels. The EIF has initiated programmes to support business angels that have been rolled out in Germany, Spain and Austria, with the Netherlands and Ireland scheduled for roll-out before the end of the year.

“The UK has a very, very active business angel function through what used to be Capital for Enterprise and is now the British Business Bank. Their model is not exactly the same as ours, but we know each other and we work together,” he says.

Biggest partner“Capital for Enterprise is the second biggest partner of the EIF. We have worked together on many deals with them over the years in the UK because we have the same investment scope and mentality. You want to support new things and you want your

John Holloway: Focus on performance


14 Q4 2014

Last year the EIF committed €1.4bn to 72 fund vehicles, and Holloway expects it to do more in 2014. But its selectivity policy still leads it to say no. The EIF sees an average 300 deals a year, so 230 fund managers walk away disappointed.

“A few are black and white – ‘you’re not in the EU’ – but the majority fall into the grey area in the middle, where it comes down to the investment policy and the team. The real joy of this business is when you take on a first-time team and they come back for a second and third generation. An even bigger joy is when they come back for the fourth generation and we can say ‘you don’t need us any more’. That has happened quite a lot and is what makes us proud because this is what ultimately builds a strong and healthy equity system.”

The next stepsSo where does Holloway see the EIF in five years? Not surprisingly, he refuses to be drawn into specifics – which will be determined by the market – but secondaries and co-investment are expected to play a greater role.

That, in theory, should help IRRs and returns. He emphasises that everything the EIF does has to be for policy reasons, but there is no harm whatsoever in using instruments to bring the returns in more quickly, because the return will be put back to work another time around. He says: “So long as SMEs are critical to the future of Europe, the EIF will continue to support them.”

“I am really proud of the performance of early-stage funds from 2008 onwards. They have had some good realisations and TVPIs are holding up, valuations are holding up”

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FEATURE

16 Q4 2014

R ed tape – excessive or burdensome regulations – cost the UK economy £27.4bn in 2013, according to an impact assessment of 100 EU regulations by Open Europe. From

Australia to China, the US and everywhere in between, governments are promising to cut billions of dollars in unnecessary cost to business. Britain’s CBI, the employers organisation, has said that red tape is the number one factor hindering economic growth.

Environmental, social and governance (ESG) issues are an area where the hand of the so-called ‘nanny state’ can clearly be seen.

Take the UK’s Carbon Reduction Scheme (CRC), introduced on April 1, 2010. Part of the Climate Change Act 2008, the CRC was significant because it was one of the first tangible signs of ESG having a quantifiable impact on a company’s bottom line, as companies were fined for excessive use of carbon. The impact was one that could be brought directly into financial models, with measurable impact on cashflow, profits and enterprise value.

The private equity industry was particularly upset. Portfolio companies were counted as groups and had to be included if their aggregate energy spend was more than £500,000 per annum.

Simon Walker, then chief executive of the BVCA, wrote: “Clearly, this disadvantages private equity-owned companies, many of which will fall below the threshold individually but will be brought in to the scheme in aggregate with other portfolio companies, disadvantaging them simply because of their ownership model.”

Cost or benefit?Dushy Sivanithy, principal at global private equity investor Pantheon, says private equity has traditionally been wary of ESG: “The perception is that ESG costs you something in terms of your return. That kind of makes intuitive sense, but there is very little evidence of it. We currently using our own data set to determine if we can find a correlation between better performance and good ESG management. What we are really asking is: are GPs aware of the issues within their businesses on ownership? Are they managing those issues appropriately?” Put like that, ESG takes on a different

Far from being a cost to private equity, new research from Pantheon shows that good environmental, social and governance practices are a driver of value

How ESG can really drive those returns

slant. Instead of being about cost, it is about risk management – a relabelling that puts it firmly on the investment agenda.

So do ESG practices influence returns? “You need to rephrase your question to ask if ESG influences risk-adjusted returns,” says Ludo Bammens, head of EMEA corporate affairs at private equity giant KKR.

“Return is always linked to a certain amount of risk, especially if you go for above average returns as you do in private equity. A lot of private equity is about whether you really had a full view to ensure there were no blind-spots related to any potential financial or other risks that might impact your investment thesis. I think everyone would agree that the ES and G factors have become, over the last number of years, potentially material risk factors. So, from

“Companies that manage ESG issues well grow faster, particularly on a revenue and EBITDA level”Dushy Sivanithy, Pantheon Ventures

ESG AND ALPHA


a risk management perspective, ESG is absolutely part of the value creation toolkit.”

That’s the theory, but what about the practice? Over the summer Pantheon published preliminary research that has showed a correlation between good ESG practices and good returns in private equity. “Early indications are that there is a correlation – and I stress these are very preliminary results – between good ESG management and growth. Companies that manage ESG issues well grow faster, particularly on a revenue and EBITDA level. So, obviously, if you multiply those out that leads to a better return,” says Sivanithy.

For the past 18 months Pantheon has been working with Dr Andreas Hoepner, associate professor of finance at the ICMA Centre at Henley Business School and senior academic fellow at the United Nations-backed Principles for Responsible Investment (UNPRI).

The research collaboration employs Pantheon’s proprietary private equity data set, which includes global data on approximately 9,500 portfolio companies built up over 17 years. The research focuses on the period from 2007, and the initial analysis is based on a controlled data sample of 400 firms. The negative news data was sourced from RepRisk, a leading business intelligence provider on ESG risks of both listed and non-listed companies worldwide.

“We have a sample of about 400 firms where Pantheon invested

KKR’S ESG TOOLKITSELECT PRIORITY KEPAs

Review current environmental practicesAssess environmental and business impact through materiality assessment

ESTABLISH METRICS AND BASELINEEstablish key metrics to assess progress for priority issuesCollect historical data and establish baseline for selected metrics

DEVELOP GOALS AND ACTION PLAN Identify improvement targets against selected metricsDevelop and implement action plan

MEASURE AND REPORT RESULTSReport on performance against baseline and targets quarterlyReassess and amend as necessary

••

•

•

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FEATURE

18 Q4 2014

in them after 2007 and there has been an actual valuation event,” explains Hoepner. “We looked at the investments that have very high multiples – 2.5 times, two times and so forth – to see if these investments have a different distribution of negative events to investments with low multiples. The results are very clear.”

ESG offers an opportunity for private equity firms to add value. “Historically people have said if a business is bad, don’t buy it. The decision has been very binary,” says Sivanithy. “What we’re seeing now from the more forward-looking GPs is a willingness to buy businesses that clearly have issues, but identifying them up front.

“In the past we used to see GPs buying businesses that had issues but not picking them up in due diligence and getting surprised later on. The level of diligence has definitely increased over the past five years. Those GPs that actually do identify issues in due diligence and don’t walk away actually have risk mitigation as part of the value-creation strategy. So in that sense the focus is quite positive.”

Core business modelFor some businesses in private equity ownership, ESG is fundamental to their business model. For example, KKR invested in Van Gansewinkel Groep, the largest waste management and processing group in the Benelux. “The whole sustainability agenda is not disconnected from the business model, it is a core part of what the company does,” says Bammens.

“Therefore by driving and pushing your sustainability agenda you are at the same time driving the core business model of the company.” Since KKR’s investment, the company has established a whole new advisory business linked to the prevention and recycling of waste within large companies.

The environmental issue is an easy sell, and the private equity industry has long believed the governance model of concentrated ownership with active management equity participation is superior to other forms of corporate structure. But what about the ‘social’ in ESG? Surely being socially responsible is just a nice-to-have and not a driver of shareholder value?

Bammens pulls out another example. In July 2014 KKR invested in Afriflora, an Ethiopian-based fresh vegetable and flower grower that exports to continental European markets.

“A specific dimension of the investment is the community development angle,” he says. “It is more than a nice thing to do, making sure there is access to education and healthcare. It is linked to the core business model because 80 per cent of the employees, 13,000 of them, are women. Making sure that they can say, “My kids have access to education, I and my family have access to good healthcare”, that is a differentiator towards both workforce and end customer. So it’s an integrated part of their business model.”

Sivanithy says it is important to pay attention to ESG issues from the point of investment, through ownership and on to exit. “It is about identifying in diligence whether there are issues or no issues, fixing them, maintaining standards or improving them over your period of ownership, and so demonstrating the company has very strong ESG credentials in the way it operates, because such

businesses will actually attract a premium on exit, particularly in emerging markets. Trade buyers and public markets have a binary decision about whether they are willing to buy something with an issue, and the answer is no. That’s quite a powerful statement, and a lot of GPs have taken that on board. They want to be sure the business is clean and free of issues.”

KKR more than ten executives focused on managing ESG issues and improving the performance of portfolio companies. KKR is also working to integrate an awareness of ESG management throughout all roles at the firm, as evidenced by its new global private equity ESG policy. And it is rigorous in measuring the impact. Since establishing its programme in 2008, 25 portfolio companies have taken part, with 19 of them releasing results in 2013.

Collectively, through their efforts in key environmental performance areas, these companies avoided roughly 1.8m metric tons of GHG emissions, 4.7m tons of waste, and 19.5m cubic meters of water use. Significantly, these savings have achieved an estimated $917m in financial impact.

It all sounds like good news for anyone who thinks you can make a profit without destroying the planet or the lives of the people that live on it. But Sivanithy adds a word of caution: “LPs have got to be very cognisant of the size and capacity of a GP. To expect the same standards from a mega buyout house and a small mid-market house of ten people just isn’t realistic, even though some of them are very progressive with ESG fully baked into the investment process.

“What we don’t want to do is burden the GP with unnecessary data requests and questions that either aren’t relevant or, quite frankly, don’t add anything to informing yourself about whether the business is well run or not.”

Dushy Sivanithy: Little evidence that ESG costs more

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INDUSTRY PROFILE

20 Q4 2014

John D Rockefeller had a simple formula: “The secret of success is to get up early, work late and strike oil.” It works as well today as it did 100 years ago, and the world’s five largest

companies by revenue – Exxon Mobil, Royal Dutch Shell, China National Petroleum Corporation, Sinopec and BP – all make their money from the black stuff.

Rankings of the world’s most valuable public corporations (which necessarily exclude national oil companies and other private enterprises such as Saudi Aramco or CNPC) give an alternative route to untold wealth.

Exxon Mobil is still there as the second most valuable public company, but it is sandwiched between Apple ($560bn at the end of the second quarter of 2014), Microsoft and Google. Fifth place goes to a unique animal, Berkshire Hathaway, which is effectively a private equity firm.

Onwards and upwardsApple, Microsoft and Google all owe at least part of their success to venture capital. Microsoft may have eschewed the traditional route of seed, start-up and multiple early-stage rounds, but Bill Gates’ software business still took on a small VC investment in the early 1980s not because it needed the money, but because it wanted the expertise of Dave Marquardt of Technology Venture Investors (TVI) ahead of its 1984 flotation.

So you might think that a year into the job, Bobby Franklin, president and CEO of the National Venture Capital Association (NVCA) can take it easy.

Franklin, a veteran of Capitol Hill and the telecoms industry (see CV p23), is in relaxed mood, but even over the phone you can feel his enthusiasm for the ‘ecosystem’ that has produced so many world-beating companies (US VCs have invested in 17,000 IT companies, 4,800 in healthcare and 900 in cleantech).

“It’s about lobbying policymakers, having a good communications effort, organising the grass roots, working with coalitions of other

US venture capital is the envy of the world, and Bobby Franklin has a steady stream of politicians and industrialists knocking on his door eager to find out how it’s done. The head of the NVCA tells Limited Partner magazine the secrets of its success

Venture evangelist

industries that are on the same page on important policy issues such as immigration and tax reform,” he says. “I won’t say it’s an easy mission, but it’s certainly made easier by having a good story to tell. There aren’t policymakers that don’t want venture capital in their state, district or country. On the contrary, they are all trying to figure out how they can develop entrepreneurial ecosystems.”

Franklin is not always preaching to the converted. Some issues – immigration is an obvious example – are much trickier. “We

“I won’t say it’s an easy mission, but we have a story to tell. There aren’t policymakers that don’t want venture capital in their state, district or country”

BOBBY FRANKLIN – NATIONAL VENTURE CAPITAL ASSOCIATION


INDUSTRY PROFILE

22 Q4 2014

recognise the contribution that immigrants have made to the entrepreneurial ecosystem because we continue to need highly skilled workers and we recognise that a high percentage of new companies in the US are formed by immigrant entrepreneurs and founders,” he says.

For the ecosystem to work effectively, the right regulations need to be in place. And venture capital, huge as it is in the US, is still a niche industry that can get caught in nets designed to catch bigger fish. “We’re really proud of our achievements to help secure passage of the Jobs Act in 2012,” explains Franklin.

“Prior to that there had been a real slowdown in the ability of companies to go public. A lot of the Jobs Act provisions made it easier for portfolio companies to have an exit opportunity, which means the returns can be sent back to limited partners who can then re-invest that capital in the next set of funds so that the cycle can start over again.”

The Jobs Act went a long way to redressing the balance for

smaller and mid-cap companies that had found the route to public ownership much more onerous in the wake of post-Enron, post-crisis legislation such as Sarbannes-Oxley and Dodd Frank.

“Young companies thinking about an IPO had to disclose a lot of information that was available to their competitors, so for many the provisions of confidential filing were very important.”

A big area of focus for the NVCA is the life-sciences industry, where it has lobbied hard to get the Food & Drug Administration (FDA) to recognise the fact that many of the newly-approved drugs and devices come from small start-up companies, rather than ‘big pharma’.

“The regulators will now sit down with companies that are going for approval and give them guidance on exactly what needs to happen before the process starts,” says Franklin.

The NVCA was set up as a lobbying body by entreprenueurs, investors and the earliest VCs. Its primary aim was to create a favourable tax environment for start-ups and an early success was

promoting legislation in the 1980s which allowed pension funds and endowments to invest in private equity and venture capital.

“Over the past four decades we have been involved in debates with policymakers over the tax treatment for investors who are very long-term, very high-risk capital, and the importance of that capital for the entrepreneurial ecosystem,” says Franklin. “Policymakers need to be constantly reminded how important that is.”

About the National Venture Capital Association

The National Venture Capital Association (NVCA) has been in existence for 40 years, lobbying on behalf of the entrepreneurial ecosystem. Despite its age and undoubted success in selling the VC industry’s story, the organisation employs only a dozen people.

As the voice of the US venture capital community, the NVCA empowers its members and the entrepreneurs they fund by advocating policies that encourage innovation and reward long-term investment.

Membership of the NVCA is open by invitation to all professional venture capital firms and corporate venture capital investors who are responsible for investing risk capital in developing companies or industries.

Members benefit from representation, professional development, networking, member peer groups, research and publications, public relations, business and travel discounts, and access to information regarding venture philanthropy, impact investing and social entrepreneurship.

“The Jobs Act made it easier for portfolio companies to have an exit opportunity, so returns could be sent back to limited partners”

Cambridge Associates US Venture Capital Index 1 Year 3 years 5 years 10 years 15 years 20 yearsUS Venture Capital – Early-Stage Index1 30.9 16.0 14.5 9.3 82.1 47.8 US Venture Capital – Late & Expansion Stage Index1 33.4 14.7 18.5 12.7 9.4 11.7 US Venture Capital – Multi-Stage Index1 29.1 14.4 12.3 10.6 8.2 13.8 US Growth Equity1 24.8 15.8 18.1 13.6 NM NM DJIA 15.7 13.0 19.9 7.5 6.0 10.3 NASDAQ Composite* 28.5 14.7 22.4 7.7 3.6 9.0 S&P 500 21.9 14.7 21.2 7.4 4.5 9.5`Source: Cambridge Associates

US Venture Capital returns

BOBBY FRANKLIN – NATIONAL VENTURE CAPITAL ASSOCIATION


Selling the storyChief is the belief that long-term capital gains should be taxed at a lower rate than ordinary income. “In general there is some recognition that long-term capital needs to be treated favourably, but the debate that has been teed up is looking at changes to the treatment of long-term capital in the context of comprehensive tax reform,” he says.

“There have been a number of ideas floated that are not good for this sector and we’ll keep watching those and providing a voice for the entrepreneurial ecosystem.”

A big part of the NVCA’s remit is to provide research and data on the activity and performance of the venture capital industry. Franklin is content that the US VC industry is performing well and communicating the right information to all stakeholders. The NVCA – together with PricewaterhouseCoopers and Cambridge Associates – publishes quarterly updates on investments, fundraising, exits and the all-important returns data.

The performance of US venture as an asset class is nothing short of remarkable (see table on facing page). The ten-year return for all stages of venture capital fund to December 2013 is 9.7 per cent, a performance that might not attract you to an asset class until you consider the fact the period includes the dotcom bust. Take a shorter view and the picture is much brighter, with a five-year return of 15.3 per cent or a one-year gain of 27.2 per cent. Take the long view, 20

CVBOBBY FRANKLINBobby Franklin took over as president and CEO of the National Venture Capital Association (NVCA) in September 2013. He leads and oversees the strategic direction of the 400-strong member association on behalf of US venture capitalists and the startup ecosystem.

Before the NVCA Franklin spent ten years at CTIA, a large Washington-based trade association representing the wireless industry. He was responsible for helping to manage the organisation’s $58m budget and 90 employees.

His achievements include successfully lobbying for legislation that reclaimed highly valuable radio spectrum, which was auctioned off to wireless carriers to meet increased demand. Before joining CTIA Franklin was a vice-president of federal government affairs and head of Alltel’s Washington office.

Franklin began his professional career with nearly eight years’ experience on Capitol Hill working on various issues in the office of Senator David Pryor.

Bobby Franklin, NVCA president and CEO

years, and venture capital has returned an annualised 30.8 per cent, compared with 10.3 per cent for the Dow Jones Industrial Average, 9.0 per cent for Nasdaq or 9.5 per cent for the S&P 500.

“We believe the industry is very transparent,” says Franklin. “We provide a lot of data on what is still a private financing event with contracts between two parties. If any limited partner thinks there is insufficient transparency, they are certainly in a strong position to make changes and get it.”

Innovation is not just in disruptive companies, it can be seen in the models that are used to finance them, such as with the recent rise of crowd funding.

“On the investment side there are lots of things happening between seed and exit,” says Franklin. “The US has the whole package. You have universities that are accustomed and used to transferring technology that has come out of their research and development to commercial products or private companies.

“So you have universities, entrepreneurs, investors and other service providers, from lawyers to employment agencies, that help them get the human capital they need to scale up and grow. And you need to have this whole ecosystem thriving to be able to experience what the US has over the past several decades.

“It takes a whole ecosystem to make it work, and that doesn’t happen overnight.”

FEATURE

24 Q4 2014

Private equity real estate is notoriously illiquid, so the secondary acquisition of 31 investors’ stakes in Trophy Property Development, a China-focused property

development fund, marks a welcome extension of the secondaries market into the real estate segment.

Trophy was formed in 2007 as a seven-year fund by Winnington Capital and invested in five development projects in China. The fund raised $1bn from 140 limited partners (LPs), a number of whom were big institutional pension funds in the US, but a significant proportion of which was made up of individual investors holding $100,000-$250,000 positions.

After a restructuring in September 2013, Venator Real Estate Capital Partners replaced Winnington as investment advisor to Trophy’s general partner (GP).

‘Transparent team’“We are a highly transparent management team and we wanted to do the best we could for LPs who were in a difficult situation,” explains Harriet Dedman, director of legal and investments at Venator.

“For those investors who wished to exit following the restructuring of the fund, we wanted to do all we could to facilitate that for them.”

As part of the restructuring, Venator had already initiated an asset swap with Hong Kong-listed Shui On Land, a partner in the original development projects, to exchange Trophy’s minority stakes in the five original projects for a majority stake in Taipingqiao 116, a 968,000 square foot residential development in central Shanghai.

Tullet Prebon Alternative Investments was instructed by Venator in December 2013 to set up an auction platform for the assets, though informal discussions had been under way since August 2013.

“Tullet put in place the mechanics and then held the hands of limited partners that were looking to sell their stakes through that process,” says Dedman.

“As well as talking to existing limited partners to see if they

Private equity real estate secondaries are rare. Does the general partner-led auction of positions in China’s Trophy Property Development provide a transparent route to liquidity for others to follow?

Auction shows way forward for secondaries

wanted to increase their interests in the fund, Tullet also approached interested third parties, such as the ultimate purchaser – Partners Group.”

The secondaries market has grown dramatically over the past two decades, but it remains shrouded in mystery. “The secondary market has been around for a very long time,” says Neil Campbell, head of alternatives at Tullet Prebon.

“In my view it has been very, very inefficient and very opaque, with LPs tending to push the sales process through and GPs being very reactive. When you get a GP being proactive what you end up

“GPs are very coy about releasing this kind of information, so the LP gets a price that is considerably lower than if the GP were active”Neil Campbell, Tullet Prebon

SECONDARIES


with is a process that is very, very efficient, which has got to be to the benefit of the LPs.”

Of the original 140 LPs, 40 expressed an interest in selling, representing around $200m of the original $1bn commitment. There were expressions of interest in buying the LP stakes from 20 bidders, including some of the fund’s existing limited partners, and there followed a series of auction rounds conducted through sealed bids.

Campbell says where this transaction differs from most secondary auctions is that the active participation of the GP made it easier to market the deal to third-party investors.

“The first thing you do as an intermediary is approach the existing investors in the fund, because they know all about the underlying investment and have a good handle on what is in the fund and may want to add to their position.

“Next you approach secondary buyers, but if they are not already in the fund it can be difficult for them to get information from the GP because GPs are very coy about releasing this kind of information. So what happens is the LP gets a price that is considerably lower than they would get if the GP were actually active in the process.”

Switzerland-headquartered Partners Group won the auction, offering the highest bid that was accepted by 31 of the selling LPs, accounting for 12 per cent of the fund’s capital.

“Partners Group had been monitoring the assets within the overall Trophy portfolio for several years, even before the involvement of Venator,” says Marc Weiss, partner and head of real estate secondaries at Partners. “With the programme successfully restructured by Venator and a strong management team now in place, Partners Group is pleased to have been able to structure a secondary offer that benefits all parties involved,”

WatershedTalking to the various parties, the deal is a clear win-win, but does it represent a watershed in how secondaries transactions will be completed in the private equity marketplace?

“Now the platform is established it is something we could revisit if there is demand to do so from our limited partners,” says Dedman.

“The question is whether there will be a time again when there is a third party interested in acquiring an interest in Trophy. The restructuring transaction was signed in September 2013 and closed in September 2014, so once it closed a degree of risk went away. The auction process was a tempting proposition for secondaries purchasers, who could secure the returns they were looking for.

“Now that the asset swap has closed, and some risks of the transaction mitigated, it is not yet clear whether there will be further appetite for secondary acquisitions. Of course, Venator will continue to monitor all opportunities for its investors.”

Harriet Dedman, director of legal and investments at Venator

“The auction process was tempting for secondaries purchasers, who could secure the returns they were looking for ”

FEATURE

26 Q4 2014

Trillion dollar babyThe private equity industry has just two years of investable capital at its disposal. Is this the start of a golden era for limited partners?

DRY POWDER


One trillion dollars. One thousand billion dollars. A million million dollars. $1,000,000,000,000. Whichever way you express it, $1tn is an awful lot of money.

That’s the amount of dry powder held by private equity firms around the world – more than was available in the peak boom years of 2006-07, according to management consultant Bain & Company’s Global Private Equity Report 2014.

Despite this massive war-chest, pressure on general partners to deploy capital has actually decreased. Bain says at the end of 2013, roughly $100bn of the $399bn available for buyout funds was of vintages 2010 or older, showing that the so-called overhang dating back to the boom years has been worked through. At the end of 2012, approximately $150bn of the $356bn of buyout capital was past its sell-by date.

“People were wondering what was going to happen with the capital raised during the boom and whether it would get out, be released, or whether LPs would approve extensions,” says T Bondurant French, chief executive officer of Adams Street Partners.

Fresh capital“The truth of the matter is that all of that happened in some fashion. Very little was released, there were more investments putting the dry powder to work, extensions were granted, and so now the composition of the dry powder has changed rather dramatically from two years ago. Now there’s very little dry powder that’s under pressure. The vast majority of it is fresh capital. It’s been raised in the last three years and is now ready to be invested.”

Bain cites the example of Bridgepoint, a pan-European buyout firm that had already called 76 per cent of its €4.8bn 2008-vintage Europe IV fund that was due to expire in November, which negotiated a one-year extension on the balance in August 2013.

In April 2014, Bloomberg reported that Bridgepoint was ready to go back to the market for a €4bn fifth European fund, though Securities & Exchange Commission filings in July did not disclose a target size.

Market analysis by Capital Dynamics is revealing (see chart overleaf). The percentage of capital in private equity described as dry powder for buyouts fell from a high of 47 per cent in December 2006 to 38 per cent in June 2014.

Across other sub-segments of the private equity industry dry-powder ratios have remained surprisingly stable, with distressed private equity and growth capital seeing the largest increases.

“We don’t believe we have too much money on the market today, given the volume of deal flow we can find on the market,”

says Benoit Verbrugghe, managing partner and head of Ardian in the US. “Competition is very high for good quality assets, but we don’t see this type of high competition for poor assets. The liquidity of the market is very strong today.

“Across most of our portfolio the amount distributed is higher than the amount called. This is because the refinancing market is very active, as is the IPO market. What is very interesting is that we are now seeing more and more significant acquisitions made by industrial companies.”

Significantly, the volume of exits globally was around 1,100, higher than the 750 new investments recorded by Bain. “The PE industry showed long-awaited signs of a return to health in 2013,” the consultancy concluded.

Another factor that needs to be taken into account when considering whether there is an excess of capital available for private equity is the price of assets.

“Over the past five years assets have become substantially more expensive in public markets,” says Peter Cornelius,

“There’s very little dry powder that’s under pressure. The vast majority of it is fresh capital. It’s been raised in the last three years and is now ready to be invested”T Bondurant French, Adams Street Partners

FEATURE

28 Q4 2014

managing director at Alpinvest. “So the amount of dry powder needs to be normalised by the price you pay for assets. So even if the numbers you mentioned are technically correct, they cannot be compared with a trillion dollars five years ago.”

In Europe, there is an estimated $150bn dry powder available for buyouts and there has been approximately $70bn of private equity transactions for each of the past two years.

“Intuitively there is two years of spare capacity in the market, which is not overly excessive given that the majority of funds are raised on a four- to five-year cycle,” says Graeme Gunn, partner at SL Capital Partners.

“If we’d been having this discussion in the early to mid-2000s, there would be three to four years’ dry powder. We don’t feel the European market today is out of kilter.”

Cautious investorsThe US market has been hot in terms of fundraising, and groups have quickly raised their target on the back of a longer recovery and bright prospects. The European economy is not accelerating as fast as the US and investors are cautious about the prospects.

There are certain pockets – the UK, Germany, Scandinavia – that are performing well, but France, the Benelux, Southern Europe and parts of Eastern Europe are still facing economic headwinds, which is acting as a dampener on fundraising but throwing up interesting investment opportunities.

“We obviously can’t determine how the end investor looks at that market, but there’s appetite there for all segments of the private equity market at the moment,” says Gunn.

“People are looking to put more money in, to increase exposure, if they have available capital. So I expect the available capital to increase over the next couple of years. When investors get money back they typically recycle it into private equity.”

Particularly in Europe, there has not been the post-crisis acceleration of deals that some people had expected.

Private equity is a subset of M&A, and while M&A has been strong in the large deal market, it has not filtered down to the core middle market M&A that is the bread and butter of the private equity funds.

“There is healthy competition for a relatively small pool of high-quality assets which intuitively drives the price up. Pricing

is very volatile at the moment, quarter-on-quarter. It’s down to the fact that if there’s strong deal-flow in a quarter then prices tend to be stable, but if it’s a bit tight and there’s an attractive company or two these can skew the stats,” says Gunn.

The private equity industry has been successful in attracting new funds in recent years, which means that some GPs are trying to raise significantly larger vehicles.

Discipline“We were talking to an individual manager at the end of last week and they wanted to increase the fund size to three times what it had previously been. When we asked why, he said ‘you have to’,” says one LP.

“That’s what you need to be very careful about – that discipline about the fund size and being able to stick to your strategy and get that capital deployed in a three- to five-year period.”

As always, the key to successful investment will be manager selection. This means that the best performing groups will not struggle to raise capital. “You have to select as limited a number of the best managers as possible in order to avoid too much diversification, otherwise your return will follow the index,” says Verbrugghe. “It is increasingly the case that capital flows to the best managers, which is why the good GPs are able to raise money quickly. That’s why today those who are not so successful

Graeme Gunn, partner at SL Capital Partners

Date Dec 06 Dec 07 Dec 13 Jun 14Buyout 47% 44% 37% 38%Mezzanine 4% 3% 4% 4%Distressed Private Equity 5% 6% 7% 6%Growth 3% 4% 7% 7%Venture Capital 13% 12% 11% 11%Real Estate 17% 17% 17% 18%Other 11% 14% 17% 16%`Source: Capital Dynamics

Dry powder as percentage of total

DRY POWDER


have difficulty raising money, because LPs have become more and more selective.”

For seasoned LPs, investment discipline is one of the most prized characteristics of a GP. “You really need to look at the underlying manager and determine their discipline in making investments,” says John Gripton, managing director at Capital Dynamics. “We’re looking for managers that are capable of increasing and decreasing the pace of investment so they’re not putting out money on a third, a third, and a third over a three-year period, but they really are taking a view on pricing in the market and whether they think the good opportunities are there. We expect them to wait for the right opportunities and not to just invest to get money to work.”

Private equity has generated outperformance for a considerable time, and not surprisingly, those in the industry feel it is well placed to beat other asset classes over the medium to long term.

“In Europe fixed interest is delivering very poor returns in the main,” says Gripton. “The quoted equity market is clearly volatile and has also not really delivered the returns that some investors have been looking for.

“You’ve got big deficits in pension funds that they’ve got to make up, and many clients, many pension funds, are looking to increase their exposure to alternatives, including private equity, which has been the best-performing asset class in their portfolios for more than 20 years.”

Asset allocation bands – your flexible friends

Maintaining or achieving particular asset allocation levels is always a challenge for LPs.

“We’ve had four years in a row where distributions have exceeded capital calls, and the excess of distribution over capital calls has increased to the point where it’s almost 2:1 now,” says Adams Street’s T Bondurant French. “People are obviously very pleased with that liquidity and they are very pleased with the realisation of unrealised gains.”

French says that investors should avoid simple percentage allocations to alternatives, which display lower volatility than public markets. “You want the flexibility to be able to continue to invest in a down market,” he says.

“But that’s going to be precisely the time when you’re going to be over-allocated, because public equities will have been down, which will pull down the size of the total plan. This is precisely what happened during the financial crisis.”

Graeme Gunn at SL Capital Partners says he continues to see a high level of interest in private equity, but that many are not able to satisfy their appetite. “People think it’s a good time to invest in private equity in Europe but there’s a lot of pension funds who are capped out on their allocations.

Local authority investment“We recently surveyed a cross section of UK local authorities and they want to invest more in private equity because they can see the returns over the long term – given it’s been difficult, obviously, in the equity markets to get the returns that they’re looking for. But at present they are in part stymied by asset allocation.”

Limited partners have been busy re-balancing their portfolios, as their exposure to private equity has been declining relative to what they have targeted given the dynamic in the equity market. The financial crisis left many institutional investors over-committed to private equity as the value of other assets plummeted. But private equity advisers argue that over-commitment strategies are still the best way for LPs to achieve their target allocation.

“From an LP’s point of view, if you take the average buyout fund it will only be exposed to a maximum of two-thirds of its commitment, because as it draws down it’s also returning capital,” explains John Gripton of Capital Dynamics.

“Our research shows that on average, if you commit 100 you will only ever be exposed to two-thirds of that, 67 of the 100. That’s why you get the over-commitment strategies from the LPs, which in the main works very well.

“But when you get a crisis period as we had in 2008 and all of a sudden the exits dry up and you’re left with these big commitments, then you’re probably going to be exposed to more than the two-thirds of your capital, and that’s where investors get uncomfortable.”

“There is two years of spare capacity in the market, which is actually not overly excessive given that the majority of funds are raised on a four- to five-year cycle”

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J004902_ALTASSETS_LP-GP_AD_V1.indd 1 10/09/2014 16:23


32 Q4 2014

Cleantech investors face strong headwinds. Vikram Raju says backing experienced managers in unpopular niches is the key to generating sustainable returns

Climate of change

The cleantech sector has undergone a dramatic transformation over the past few years and has been labelled a ‘busted trick’ by many. But Vikram Raju, outgoing principal investment

officer of World Bank’s investment arm the International Finance Corporation (IFC), is confident the organisation knows how to generate a good return from the sector. The strategy is to go for experienced teams and choose market segments that have not received much funding.

Since 2000 IFC has invested $3bn in around 200 funds, achieving net returns of 19-20 per cent. Direct commitments to private equity funds account for five per cent of IFC’s investment programme. The fund commits around $500m to emerging markets vehicles annually, a fifth of which is focused on strategies related to climate change (see panel on p33).

The limited partner defines climate change through initiatives such as renewable energy, cleantech and resource efficiency, including waste and water treatment.

Across its general and climate strategies, IFC invests in five regions, committing to four or five funds per region every

year. The LP usually backs between 20 and 25 funds annually, investing an average of roughly $20m for stakes that don’t normally exceed 20 per cent. IFC’s investments under the climate change strategy include China Environment Fund, SinoGreen GRC, Armstrong Asia, Asia Environmental Partners, TPG ART, Lereko Metier Sustainable Capital, Evolution One, and Infuse.

In Raju’s words the cleantech sector has suffered from “initial overenthusiasm” of people that came into the market and “jumped on the green bandwagon”. But he says that by shunning the sector, investors are missing opportunities that can be capitalised on by picking the right manager and being patient.

“There has been more than a little bit of disappointment. People keep saying that the time horizon is too long and returns aren’t so great – the truth is somewhere in between,” he says.

“There is an opportunity and it needs to be addressed. Given our contrarian nature, we are willing to work in an unfashionable sector. Energy and environment in emerging markets and smart solutions can make a very healthy return. And they need to make a healthy return for this sector to be sustainable.”

VIKRAM RAJU – INTERNATIONAL FINANCE CORPORATION


Addressing problemsWhile sectors such as waste and water are well established

in the developed world, they have a lot of potential for growth in the developing markets. IFC is looking for funds that can generate returns in the high teens, and strategies have to be financially viable as well as possessing the potential to have a positive impact on the environment.

Most of the funds that IFC invests in tend to be at the smaller end of the market, or around $100m in size, as such funds can be more disruptive by investing in markets that haven’t received much attention from more experienced managers.

IFC considers helping to launch new funds to be its mission, and this means that it invests in a lot of first-time funds, the type of investments that many in the industry perceive as being risky. “We find that some first-time funds can generate attractive returns. In fact I think that generally speaking there is a delta of around 300 to 400 basis points in how first-time funds have done relative to regular funds,” he says. The main thing is to analyse not just a fund’s strategy, but also the execution capabilities of its team.

Out of fashion“That’s the nature of our mandate, and it shouldn’t surprise

you that it has generated some very good returns when you are providing capital at a time when there is a great need for expansion and working capital, but not a lot of investor interest – and vice versa.”

“What we have found is that the best opportunities globally tend to arrive when a market is out of fashion, enabling funds to transact at much more reasonable valuations. Even in the more favoured markets – where flights from New York and London are always full – there are overlooked sectors and regions that we tend to find more interesting, like climate change.”

There are many challenges faced by LPs investing in the cleantech sector in emerging markets, primarily the local regulatory landscape. Investors are advised to pick experienced teams that have been focused on a specific sector in a specific region for a long time.

“So rather than looking top-down at specific markets, our core focus is on the skillset. For example, we are currently working with a GP in South America, SCL Emergia, with a strong operational background from many years of being in the energy business as developers and operators.

“So while plain vanilla clean energy projects can have the double whammy of being complex to execute, with utility returns, in the hands of an operationally skilled team you find

turnaround opportunities or consolidation opportunities that can generate very compelling returns.

“You can have GPs operating in the exact same market and exact same conditions and have things turn out very differently. So it is all about a GP’s operational approach and local knowledge. If you are working with a group of people that have been doing this for a couple of decades, then they can problem-solve amidst the uncertainty inherent in this sector and come out on top in most of the deals they do. And they will be able to do deals where others are struggling and at a good price and wait for the perfect market conditions,” he added.

IFC’s portfolio funds have generated net returns of around 19-20 per cent and its cleantech team evaluates every vehicle against that overall portfolio benchmark of 20 per cent. Raju concludes, “That is a necessary but not sufficient condition. In addition to strong performance, funds have to demonstrate development impact – ideally in terms of job creation and, naturally, climate impact.”

IFC – created by World Bank to boost prosperity in EMs

The International Finance Corporation is a unit of the World Bank and can trace its roots back to 1947, when New York financier Robert L Garner joined the World Bank as one of its first senior executives.

Garner helped to highlight the role private business can play in international development, a topic few others had considered at the time.

The IFC was formally created with $100m of share capital in 1956, but it was only authorised to guarantee loans. It was not until 1961, the year of Garner’s retirement, that it was allowed to make equity investments. In 1965 the IFC pioneered the template of syndicating equity investments, raising $600,000 for Brazilian paper firm Champion Cellulose.

The transaction provided early support for Champion, a rising player that was sold in 2001 for $9.1bn to International Paper of the US.

In 1981, IFC investment officer Antoine van Agtmael first coined the term ‘emerging markets’, defining a new asset class.

Today, the IFC holds $49.6bn portfolio, reaching millions of people in more than 100 countries, creating jobs, raising living standards, and working towards the World Bank’s two stated goals – ending extreme poverty and boosting shared prosperity.

ADVISER PROFILE

34 Q4 2014

“Small funds are having a tough time. This means there is less competition and entry multiples are lower. We like that”

In 20 years Hans van Swaay has seen the private equity industry as an LP, an adviser and a direct investor. He admires the mega funds, but believes niche strategies are the best way to generate outperformance

Small is beautiful

Hans van Swaay is not shy about his admiration for the founders of today’s very large private equity firms. From tiny beginnings three decades ago, they have taken their

companies to Wall Street and created investment institutions that sit at the top table of private equity.

“When they started they were pure buyout firms and very good ones at that,” says van Swaay. “I’m not saying they are bad now, but they have got into a different business.

“That’s logical for them, and as a business concept it makes sense. Their business is very diversified, they have grown it substantially and they have plenty of candidates to replace a founder when he retires, which has got to be good for their investors.”

For van Swaay, the problem is that what is in the interest of the GP may not be in the best interest of investors.

Growing the businessManagers have to grow businesses to attract and retain the talent that generates the return, but that growth may take them out of the markets where they made their name. Funds that have managed to strike a balance between growing the business and ‘sticking to their knitting’ are few and far between.

Van Swaay is particularly impressed by smaller groups that have had the discipline to stick to the same-sized investments. They may have, for example, grown not by moving out of the core US small- to mid-market buyouts, but by geographical expansion into Europe, and product expansion into debt and restructuring.

He is keen to stress that he is not criticising the mega funds, merely arguing that market dynamics mean they do not have access to the best investment opportunities – which typically come in niche strategies.

It comes down to basic supply and demand. Private equity fundraising has boomed, and in 2013 the average fund size was higher than ever – even larger than in the boom years of 2006-07.

“Most of the money that is being raised is going into big funds,” says van Swaay. “There is a flight to safety, rather than a flight to quality. Small funds are having a very tough time raising money. This also means that in the smaller segment there is less competition, multiples are lower, etc. We like that.”

Lyrique Private Equity was founded by van Swaay, who now heads a team of six professionals based on the shores of Lake Geneva. They are seeking opportunities primarily for private wealth managers and family offices with total assets of between $100m and $500m, and a typical allocation to private equity of 10 per cent. These investors are not well served by private equity, in that they are too large for retail products, which are also very expensive, but too small to have a dedicated private equity team.

HANS VAN SWAAY – LYRIQUE PRIVATE EQUITY


It is not a question of access, however. “There is a myth that you have to be very big to get into a fund directly, but it’s simply not true,” says van Swaay. “If you have money, GPs will want to know you.”

The problem is that smaller investors have a real struggle assessing the best opportunities. They need to understand the dynamics of sectors, geographies and individual management teams. It’s a riskier business than putting your money into a bigger fund, but it potentially more rewarding.

“We do quite a few of what I call emerging managers,” explains van Swaay. “I’m not talking about a bunch of consultants who think it would be cool to do private equity, but people who have operated in a segment they want to invest in.

“They have probably made investments individually, deal-by-deal, and then raised a ‘friends and family’ fund. Then they are ready to do a more substantial, institutional fund and that’s when we tend to get involved.”

As an investment adviser, Lyrique is necessarily driven by client demands. “We have clients that want exposure to venture capital and we’ve done investments in the US, where the large funds are again the safe option – but the smaller funds more interesting,” says van Swaay.

“European venture may become interesting again and, at the request of a client, we invested in a European venture group that

has turned out quite well. But, on the whole, we prefer venture debt at the moment. It’s a safer way to get into venture capital, it’s more diversified, you rank ahead of the equity, and we believe the whole sector has been underinvested over the past few years.”

If private equity investing is about management, management, management, then for van Swaay experience and a willingness to not go with the flow is the key to being a good LP.

“I’ve had experience of cycles,” he says. “It is important to be somewhat independently minded to be a good investor.”

Experience countsLyrique is a private equity firm created by a team that has been active in the private equity industry since 1987.

The team has been involved in all stages of private equity, ranging from early-stage venture capital to late-stage buyouts and restructuring.

Lyrique is a direct investor primarily in European deals and an investor in funds in the US, Europe and Asia. Lyrique will invest in primary funds, co-investments and direct investments.

Lyrique manages money on behalf of private individuals, family offices and smaller institutions, typically with $100m to $500m of assets and a ten per cent allocation to private equity. Its sweet spot is funds with a niche strategy and assets of $100m-$300m.

CVHANS VAN SWAAYBorn in the Netherlands, Hans van Swaay has a 20-year track record in private equity as partner of Lyrique, head of private equity at Pictet & Cie, managing director of UBS Capital, managing director of Merifin and as partner of Lowe Finance.

He has made direct investments in Switzerland, Germany, France, the United Kingdom and in the Netherlands. As an investor in funds he has been active in the United States, Europe and Asia. As a direct investor he has, on occasion, assumed operational responsibilities in industrial situations as CEO in Germany and in Switzerland.

He holds an MBA with honours from IMD in Switzerland, an MSc in engineering geology from Leeds University in the UK, and a BSc in geology from Leiden University in the Netherlands.

Hans van Swaay – Looking for bargains in smaller funds

FUND-OF-FUNDS PROFILE

36 Q4 2014

Swiss fund-of-funds manager Akina Partners does not care what sector it is investing in when it considers committing to a private equity fund. The firm’s macro top-down ‘conviction’

strategy means the highest importance is placed on the investment suiting the Akina’s outlook for the region – and, of course, that they have previously seen good things from the fund’s manager.

There are a number of dimensions that Akina looks at when considering investing in a fund, according to Thomas Frei, senior partner and a member of the investment committee.

“We look at the market, the size and the attractiveness of the investment opportunity for private equity. Then, most importantly, we look at the macro outlook and try to draw the appropriate conclusions about where one should invest, considering the environment for the next few years.”

For example, Europe-focused Akina does not differentiate between technology and pharmaceutical funds, unless the firm has decided it suits the economic view.

Cautious optimismThis macro approach determines whether Akina believes the environment is right for investing over a private equity fund cycle. In the UK, for example, the firm view is that the country’s recovery is driven by financial services and asset-price inflation because of the availability of cheap money.

Frei says: “We would therefore look at the UK in general with cautious optimism and seek strategies which are clear value-add strategies. We would not bank on the macro growth continuing over the next few years.”

To this end, Akina’s focus on the UK is on companies offering business-to-business services, particularly to the financial services industry. These might include companies that enable customers to optimise cost flow and rationalise their purchasing.

Akina’s outlook– and therefore investment strategy – for core Europe also differs from its views for some of the peripheral

Successful investment is not about sectors or sizes for Thomas Frei at Akina Partners. Close relationships and a top-down conviction strategy are the drivers of manager selection at the $2.2bn Swiss fund-of-funds manager

Why investments always go under the macroscope

countries, such as Spain, Italy and central and Eastern Europe. “In these countries we are looking for underlying businesses that

have more of an export angle rather than domestic, because that is what will give growth. In central and Eastern Europe, as well as export companies, we look at businesses providing consumer basics,” says Frei.

Frei says that within a fund-of-funds portfolio, Akina might invest in ten funds but is unlikely to go much higher. “If you have high conviction in the investments you are making, why would you choose 50? It doesn’t make sense.”

“If you have high conviction in the investments you are making, why would you choose 50? It doesn’t make sense”

THOMAS FREI – AKINA PARTNERS


It is also a matter of diversification or, more accurately, not worrying too much about it. “The private equity allocation of our clients tends to be still quite small and the tickets they sign off within their private equity allocation are even smaller, so diversification is never an issue for them,” says Frei.

Akina’s strategy is proving popular with some investors, but it is not an easy sell. The firm’s fifth Euro Choice fund-of-funds held a final close on €270m in March this year, having had an interim close on €173.5m in June 2012.

Akina is relatively conservative in its fund-of-fund investments, tending to stick with risks that it is comfortable with rather than chasing huge multiples, says Frei, who believes it is a strategy that his clients appreciate.

He says: “We’re focused on a strategy that will bring in two times the money, rather than highly volatile three-timers. I think that’s

rather unique compared to other strategies currently on offer for European deals.”

Frei reckons the institutional managers that invest with the firm are increasingly looking for just this kind of strategy, which can provide an alternative to something like fixed income, which has given dismal returns in recent years. “What’s important to our investors are resilient strategies that offer very stable returns at lower risk parameters.”

Given its downbeat view of the European economic environment, Akina is not particularly keen on a strategy that relies on leverage to make money. Frei says: “Our forward-looking perspective indicates that the European macro outlook is not that shiny after all, but rather gloomy. Our general conclusion is that the only managers who survive in private equity are the ones who pursue some kind of value-add investment strategy.

FUND-OF-FUNDS PROFILE

38 Q4 2014

“In this environment, you cannot buy a business, leverage it and then expect the market to do what you don’t want to do. For every country, for every deal segment, you need certain specific strategies, such as consolidation, value, technology perspectives and, in some cases, internationalisation.”

A clear and focused strategyRecent examples of Akina’s fund-of-fund investments include committing to UK lower mid-market buyout house August Equity, which held a £200m final close for its third fund in January this year.

August’s strategy involves investing between £10m and £30m of equity in deals in the healthcare, education, technology services and business services sectors. It was one of the first UK buyout shops to actively promote a sector-focused strategy in the late 1990s.

Frei explains: “We’re looking for resilient strategies, typically value-add, such as supporting growth, consolidation, buy-and-build and expansion into new markets. The old axiom of doing leveraged buyouts, that’s not going to take you anywhere.”

Akina is also wary of private equity funds using a cyclical strategy to make their money. “What we have noticed is the shortening of economic cycles. It is no longer the case that we have a seven-year up-swing and then a two or three year downturn,” says Frei. “It is much more volatile, so it might be two years up, one

year down and as a consequence, we have been quite reluctant and cautious on cyclical investing.

“Private equity in and out cannot be done within two weeks. It takes much more time and therefore the cyclical place in an environment where the cycles are shortening becomes much more of a challenge. On a portfolio basis it is extremely difficult to achieve.”

Money talksThe firm takes on board the manager’s experience when choosing a firm to invest in. “We are very careful to invest in managers who have a proven capacity to exit,” says Frei.

“You can have portfolios of 50 years but it is much nicer to have cash from realised investments. That’s a very important dimension. Sometimes a bad experience can be destined from the start and we want to avoid them.”

When investing in a fund, Frei says it is important that the general partners have a significant amount of skin in the game. “If it’s a spinout group from an organisation where staff did not get carry before, then the amount they invest in their own funds will be smaller. If it’s a fund where we know that all the senior partners are worth €10m, or even more, we would expect the weighting to reflect that. That’s how we hold it on our level and what we expect from the funds that we invest in.”

Akina’s Thomas Frei believes a macro approach is critical to good investing

THOMAS FREI – AKINA PARTNERS


The second main part of Akina’s activities as a fund manager and direct investor is in the secondaries space, with the firm looking to close its most recent Euro Choice Secondary fund in December this year.

The target for the vehicle is $200m, and to date around half that total has been committed. Frei says: “The advantage of this secondary product is that it has started to invest, and has done so when the markets were still a little less competitive.”

Akina has two broad targets for secondary investment: “Either we look at businesses that are still reasonably valued and wherewe see there is an inflection point and where there will be additional growth. Otherwise we look for businesses that will benefit from consolidation and where there is significant value upside to be captured.”

However, once again the macro strategy comes into play in different regions, with the periphery having a different strategy. “In the periphery it is more about export-oriented companies, or consumer-related businesses, once again, but which are available at a deep discount on the fund level.”

The third part of Akina’s business is its Euro Choice Direct co-investment funds, which allow its investors to have access to the most attractive mid-to-lower end of the European mid-market with one single investment rather than a selection of many different country funds.

Akina blossoming after spin-out from Lombard

Akina Partners began life in 1998 as part of Swiss investment adviser Lombard Odier Group. It was founded by Christopher Bödtker, who was joined by Thomas Frei and Yvonne Stillhart in 1999. Mark Zünd joined a couple of years later.

Their vision was to build a dedicated, multinational team of experts, whose aim would be to provide a truly personal service to clients, as well as to achieve high levels of performance. The firm grew strongly and now has 28 employees, who between them speak at least 14 European languages between them because, as Frei says, “It’s always best to do a deal in the investor’s mother tongue.”

The unit was spun-off from the group in a management-led buyout in 2010 and was re-named Akina Partners. Akina was chosen as the name because it means ‘a group of people who have similar likes’, and Frei says it underscores the importance of the firm’s network of stakeholders and of building close relationships with clients, fund managers, entrepreneurs, managers and service providers. A second meaning of Akina is ‘a blossoming flower’, reflecting the belief in helping private businesses to grow and develop.

Institutional investors include pension funds, financial institutions, endowments, trusts and family offices, as well as private ultra-high net worth individuals. Roughly 45% of Akina’s clients are in Europe and 45% in the US. The firm has $2.2bn under management.

“We’re looking for resilient strategies such as expansion into new markets. Leveraged buyouts are not going to take you anywhere”

CVTHOMAS FREIFrei is a senior partner, a member of the investment committee and country partner for the UK, France, Italy and Benelux at Akina Partners. He also sits on the board of many private equity funds.

In 1999 he joined Lombard Odier Private Equity as managing director, and was responsible for setting up and managing the finance and administration unit as chief financial officer, a role he held for five years. In 2007, Frei established the marketing and investor relations unit, which he still leads.

Before joining the company, Frei worked in investment banking for 11 years at UBS in Europe and the Americas. He headed the European structured finance transaction team, where he managed a portfolio of leveraged, mezzanine and minority equity deals worth €1.6bn across continental Europe.

Frei has a masters’ degree in economics and finance from Zurich University and is fluent in German, English and French. He also speaks Italian.

Data collected by the Women’s Private Equity Network (which is supported by AltAssets) shows women are losing out to men across the private investment spectrum.

Research has long shown that women are badly represented in terms of GPs, with a 2011 report by the NVCA and Dow Jones suggesting women make up just 11 per cent of US venture capital investors.

Data released this year by Preqin shows an identical figure for senior women within private equity. But the problem is not limited to the industry’s buyout and VC firms.

A study from the University of New Hampshire’s Center for Venture Research revealed that just 19 per cent of entrepreneurs backed by angel investors are women, despite increasing efforts being made within business to bring gender representation onto a more even keel.

An earlier research report by Dow Jones, “Women at the Wheel”, suggested just 1.3 per cent of venture capital-backed companies had a female founder, while only 6.5 per cent had a woman as CEO.

The same study revealed that 80 per cent of venture-backed companies failed to field a single woman on their board of directors.

Related services within the industry are not exempt from the bias, with women making up just 12 per cent of senior lawyers working with private equity according to Chambers Global.

Female employees in investment banking and securities totalled just 35 per cent of all employees according to research conducted in 2011 by Catalyst.org and the US Equal Opportunity Commission, with just 15.6 per cent at the management and senior executive level.

LPs concerned about environmental, social and governance issues are already putting pressure on PE and VC firms to think about the ethical impact of their day-to-day dealmaking, and gender representation within the industry is sure to come under the spotlight.

The gross under-representation of women in private equity is nothing new, but newly-collated data suggests the problem extends far further throughout the private investment industry than previously thought.

Under-representation of women spans entireprivate investment spectrum

The wider business community has taken steps to change this discrepancy, and private equity needs to move fast to make sure it does not get left behind.

Research released by YouGov earlier this year revealed that just one in three full-time female students aged 16 to 20 would consider a career in finance, with the male dominated culture and sexist culture cited as two of the top three reasons to avoid the industry.

The study suggested that a lack of awareness of role models could be an issue compared with other sectors.

When shown images and names of iconic women across a range of industries, over half of the students surveyed were aware of all the fashion designers shown, whereas less than one per cent were aware of all of the influential women in finance.

That kind of awareness can only be built by giving talented, successful businesswomen the same opportunities to show their skills as their male counterparts.

WPEN hopes to boost this process by bringing professional women together to make valuable connections cutting across regions, organisations and entrenched ‘old guard’ networks.

“80 per cent of venture-backed companies failed to field a single woman on their board of directors”

42 Q4 2014

FUNDS

European private equity firm Bridgepoint is back in the fundraising market for its fifth flagship vehicle.

No target is given for Bridgepoint Europe V in a series of filings with the US Securities and Exchange Commission, but documents previously released by Portfolio

Advisors claim the firm is targeting €3.5bn with a €4bn hard cap. That document, which was presented to the Pennsylvania Public School Employees’ Retirement System in May, claimed Bridgepoint was eyeing a first close this month and a final close towards the end of the year.

It added that the firm would commit €100m to the fund, which will target mid-market European companies with enterprise values of between €150m and €600m.

Bridgepoint brought in €4.8bn of com-mitments for its previous flagship vehicle in 2008.

Bridgepoint on trail to raise up to €4bn

Buyout house Mid Europa Partners has closed its fourth fund on €800m thanks to heavy re-investment from its existing LPs.

The firm also picked up €650m through a co-investment programme, with the total representing the largest vehicle dedicated to central and Eastern Europe in the last five years.

Managing partner Thierry Baudon said, “A very large proportion of our investors… expressed strong interest in co-investing alongside the fund, which led us to structure a pre-allocated co-investment programme of €650m. This structured approach, building upon our extensive co-investment history in

Fund II and Fund III, will provide optimal alignment of interest and allow us to react quickly and flexibly to changes in our target deal-flow throughout the investment cycle.”

Nearly 70 per cent of investment in the fund was via existing LP investors from previous vehicles, Mid Europa said.

The firm’s investment strategy is to target growth sectors that benefit from consumer trends, buy and build, consolidation and regional expansion themes.

Fund IV will be used for equity invest-ments of between €75m and €250m in control buyouts of companies with enterprise values of up to €500m.

Equistone’s new €1.7bn vehicleBarclays Bank private equity spinout Equistone Partners Europe is reportedly eye-ing €1.7bn for a new fund 18 months after pulling in €1.5bn for its debut raise as an independent firm.

Equistone has hired Lazard to help place the fund according to Bloomberg.

The firm spun out of Barclays in late 2011, and hit the final close for its Fund IV just over a year later.

It said 70 per cent of the fund’s backers were investors in its previous vehicles, with about half the capital coming from Europe, 16 per cent from North America and about a third from the rest of the world.

Mid Europa raises €1.4bn to invest in central and Eastern Europe

Bridgepoint: looking to raise first flagship vehicle since €4.8bn fourth fund from 2008

FUNDS


US private equity major TPG Capital is reportedly ready to kick off fundraising for a new $10bn flagship vehicle six years after closing its titanic $19.8bn buyout fund.

TPG has already collected $2bn for a bridge vehicle which will be rolled into the Fund VII pool when it begins raising later this month according to Bloomberg, which cited two inves-tors. The firm has been forced to deal with the high-profile disaster of its Energy Future Holdings investment, which saw the business loaded with about $35bn of debt through a 2007 take-private deal.

TPG, which backed the business alongside KKR and Goldman Sachs’

private equity arm, stands to lose about $1.5bn through the company, which filed for bankruptcy protection in April.

AltAssets reported earlier this year that the Oregon Investment Council had agreed to invest $700m in TPG’s

bridge vehi-cle, with state treasurer Ted Wheeler com-menting that Fund VIII was “make or break” for the firm.

The firm has been a strongly-performing

business since it was founded in 1992, although returns from its last two vehicles have not matched its previous success.

TPG gathered $15.4bn for Fund V in 2006, but some deal-making has suffered following the impact of the global financial crash.

TPG fundraising launch for $10bn-targeting Fund VII Private equity investor Oak Hill Capital

Partners is reportedly considering its next flagship buyout fund five years after the close of its predecessor.

The new fund will be smaller than the $3.8bn Oak Hill Capital Partners III vehicle according to Reuters. The firm has informed potential LPs that it is looking to raise between $2bn and $3bn, with fundraising tipped to start by the end of the year.

The firm closed Capital Partners III in 2009 with a $350m GP commitment.

Oak Hill considers next flagship buyout

CVC eyes new $750m tech fund

Stripes smashes $400m target US-based buyout firm Stripes Group has pulled in $500m for its Growth Partners III fund, putting it $100m over its previous target.

It is believed the fund closed on its hard cap after pulling in investments from 44 investors. LPs investors include the Arkansas Teachers’ Retirement System, which com-mitted $30m in June.

The vehicle has so far been used for recapitalisation and to buy cloud services company INetU.

CVC Capital Partners is back in the fundraising market for a $750m growth vehicle to follow up the €10.5bn mega fund it closed last year.

The new vehicle will target smaller, tech-fo-cused investments according to the Wall Street Journal, which cited a person with knowledge of the fundraise.

They added that the vehicle would be used to target “the unsexy part of the industry”, focusing on tech-enabled businesses such as human resources software companies rather than hot consumer startups. WSJ said recent hire John Clark, who joined from Welsh Carson Anderson Stowe earlier this year, would be leading the fund.

Investment house JMI Equity has hit a $1bn hard cap final close for its eighth growth equity vehicle.

AltAssets revealed earlier this month that the firm had registered almost $950m for Fund VIII, pushing it past its $900m target.

General partner and co-founder Harry Gruner said, “With JMI VIII we will continue to pursue our strategy of invest-ing in rapidly growing, high-quality software businesses.”

He added: “Our experience across many market and economic cycles helps us to identify and understand develop-ing market opportunities and work with

management teams to add value post investment.”

JMI’s seventh fund held a final close on $875m in 2010, up 45 per cent from its 2007-vintage previous fund. The latest vehicle brings the total raised by the firm to $3.1bn since it was launched in 1992.

JMI focuses on investing $10m to $100m in North American businesses, and has backed more than 100 companies.

The firm’s portfolio companies include cloud-based workforce management software provider Kronos and ac-counting, tax, budgeting and analytics software developer PowerPlan.

JMI Equity holds $1bn hard cap close

TPG has already collected $2bn for a bridge vehicle

FUNDS

44 Q4 2014

Mid-market investor Wasserstein & Co has easily beaten its $300m target by pulling in $403m for the final close of its third buyout fund.

The heavily-oversubscribed fund had already reached a $311m second close in July this year, and powered to a final close on August 29 according to a source with knowledge of the process.

A total of 35 LPs committed capital to Wasserstein Part-ners III, which has already been used to make four deals.

These include the acquisition of speciality valve manufac-turer High Pressure Equipment Company, communications solutions provider Globecomm Systems, and audiobooks business Recorded Books.

Wasserstein announced it had partnered with a string of investors, including the Ontario Pension Board and private equity firm Pantheon, to buy ALM Media from Apax Part-ners and RBS in June this year.

The firm will pay sales commission of $1.8m to Diamond Dragon Capital for the fund, according to a filing with the US securities regulator.

Predecessor vehicles from Wasserstein include US Equity Partners I, which closed in 1997, and a follow-up which closed in 2002. Those two vehicles pulled in a total of $750m.

Wasserstein was created in 2001 when it spun out from banking group Wasserstein Perella & Co.

In the last 20 years it has executed more than 50 deals worth $3bn enterprise value. The firm focuses on leveraged buyouts with investments of between $30m and $150m.

Wasserstein scores target-busting $400m close

Patriot Financial passes halfway mark for $300m second fund

Raine raises nearly $600m for Fund II

Financial services-focused private equity firm Patriot Financial Partners has hit the halfway mark for its $300m-targeting second fund.

Patriot Financial Partners II has received about $124m of commitments from 19 LPs according to a document filed with the US Securities and Exchange Commission.

The firm has also raised about $26.5m from 37 LPs via a parallel vehicle, giving it total commitments of just over $150m.

A year ago AltAssets reported the fund had raised $75m from 41 investors.

Patriot, which registered the first com-mitment for the fund in August last year,

has left the $50,000 minimum investment requirement unchanged.

The Philadelphia-headquartered firm currently has more than more than $325m of assets under management, and plans to make deals ranging from $15m to $35m through the new fund.

Patriot invests in community banks, which it says are composed of more than 1,000 public and privately-held depository institutions with between $500m and $5bn of assets.

The firm said these institutions account for an aggregate of $1.5tn of assets, or 10.1 per cent of the industry total.

Entertainment, media and sports-targeting merchant bank the Raine Group has secured nearly $600m for its second fund.

Raine Partners II has raised just over $592m from a total of 69 LPs according to a document filed with the US securities regulator. The target was not revealed in the filing.

The firm’s first buyout fund held a final close on $475m in October 2011 after securing investments from high-profile LPs including William Morris Endeavor, the talent agency headed by outspoken founder Ari Emanuel.

Raine was launched in 2009 by former UBS and Goldman Sachs investment bank-ers Jeff Sine and Joe Ravitch.

Rocket-fuelled: Wasserstein shot through the $300m target for its new fund

FUNDS


European private equity firm Idinvest Partners has revealed it expects to outstrip the €300m target for its third private debt fund with a close towards the end of the year.

The firm said Idinvest Private Debt III would target mid-sized European companies to support them in further growth or a leveraged buyout.

Idinvest aims to tap the fund for in-vestments of between €5m and €20m of mezzanine debt financing and secondary purchases of existing mezzanine debt.

The firm said Private Debt III had already carried out three investments for Park & Suites, J&S Automotive Tech-

nology and Maxeda, and said a fourth project was currently being finalised.

Christophe Bavière, chairman of the Board of Idinvest Partners, said, “Idinvest Private Debt III has already attracted prestigious French and interna-tional institutional investors, including banks, insurance companies, pension funds, mutual insurance companies and family offices, and we are proud of the confidence they continue to have in our team’s capabilities.”

Earlier this year Idinvest beat the target for its second SME senior debt fund by holding a €400m final close for the vehicle.

ACG Capital holds €150m first close

Idinvest aims to outdo €300m goal for debt fund by year-end

France-based ACG Capital is three-quarters of the way to its Acto Mezzanine II fund’s €200m target.

The firm has announced it has held a first close of €150m thanks to existing investors including French institutions Bpifrance, AG2R La Mondiale and OFI AM, which re-upped its investment with the firm.

ACG said the mezzanine vehicle had also attracted new commitments from financial institutions such as the Euro-pean Investment Fund.

The firm’s debut Acto Mezzanine ve-hicle closed on €187m in 2008, beating its €150m target.

ACG CEO Wladimir Mollof said, “We are grateful to our historical inves-tors, and to those who have joined us. This fundraising rewards the hard work of the ActoMezz team.”

The ActoMezz fund will be used to invest in French SMEs looking to extend their equity and management teams and invest alongside them as a mezzanine arranger.

Listed US alternative assets major the Blackstone Group is reportedly eyeing up to $8bn for its second-generation Tactical Opportunities fund.

About $2bn to $3bn will be contained within a commingled fund according to peHub, which said the balance would be held in large accounts.

Blackstone closed its debut Tactical Op-portunities fund on $5.6bn following a 2012 launch.

Blackstone eyes $8bn for second vehicle

Rothschild closes new fund on €300m hard cap

Performance in $400m fund launchInvestment firm Performance Equity Management has launched a new direct investment fund with a $400m target and a $550m hard cap.

The Connecticut-based firm is raising the fund without a placement agent and expects to receive a management fee of $40m, a regulatory filing showed.

PEM currently has more than $20bn of committed capital.

Edmond de Rothschild Group has closed its latest development capital fund, Winch 3, on its €300m hard cap, making it the largest ever fund raised by the French investment firm.

The firm said that 23 international LPs which had invested in its previous fund backed the new vehicle, committing 40 per cent more on average.

New LPs in the fund, which was initially targeting €250m, include the European Investment Fund and Sogecap.

Rothschild noted that the fund received strong interest from high net worth individu-als and family offices, whose commitments accounted for ten per cent of the total.

Coining it in: Idinvest aims to tap the fund for investments of between €5m and €20m

FUNDS

46 Q4 2014

Private equity firm Quantum Energy Part-ners has reportedly held a first close for its sixth fund.

The fund has secured $1.17bn towards its $2.5bn target, peHub said, citing a person with knowledge of the fundraise.

The source said Quantum Energy Partners VI has a hard cap of $3.5bn.

QEP IV follows the firm’s $2.5bn fund raised in 2009. That vehicle was generating an IRR of 19.75 per cent and a 1.35 cash multiple as at the end of last year, accord-ing to data from Texas County & District Retirement System.

Quantum has received more than $6.5bn

of equity commitments since its launch in 1998.

Last September AltAssets reported that an affiliate of Quantum had launched a fund with a $1bn target. At that time, Quantum Resources Fund II did not have any com-mitments.

Quantum Resources is focused on buying and developing producing and divesting long-lived, mature, onshore oil and gas properties in North America.

The firm was launched in 2006 by the founders of Quantum Energy Partners, who teamed up with chairman Don Wolf and Alex Cranberg.

Veritas hits $1.87bn hard cap

Mentha Capital collects €70m for interim closeAmsterdam-based private equity firm Men-tha Capital has held a €70m interim close for its fourth fund as it bears down on up to €100m.

The firm, which has been fundraising for about nine months, held a €51m first close in February and said at the time it expected to close on €100m by the end of June.

That timescale has now been extended according to a source with knowledge of the fundraise, who spoke on condition of anonymity. They said Mentha Capital Fund IV could still go as high as €100m, but added that the firm was already pleased with the amount of capital it has to deploy.

Mentha focuses on lower mid-market companies based in Benelux with an-nual sales of between €25 and €75m, and EBITDA between €2m and €10m.

The firm had already made two deals using the fund at the time of its first close by backing customer services company Customs Support and self-adhesive label maker Etiket Nederland.

Mentha’s other portfolio companies include recruitment agency KP&T Project-advies, which received a majority invest-ment from the firm in summer 2012.

Optimism about the private equity, ven-

ture capital and leveraged finance sector in the Benelux in 2014 increased “significant-ly” compared with last year according to a report released in April by NautaDutilh.

Respondents were more optimistic about the Benelux market, with an expected in-crease in private equity deal volume despite

worries about the market conditions in the Netherlands compared to other Western European countries and the Nordics.

In Belgium, there is a clear trend towards the lower mid-market, while in the Neth-erlands there is an increase in transactions towards the upper mid-market.

Veritas Capital Fund Management has hit the $1.87bn hard cap for its fifth fund, com-fortably exceeding its $1.5bn target.

Veritas Capital Fund V was significantly oversubscribed and reached its hard cap in one close after about four months on the road.

The fund will target mid-market compa-nies which provide products and services to government customers in sectors such as aerospace and defence, healthcare, technol-ogy, national security, communications, energy and education.

Veritas’ previous vehicle was closed with $1.2bn of commitments in July 2010.

Quantum Energy nears halfway for $2.5bn-targeting Fund VI

Mentha Capital Fund IV could still go as high as €100m

FUNDS


UK buy-and-build specialist Sovereign Capital has hit a £395m hard cap final close for its fourth fund just six months after launch.

SCLP IV hit its £350m target in July and was significantly oversubscribed, the firm said, with commitments coming from new and existing LPs across the US, Europe and Asia. Earlier this year Sover-eign fully realised its 2001 debut fund to deliver a 3.5-times money multiple.

The firm said it planned to tap its latest vehicle to invest up to £50m of equity at a time in service-based companies.

Managing partner Andrew Hayden said, “It was quickly clear when we

launched that the appetite for SCLP IV was strong. The pace of the fundrais-ing and the level of interest it attracted is an endorsement of the success of our investment strategy – which has been strictly applied across all our funds – the energy and dedication of our team, and the quality of the management teams and businesses we have partnered.”

Sovereign’s last vehicle, Limited Part-nership Fund III, had a target of £350m. It is not known whether that amount was reached, but it had pulled in about 40 per cent of the total at its first close in 2009.

The firm’s second fund closed on its £275m hard cap in May 2005.

Sovereign Capital caps fourth fundraise at £395m

Bain Capital hits €2bn markPrivate equity giant Bain Capital has hit the €2bn mark for its latest European fund.

Bain Capital Europe Fund IV has raised €2.03bn from 103 LPs, the firm disclosed in a document filed with US securities regulators.

Two other filings showed that the fund has secured nearly €64m via two parallel vehicles. The fund does not have a placement agent.

Bain is seeking €2.5bn for the fund, which would make it the same size as its third European vehicle which was raised in 2008.

Bain Capital Europe Fund III was generating an IRR of 2.3 per cent at the end of June last year according to a Bloomberg report.

The firm’s first and second European funds were producing net IRRs of 31 per cent and 9.3 per cent, respectively.

UK-based Primary Europe has reached the £225m target for its fourth fund.

The firm raised more than $181.8m for Primary IV through 12 investors according to a filing with the US securities regulator. A sepa-rate filing shows that a ‘B’ vehicle had pulled in nearly $203m from nine LPs, bringing the total at current conversion rates to just over £225m.

Primary closed its third fund in March 2006 after reaching its hard cap target of £200m. It used the fund for a buy-in of Güralp Systems for £20m.

Primary Europe focuses on the consumer products and services, leisure, business and support services, IT and media and industrial products and services sectors.

Primary Europe reaches £225m target

Carlyle nears halfway mark for fund

Altor raises €2bn

US private equity major Carlyle is report-edly nearing the halfway mark for its fourth European fund.

The firm has raised nearly half of Europe Partners IV’s €3bn target, Dow Jones report-ed. Earlier in the summer AltAssets revealed the firm had held a third close on just over €900m for the fund.

TCG Securities, Morgan Stanley Smith Barney and Merrill Lynch are acting as placement agents for the vehicle.

Carlyle’s other recent funds in the market include Asia Partners IV, which it closed on $3.9bn in September.

Nordic buyout house Altor has closed its fourth fund on €2bn after less than three months on the road.

Most of the capital was raised from Altor’s existing LPs and only “a select few” new inves-tors were invited, the firm said. Nordic inves-tors provided 20 per cent of total commitments, with the rest coming from the US, Europe, the Middle East and Asia.

Crowning achievement: SCLP IV hit its £350m target in July

FUNDS

48 Q4 2014

Turnaround and restructuring-focused pri-vate equity firm Z Capital Partners has held a final close for its latest vehicle 50 per cent above it $500m target.

The firm pulled in $750m for Z Capital Special Situations Fund II thanks to 30 new LPs, including sovereign wealth funds, pension funds, family offices and insurance companies from across the globe.

Z Capital president and CEO James Zenni Jr said, “We received interest of approxi-mately $1bn from limited partners which we believe, together with the global footprint of our investor base, is testament to our leading track record, proven investment strategy and experienced leadership team.

“As we have done for over a decade, we will continue to capitalise on opportunities to maximise value for our investors through our opportunistic, value-oriented approach.”

AltAssets revealed in August 2012 that the firm had hired Jefferies to place the fund, which followed the final close of its debut vehicle on $250m in the previous year.

The vehicle will continue its predeces-sor’s strategy of investing in distressed debt, operational turnarounds and special situation opportunities in the mid-market across industries, which in the past have

included consumer, steel, agricultural, gam-ing, leisure and automotive.

Z Capital was founded in 2006 after Zenni left Black Diamond with six of its associates.

The firm has made a number of high-profile investments to date, including casino operator Affinity Gaming and former Sun Capital portfolio business Real Mex Restaurants.

Z Capital smashes through target to hit $750m

Destroying its target: Z Capital easily beat its $500m aim after attracting expressions of interest of $1bn

GenNx360 falls short in $535m closeKelso & Co to commit $500m to own fund Industrial turnaround-focused private

equity firm GenNx360 Capital Partners has reportedly held a $535m final close for its second fund, falling short of its $600m target.

Investor relations manager Carmen Rojas told peHub the fund had already invested more than $100m in three portfolio compa-nies, including backing tool-maker Tooling Technology earlier this month.

GenNx360 spent about two years fund-raising for Capital Partners II, which had a hard cap of $750m.

AltAssets revealed in January the fund had pulled in at least $437m.

The final total included a $25m commit-

ment from the $27bn Connecticut Retire-ment Plans & Trust Funds.

Mercury Capital Advisors acted as a placement agent for the fund, which registered its first commitment in February 2012, according to filings made with the US securities regulator.

GenNx360’s first vehicle took two years to raise $500m and was closed in 2008.

The firm targets underperforming indus-trial business-to-business companies with $250m to $1bn of revenues.

It was founded by ex-GE vice-chairman Lloyd Trotter, former GE Equipment Ser-vices CEO Arthur Harper and investment bank founder Ronald Blaylock.

US private equity house Kelso & Co is believed to be ready to commit a massive 20 per cent of the $2.5bn target for its ninth flagship fundraise as a GP commitment.

The commitment of up to $500m was revealed by the Maine Public Employees Retirement System, which approved a $60m investment in the fund earlier this month.

Most firms commit just one or two per cent of fund totals.

Kelso was in the market to raise between $2.5bn and $3bn, well below the $5.1bn it gathered for its eighth flagship vehicle in 2008.

FUNDS


Consonance Capital Partners, the healthcare investor set up by a trio of former JP Morgan execs, has closed its debut vehicle on its $500m hard cap.

The firm was initially targeting $350m for the fund but easily passed that figure amid heavy oversubscription.

Consonance targets lower mid-market companies in the US health-care industry, with an em-phasis on busi-nesses driving efficiency, cost containment and high-quality clinical care.

AltAssets re-cently revealed the firm was past the $320m-mark for the fund thanks to commitments from 76 LPs.

CCP co-founder Nancy-Ann DeParle, former deputy chief of staff for Barack Obama, said, “This is a period of dy-namic change in the healthcare industry, with significant opportunities to invest in companies that can improve the quality of service, transform the care experience

and create a more efficient and effective healthcare sector.

“We believe that our fund is ideally suited and sized to help lead this change through our investments, insights, exper-tise and support.

“We will continue our strategy of sourcing partnerships and invest-ments with companies that are capitalis-ing on new healthcare niches.”

Fellow co-founders Mitchell Blutt, Benja-min Edwards and Stephen

McKenna spent more than a decade together at JP Morgan and its entities, investing in private equity, primarily in the healthcare sector.

DeParle, who joined as a founding partner last year, also worked with all three men at JPMP. Other team members include former JPMP employees Sean Breen and Javier Starkand, and ex-Besse-mer VP investor Sapna Tejwani Jethwa.

Demand drives Consonance debut fundraise to $500m

Roark seeks $1.5bn for Fund IVRoark Capital Group is reportedly look-ing to raise at least $1.5bn for its fourth private equity fund.

The Atlanta-based firm is currently in talks with investors about Roark Capital Partners IV, which is expected to be at least as large as its $1.5bn third fund, Dow Jones said.

Roark invests between $15m and $600m in companies with an EBITDA of $10m to $250m and revenues of

between $20m and $2bn.The firm is focused on the restaurant,

retail, services, consumer products, business services, direct marketing and environmental services sectors.

Portfolio company CKE operates and franchises restaurant brands including Green Burrito, Red Burrito, Hardee’s and Carl’s Jr. It has 3,400 franchised or company-operated restaurants in 30 countries.

Injected capital: Consonance was heavily oversubscribed in surging to its $500m hard cap

Alternative asset manager Ares Manage-ment is looking to raise $1bn for its fourth special situations fund.

The target is in line with the amount Ares was rumoured to be chasing earlier this year, although a source said he expected the vehi-cle to reach its $1.5bn hard cap.

Ares closed the vehicle’s predecessor Spe-cial Situations Fund III in 2010 on $650m.

Ares confirms $1bn target for Fund IV

Wynnchurch eyes$1bn for Fund IV

ABRY Partnerstargets $1.9bn for Fund VIII

Chicago-based private equity firm Wynnchurch Capital is reportedly ready to head back into the fundraising market target-ing up to $1bn.

Wynnchurch closed its third mid-market focused buyout fund on $603m in 2011, eas-ily beating its $500m target.

Wynnchurch previously gathered $350m for its second fund in 2005 and $163m for its 2000-vintage debut.

The firm targets equity investments of up to $150m in companies working in niche manufacturing and business services.

Private equity firm ABRY Partners is reportedly seeking $1.9bn for its eighth fund, which was launched in spring.

The Boston-based firm expects the fun-draise to be “quick and quiet”, which is its usual way of operating said peHub, citing LP sources.

ABRY is disciplined about increasing fund sizes, which investors appreciate said one LP, adding that limiting fund size leaves little room for new investors.

The new fund follows ABRY’s seventh flagship vehicle, which held a final close on $1.6bn in 2011.

FUNDS

50 Q4 2014

New Mountain Capital’s latest fundraise is reportedly going so smoothly the buyout house has bumped up its target to its former hard cap of $4bn.

The new hard cap for Fund IV is $5bn according to peHub, which cited two sources with knowledge of the fundraise.

It added that the firm had almost

finished marketing for the vehicle it began tracking down capital for last year.

AltAssets revealed in July that the firm had passed its original $3bn target after commitments snowballed in the preceding few months.

The firm was sitting on just over $3.4bn at that point.

New Mountain’s third fund also targeted $3bn, and was closed on $5.1bn in 2008 after securing commitments from LPs including CalPERS.

The Californian pension fund invested $400m in the vehicle, two years after put-ting $150m into New Mountain’s second fund.

Fresh $5bn hard cap for New Mountain Fund IV

Fundraising peak: New Mountain now has eyes on a $5bn hard cap for its fourth flagship fund

Charlesbank Capital seals swift eighth fundraise by hitting $1.75bn hard cap

Boathouse beats $180m target

Charlesbank Capital Partners has struck the $1.75bn hard cap for its eighth fund through a final close after just three months in the market.

The firm hoped to gather $1.5bn for Charlesbank Equity Fund VIII, but made quick work of that target thanks to most investors returning from its previous funds, it said.

Charlesbank, which was founded in 1998, targets mid-market and growth capi-

tal financings by deploying between $50m and $150m per deal.

Fund VIII is set to make between 12 and 15 investments across a range of industries. Charlesbank has previously invested in areas including energy, consumer products and healthcare.

Co-chairman and CEO Michael Eisenson said, “We are deeply grateful for the contin-ued trust and support of our long-standing limited partners.”

Lower mid-market buyout firm Boathouse Capital has beaten the target for its second fund.

The Philadelphia-based firm said it had held a first close above the fund’s $180m target.

Boathouse added that it had secured its second Small Business Investment Com-pany licence.

The fund follows Boathouse’s debut ve-hicle, which was closed with commitments of $120m in July 2011.

FUNDS


European private equity firm Keensight Capital plans to complete a €250m fundraise for its fourth fund by the end of the year after a hefty first close.

The firm, previously called R Capital Management, has already pulled in €200m thanks to investors including the Rothschild Group and unnamed Euro-pean pension funds, insurance compa-nies and banks.

Keensight said it planned to continue its strategy of backing profitable com-panies across Europe with high growth potential and revenues between €10m and €150m.

Managing partner Jean-Michel

Beghin said, “We are very pleased to announce the first closing of our new fund, which has been achieved in a very short time-frame.

“This fundraising is a testimony to the confidence that both existing and new investors place in us.

“This success also acknowledges the good work of our investment team, which has a proven track record thanks to its differentiated position within a market segment that has very few com-petitors in Europe.

“We now aim to conclude the final closing of this fund at €250m by the end of the year.”

Keensight collects €200m for first close of Fund IV

Clairvest Group has closed its fifth fund on its C$600m hard cap.

The Canadian private equity firm had already passed its C$500m target at the first close of the fund at the start of May, raising a total of C$518m.

At that point Clairvest had invested C$180m of its own cash alongside C$420m pulled in via third-party inves-tors. The firm reserved the right to up its GP commitment to C$200m.

The minimum commitment to the

fund per LP was C$2m according to a filing with the US Securities and Exchange Commission. Atlantic-Pacific Capital acted as a placement agent.

The Clairvest Equity Partners IV vehicle closed on C$467m in Janu-ary 2011, of which C$264m is so far invested in 10 projects.

Previous investments include sponsoring an MBO of mental health platform Shepell FGI, through which the firm made a 6.6-times return.

Canada’s Clairvest closes at C$600m

Consumer and healthcare-focused private equity firm Webster Capital has outstripped the $205m of capital for its second buyout vehicle by pulling in $255m for Fund III.

The firm has gathered the commitments from 37 LPs to date, according to a US regulatory filing, which does not reveal if the fund has hit a final close.Webster closed Fund II on $205m in early 2008.

The firm was launched in 2002 by Don Steiner, Andrew McKee and Charlie Larkin, and made its first investment two years later by buying Robert Redford-founded catalogue and internet company Sundance Holdings.

Steiner previously spent a decade as a gen-eral partner and co-founder of Boston Capital Ventures. McKee was formerly an invest-ment banker at Goldman Sachs and Larkin worked in commercial lending for JP Morgan Chase and consulting for PwC.

Webster targets businesses already mak-ing above-average profits, aiming for those companies with revenues of between $20m and $100m.

Webster Capital pulls in $255m for biggest fund

Guardian closes Fund II on $153.5m hard capGuardian Capital Partners has closed its second fund on a $153.5m hard cap, with 90 per cent of LPs from the debut vehicle reinvesting.

The Pennsylvania-based firm’s Fund II initially had a target of $150m, and reached its limit in less than a year.

The oversubscribed vehicle is three times larger than the firm’s first fund, which closed on just over $50m in 2010.

As well as repeat investment from existing LPs, Guardian’s second fund attracted more than 12 new institutional, family office and high net worth investors.

Managing partner Peter Haabestad said, “We are extremely pleased with how the fundraising process played out.”

Eyes on the prize: Keensight aims to complete a €250m fundraise by the end of the year

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52 Q4 2014

Asian private equity firm Headland Capital Partners has gone to market with its $1bn-tar-geting seventh fund, and is keeping the vehicle around this size to keep investors happy, ac-cording to an LP close to the firm.

Headland is unlikely to go beyond a $1.25bn hard cap, the Hong Kong-based investor said.

“It’s important in Asia not to go too big,” said the LP. “This fund keeps Headland firmly in the middle market.

“In Asia, and in other places, sometimes private equity funds start doing bigger and bigger funds and LPs don’t like that because they feel the firms are just trying to collect more margin.”

The firm’s previous vehicle closed on $1.3bn in 2008.

Headland’s LPs include the normal institu-tional investors such as pensions and insur-ance funds, and the firm expects the majority of investment to come from American inves-tors, the source said.

He said, “It’s simply because the biggest investor population is from North America.

“In Asia investors will tend to come and go, but big US pensions and insurance companies are the steady investors.”

Headland to limit Fund VII to $1.25bn hard cap

Keeping perspective: Headland aims to limit Fund VII to a hard cap of roughly $1bn

LATEST FUND NEWS For daily breaking news on all the latest fund activity visit: www.AltAssets.net

New MainStream raises $191m for Fund IIMidwest Mezz seals SBA-backed final close Goldman Sachs spin-out New MainStream

Capital has registered just under $151m of LP commitments for its $250m-targeting second fund.

The US private equity firm has raised the capital thanks to commitments from 18 in-vestors, according to the NMS Fund II filing with the US securities regulator.

The document also reveals, however, that with “affiliate” investment the fund’s total currently stands at $191m.

Investors committed to the fund include the Maryland State Retirement and Pension

System, which has allocated $40m to the vehicle.

The capital raised so far already makes Fund II bigger than NMS’ predeces-sor, which pulled in $160m in 2010 with investors including fund of funds Pantheon Ventures,.

NMS focuses on equity investments rang-ing from $10m to $50m and typically seeks companies with values less than $300m.

The firm targets US service-oriented busi-nesses in healthcare, consumer products and specialised business services.

Midwest Mezzanine Funds has held the final close of its fourth vehicle on $270m after more than two years on the fundraising trail.

The firm’s Mezzanine Fund IV was raised during an especially challenging period, senior managing director Dave Gezon said.

Midwest lost more than 70 per cent of its Fund IV commitments when Dodd Frank regulation reduced take-up in alternatives in 2012.

The firm applied for a Small Business Investment Company license in December 2012 which enabled it to pull in $140m via the US Small Business Administration program.

FUNDS


US private equity firm CCMP Capital has held a $3.6bn final close for its latest mid-market buyout and growth equity fund, $100m above its initial target.

CCMP Capital Investors III is likely to make about a dozen deals, if the 13 made by its predecessor vehicle are a benchmark.

The firm, launched by former mem-bers of JP Morgan Chase, raised $3.4bn for Fund II in 2006.

President and CEO Stephen Murray said, “The success of this fundraise is a testament to our team’s 30-year track record of strong and consistent returns,

and the confidence and trust of our exist-ing and new limited partners.”

He added: “We are pleased with the construction and performance of the fund’s current portfolio and look forward to delivering outstanding returns for our investors.”

CCMP said it planned to target North American and European mid-market companies in the consumer and retail, industrial, energy and healthcare sectors.

The firm has already invested in vita-min firm Jamieson, keymaker Hillman, and US business-to-business food opera-tor Jetro Cash & Carry.

Darwin continues FoF strategy

CCMP beats target in $3.6bn close for third mid-market fund

Fund-of-fund investor Darwin Ventures is targeting $100m for its third fundraise six years after closing its predecessor vehicle.

Darwin pulled in $93.9m for Fund II in 2008, following a $40m debut vehicle raised in 2004.

The firm has already collected $21.4m for Darwin Venture Capital Fund of Funds III according to a US regulatory filing, which shows 15 LPs have committed to date.

Darwin’s strategy is to invest primar-

ily in top-tier US-based, early-stage venture capital funds diversified across industry sectors focused on technology, information technology, and healthcare.

Fund investments to date span more than 30 firms, including Accel Partners, First Round Capital, New Enterprise Associates, US Venture Partners and Kleiner Perkins Caufield & Byers.

Darwin was founded by managing partner Frank Caufield in 2004, and lists Charlie Jadallah as a partner on its website.

Hellman & Friedman Capital Partners is reportedly several billion dollars oversubscribed for its $8.9bn-targeting eighth fund despite only sending out marketing materials a few months ago.

The firm is now set to close on its $10.25bn hard cap despite turning some LPs away and requiring others to cut the size of their commitments according to peHub, which cited three limited partners.

Hellman & Friedman wraps up $10bn raise

Bessemer seeks $350m for latest fund of funds

Column Group strolls past Fund II targetBiotechnology-focused firm the Column Group has beaten the target for its second venture capital fund by holding what is believed to be a $306m final close.

AltAssets revealed in April that the firm had passed the halfway mark in the $250m-targeting fundraise, but it has now easily beaten that figure according to an updated filing with the US securities regulator. The firm has tapped 50 LPs to hit the total.

Asset management firm Bessemer Trust has launched a fund of funds with a $350m target.

Old Westbury Private Equity Fund XIII has yet to register its first commitment, ac-cording to a document filed with regulators in the US.

Bessemer Investor Services is acting as a placement agent for the fund, which has a minimum commitment requirement of $350,000.

Bessemer Trust’s previous vehicle in the series was launched with a $250m target in December 2012. The Old Westbury Private Equity vehicles target buyout, venture capital and later-stage private equity funds.

Capital close: CCMP is likely to make about a dozen deals with the new fund

FUNDS

54 Q4 2014

Sovereign wealth investors are due to up their exposure to global private equity by an estimated 39 per cent this year, according to new research.

The increased PE allocation is part of a wider atmosphere of sovereigns moving away from equities and bonds and looking for more exposure to alternatives such as infrastruc-ture, hedge funds, real estate and commodities.

The biggest recipient for increased allocation will be domestic private equity funds, with exposure estimated to increase by 64 per cent relative to 2013.

Exposure to global real estate is tipped to increase by 60 per cent and global infrastructure by 50 per cent according to the Invesco Global Sovereign Asset Management Study 2014.

Invesco states the heightened interest in alternatives is because “sovereigns were seeking diversification, noting the volatility of equities, [the] yield compression in treasuries and greater correlation between equities and corporate bonds due to quantitative easing”.

Sovereign wealth investors will partly make up for the extra allocation by reducing exposure to global bonds by an estimated seven per cent, domestic bonds by 38 per cent and dropping their cash holdings by 25 per cent.

Researchers for the report expect that the increasing exposure to alternatives will run for three years, from 2014, and will be driven by strategic asset allocation, rather than a tactical short term shift. The research also revealed that Latin America is likely to be the region with the biggest rise in investment, estimated at 40 per cent.

PE fundraisers prepare for sovereign wealth boost

American Securities launches $4bn-targeting Fund VII

Paine & Partners pulls past halfway point

Mid-market focused American Securities Partners has confirmed the launch of its seventh private equity fund.

The vehicle has a target of $4bn, just slightly bigger than the previous vehicle which beat its $3bn target and closed on $3.64bn in June 2012.

American Securities focuses on a range of companies within the industrial, health-care, power and energy, consumer and service sectors.

The New York-based buyout house tar-gets companies pulling in between $500m and $2bn revenues.

The firm’s strategy is to invest in market-leading companies with sustainable posi-tions. They should operate in stable demand industries and employ a conservative capital structure with no subordinated debt.

Current investments include Advanced Drainage Systems, GT Technologies and Liberty Tire Recycling. Exited investments include former Burger King franchise holder Caribbean Restaurants.

Last year AltAssets reported that American Securities was targeting a total of $750m for its second distressed investment fund in two years.

Food and agriculture-focused private equity firm Paine & Partners is more than halfway to its $850m target for its first flagship fund since the financial crash.

AltAssets revealed in June that the firm was targeting a more conservative figure for Fund IV compared to the $1.2bn it gathered for Fund III in 2007.

A total of 20 LPs have committed $476m to the fund to date according to an updated filing with the SEC, the US securities regulator.

Paine & Partners was founded in 2006 by Dexter Paine, who had previously co-founded private investment firm Fox Paine & Company.

Revving up: Sovereigns are shifting towards alternatives and away from equities and bonds

FUNDS


US private equity major Adams Street Partners is eyeing up to $1bn for its latest global fund of funds and has already closed on almost half that amount.

The firm held a $410m first close for Adams Street 2014 Global Fund in December according to the investment minutes of the State Universities Retirement System of Illinois (SURS), which is considering a $100m investment in the vehicle.

Adams Street is hoping to raise between $800m and $1bn, according to key terms outlined in the minutes of the LP’s investment committee.

About 50 per cent of the vehicle is

slated to be invested in US funds, 25 per cent in developed markets funds, 15 per cent in emerging markets funds and 10 per cent in direct funds.

SURS senior investment officer Kimberly Pollitt said the LP had $250m left for its private equity funding plan ahead of the proposed investment, having already committed $400m since the $650m plan was agreed in 2012.

Since 1990 SURS has committed more than $1.5bn to private equity investments with Adams Street Partners and its predecessor organisations.

About $1.2bn in capital has been called and $1.5bn distributed back to SURS as of September 30, 2013.

Paragon raises €412m for second fund

Littlejohn hits $2bn hard capConnecticut-based mid-market firm Littlejohn & Co has closed its latest fund on its $2bn hard cap, beating its initial target by $500m.

Littlejohn Fund V is significantly larger than the firm’s fourth vehicle, which was closed on $1.34bn in 2010, and more than double the size of its $800m third fund.

LPs backing the vehicle include endowments and foundations, public and corporate pension plans, insurance companies, sovereign wealth funds and family offices.

Littlejohn targets mid-market companies with annual revenues of between $100m and $800m, investing $50m to $150m per company.

Flying the flag: German private equity firm Paragon’s initial €350m target was easily beaten

German private equity firm Paragon Part-ners has closed its second fund on €412m, beating its initial target.

The fund was launched with a €350m target in early 2014, nearly six years after Paragon closed its debut vehicle on €220m.

Munich-based Paragon invests between €30m and €150m in private mid-market

companies and non-core subsidiaries of large companies in German-speaking Europe.

Paragon co-founder and managing part-ner Edin Hadzic said, “Investors responded well to our long-term track record of strong returns and the strength of the team, as well as our differentiated approach.

“We are seeing a unique range of oppor-tunities as a result of the changing market conditions in the DACH region, where our ability to navigate complexity positions us well to execute.”

Paragon’s recent deals include the acquisition of Vion Food Group’s German convenience retail unit.

Adams Street eyes $1bn fund

56 Q4 2014

PEOPLE

Z Capital hires former Tile Shop CFO as MD

Orlandi is made MD at CPPIB

Menlo adds Dawson as venture partner

Insight names White as new head of IR

The Canada Pension Plan Investment Board has appointed Andrea Orlandi as MD and head of real estate investments for Europe.

Orlandi, pictured, was previously a director in the CPPIB’s London office. His responsibilities covered real estate investments on a pan-European basis and in India.

He has more than 15 years’ experi-ence in real estate investment, having previously held senior positions at real estate private equity and investment firms.

These include European chief invest-

ment officer and director of Apollo Real Estate Advisors Property Partners, where he was responsible for the sourc-ing and oversight of investments.

Alpha addition: Tim Clayton has been hired by Z Capital Partners

Insight Equity Partners has hired a new head of investor relations two months after former incumbent Felicia Hardwick left the firm.

Chris White will now lead the firm’s global fund-raising, IR and consultant relations efforts.

The firm has also made five new hires and promoted two people as the firm continues work on fundraising for its third vehicle.

Insight had raised almost $400m towards the fund’s $750m target according to an AltAssets report from April this year.

The Texas-based firm makes control investments in mid-market businesses, and has backed compa-nies with aggregate revenues of more than $4bn.

Illinois and New York-based private equity firm Z Capital Partners has hired former Tile Shop CFO Timothy Clayton as a managing director and operating partner.

Clayton was also previously vice-president and CFO of language translation business Sajan and was founder and principal of consulting firm Emerging Capital.

Z Capital president and CEO James Zenni said, “Tim is a great ad-dition to the Z Capital family. With nearly 40 years’ business experi-ence in financial, operating and strategic planning with a variety of large, multinational corporations and smaller enterprises, his extensive expertise will support the execution of our strategy to identify strategic opportunities and enhance operational efficiencies.”

Earlier this month turnaround and restructuring-focused Z Capital Partners held a final close for its latest vehicle 50 per cent above its $500m target.

The firm pulled in $750m for Z Capital Special Situations Fund II thanks to 30 new LPs, including sovereign wealth funds, pension funds, family offices and insurance companies from across the globe.

Menlo Ventures has hired former chief sales officer and executive vice-president Jim Dawson of Fusion-io as a venture partner.

Dawson will focus on storage and infrastructure investments.

During his tenure at vice-president of

3PAR, which was a portfolio company of Menlo, Dawson helped to grow an-nual revenues from $6m to $200m.

Dawson has also served as vice- president of worldwide sales at Scale 8, and a vice-president at Data General Corporation.

Oaktree vet steps downOaktree Capital Management veteran Kevin Clayton has stepped down after nearly 20 years.

Clayton is off to take the reins at Lehigh Univer-sity in Pennsylvania as interim president according to the education provider’s website. The former Lehigh graduate founded Oaktree’s marketing and client relations department in 1995.

PEOPLE


Evercore has poached UBS’ head of European secondaries Rodney Reid, who will now serve as the firm’s managing director.

The Swiss banking group promoted Reid to head of Europe last year to replace Nicolas Lanel, who also left for Evercore, which was launched by UBS’ former head of secondaries Nigel Dawn.

While at UBS Reid led a number of secondary deals in North America and Europe for clients including public pen-sions, university endowments, banks, insurance companies, hedge funds and private equity firms.

Evercore’s CEO and president Ralph Schlosstein said, “Rodney has substan-tial experience advising institutions in

Europe, the Middle East, Africa and the US on secondary transactions.”

Earlier this year Evercore secured a mandate from GE Capital to sell $1bn of private equity interests.

Evercore poaches Reid from UBS as managing director

Rodney Reid: poached by Evercore

Healthcare-focused early-stage investment firm Flagship Ventures has hired former Merck & Co senior vice-president Roger Pomerantz as a senior partner.

Flagship said Pomerantz, pictured, would provide counsel and support to Flagship’s team and portfolio companies.

Pomerantz was most recently senior VP and worldwide head of licensing and acquisitions at Merck.

Flagship CEO and managing partner Noubar Afeyan said, “Roger brings with him a wealth of management experience in

developing and commercialising therapeu-tics, as well as expertise in the pharmaceu-tical industry.”

Boston-based investment firm Polaris Partners has hired ex-Pfizer executive Amy Schulman as a venture partner.

Schulman most recently served as general counsel, executive vice-pres-ident, and business unit lead of Pfizer Consumer Healthcare.

She has also worked at the company’s nutrition business, which was sold to

Nestlé for $11.85bn, and its consumer arm, which includes the Advil, Chap-Stick and Emergen-C brands.

Schulman will also serve as CEO of Polaris’ portfolio company Arsia Thera-peutics.

Polaris was launched in 1996 and has more than $3.5bn of capital under management.

European venture capital firm Active Venture Partners has hired a former T-Venture exec and an ex-Rocket Internet LatAm managing director to extend its investment power.

Sebastian Blum, who was a managing director in T-Venture’s San Francisco office, has joined as a partner, while Georg Stock-inger becomes a venture advisor.

Stockinger will bring large-scale digital business experience to Active, the firm said, following his experience working with com-panies including Groupon and eDarling.

Blum said, “This is such an exciting op-portunity – to work with a passionate team of entrepreneurially-minded professionals helping other entrepreneurs succeed.”

Active hires Blum and Stockinger to extend its reach

Flagship hires Roger Pomerantz

Polaris adds Amy Schulman as partner

BVP nabs James from Google

SV Life Sciences appointsBalmuth as partner

Bessemer Venture Partners has appointed two new vice-presidents, nabbing Sunil James from Google and promoting Amit Karp from senior associate.

Karp will focus on investments in the software, mobile and digital media sectors, identifying the next leaders and working closely with existing portfolio companies.They include Thinking Phone Networks, Cloudlock and Syncsort.

SV Life Sciences has hired experienced venture capital investor Michael Balmuth as a partner in its healthcare services team, not long after adding three new venture partners to its biotech investment division.

Prior to joining SVLS, Balmuth worked as a general partner at Edison Ventures, where he was head of the firm’s healthcare IT practice, and as a general partner at Summit Partners at the East Coast office.

PEOPLE

58 Q4 2014

Ex-Heinz CEO Johnson joins Advent as partner

Landmark adds Mullen as principal

Highbridge hires Fortress’s Jon Ashley

Carlyle nabs Goldman and Warburg execs

Real estate secondaries firm Landmark Partners has hired former Morgan Stanley managing director Geoffrey Mullen as principal.

Mullen’s role will include expanding the firm’s business development and investor relations team.

At Morgan Stanley Mullen was managing director in the investment bank’s Alternative Investment Partners

division, where he led institutional business development, marketing, and distribution.

Landmark managing partner Tim Haviland said, “Geoff has extensive industry knowledge and experience working with institutional investors. He has built and led capital-raising, investor relations, and marketing functions for several high-quality organisations.”

New operator: William Johnson has joined Advent

The Carlyle Group has added to its Ireland team with executives from Goldman Sachs and Warburg Pincus.

The private equity major has taken on Peter Garvey and Jonathan Cosgrave as directors of its Ireland Fund. Garvey was previously an execu-tive director for private equity at Goldman Sachs Asset Management. At Warburg Pincus, Cosgrave focused on growth capital and buyout investment opportunities across Europe.

JP Morgan’s $29bn hedge fund Highbridge Capital Management has taken on experienced private equity executive Jonathan Ashley as a portfolio manager in its principal strategies platform.

Ashley, who will work in the firm’s London office, previously served as

managing director of Fortress’s Euro-pean private equity arm.

His new job will focus on publicly-traded debt and other negotiated debt investments, said the FT.

In July last year Highbridge hired Scott Kapnick as CEO to replace Glenn Dubin, who remained as chairman.

Bain appoints Salem as MDBain Capital’s VC arm has brought in Enrique Salem, former CEO and president of Symantec, as a managing director in its Palo Alto office.

In addition to his 27 years’ executive experience, Salem has also been an active personal investor in software companies and currently sits on the boards of Atlassian, Clari, Cloudgenix, DocuSign, FireEye and ForeScout.

Global private equity major Advent International has hired former Heinz chairman, CEO and president William Johnson as an operating partner.

Johnson spent a 31-year career with Heinz and was CEO for almost half of that, helping to grow the company’s top and bottom-line results and transform it into a global food industry leader.

The move came soon after Advent lost experienced retail and con-sumer investment executive Andrew Crawford to US growth equity firm General Atlantic.

Crawford spent more than a decade at Advent working on deals including Bojangles, Charlotte Russe and Five Below.

Advent managing director Jeff Case said, “Bill is one of the premier executives in the consumer packaged-goods industry, and we are ex-cited that he has agreed to support the Advent team.

“Bill’s expertise in consumer products and food will complement our extensive experience in the retail space and further strengthen our abil-ity to source new investments and drive value creation in our portfolio.”

Advent has been investing in the retail, consumer and leisure industry for 25 years and has completed more than 50 investments in the sector worldwide.

Global investments over the past five years include Dudalina, The Coffee Bean & Tea Leaf, Party City, Five Below and DFS Furniture.

PEOPLE


CCMP names Doug Cahill as new MD

KKR has hired Leafgreen Capital Partners founder Jaka Prasetya as its new credit and special situations head in South-East Asia.

Prasetya will also become a managing director leading KKR’s Indonesian deal-making, while former Leafgreen partners Rahul Bhargava and Allan So are joining the firm’s Singapore office.

KKR said the trio would bring exten-sive investment experience to the region through their work at Leafgreen – a pro-vider of mezzanine and structured growth funding in South-East Asia, with a focus on Indonesian opportunities.

Ming Lu, co-head of Asia private equity at KKR, said, “Indonesia continues to be a dynamic market for investment, with great growth potential and positive demographics driving opportunities.

“With our first deal in the market in 2013, we look forward to exploring new opportunities to provide both equity and credit solutions to companies to suit their long-term needs.

“The addition of Jaka, Rahul and Allan – who have a deep understanding of Indonesia’s local culture and business en-vironment – greatly enhances our ability to partner with Indonesian companies.”

Mid-market private equity firm CCMP Capital has named executive advisor Doug Cahill as its newest managing director.

Cahill, who will be based in New York, has been with the firm since May 2013, but his involvement dates back to 1997 when he was president and CEO of for-mer portfolio company Doane Pet Care.

As executive advisor he helped CCMP source deals and create value in portfolio companies, including the firm’s recent investments in Jamieson Laboratories and the Hillman Companies.

CCMP said that as managing director Cahill would be responsible for sourcing new investment opportunities in the retail and industrial sectors.

Emerging markets-focused private equity firm Actis has hired former PwC sustainability and climate-change team member Shami Nissan (above) as a director in its responsible investment team.

Nissan will help portfolio companies with their social and environmental impact from the firm’s London office.

She previously led the London business of Innovest Strategic Value Advisors and has also worked with the UN development programme in Central America.

Actis executive chairman Paul Fletcher said, “We are delighted to have Shami on board. Her experience will be highly valued.”

Actis hires ex PwC exec Shami Nissan for SRI team

Phoenix promotes two as Muirhead steps downUK mid-market buyout house Phoenix Equity Partners has promoted long-standing management committee members David Burns and Richard Daw to managing partners.

The two men join existing managing part-ner James Thomas, with the trio taking on day-to-day responsibility for management of the firm and investor relations activity.

Existing managing partner Sandy Muir-head is stepping down after 13 years in the role, but will continue as chairman of Phoenix’s investment committee.

The transition follows Hugh Lenon step-ping down as a managing partner and being named chairman of the firm last year.

Private equity firm Paladin Capital Group has added Beacon Global Strategies founder and former chief of staff at the Department of Defense and the CIA, Jeremy Bash, to its strategic advisory group.

In both his roles Bash served as a senior adviser to Leon Panetta.

Between August 2010 and March 2011 Bash was a member of the CIA’s senior management team overseeing the opera-tion that resulted in the death of Osama Bin Laden.

He has also worked as chief counsel to the House Permanent Select Committee on Intelligence and as a senior national

security advisor to Congresswoman Jane Harman.

The hiring came a fortnight after Paladin appointed former deputy director of the National Security Agency Chris Inglis as a venture partner.

Paladin founder and managing partner Michael Steed said, “Jeremy and the Beacon Global Strategies team will add a new and dynamic domestic and inter-national viewpoint to Paladin and our portfolio companies.

“We are delighted to have Jeremy join our Strategic Advisory Group, especially as we further expand our cyber-investing activity.”

Paladin adds ex-CIA chief to strategic advisory group

KKR brings in Leafgreen trio to boost

60 Q4 2014

SECTOR PERSPECTIVESBUYOUT 76REAL ESTATE 72 CLEANTECH 86INFRASTRUCTURE 64SECONDARIES 60 VENTURE 82

The smaller end of the buyout market offers some of the most attractive opportunities for secondary deals according to Adveq’s manag-ing director Tim Creed.

Creed estimates that portfolios of buyout funds are bought at discounts of five to 15 per cent, while venture portfolios are bought at discounts of up to 20 per cent.

He said that on the buyout side, large brand names are often bought at premiums, at par or at only small discounts.

“Such high prices are paid because some investors who acquire those large funds set up special purpose vehicles and put a bit of debt on it,” said Creed.

“At the small end of the buyout market there are fewer debt providers who would provide debt for a secondary to a small group. This is why we see bigger discounts in that segment.

“The smaller part of the market is also the area that has the lowest capital market dependency.

“With small companies, the entry prices aren’t dependent on debt, as the companies themselves are not dependent on debt.

“So if you have debt that goes up or down, you generally won’t see much of a difference in deal volume or deal prices.”

Creed said that while discounts are impor-tant, Adveq is more focused on the quality of the assets in fund portfolios.

“If you look at the European landscape, there are 700 managers – about 25 have a fund of above €2bn, 75 have funds of between €500m and €2bn and 600 funds are below €500m.

“That’s a large number. In order to choose from these 600 managers we look for those GPs that are most specialised in what they do.”

Small European buyout funds ‘offer best chances’

Small is beautiful: Large brand names are often bought at premiums according to Adveq’s Tim Creed

Lexington, Alpinvest take on JPM portfolioLexington Partners has teamed up with the Carlyle Group’s secondar-ies offshoot AlpInvest Partners to buy about 50 per cent of the private equity portfolio held by JP Morgan Chase PE arm One Equity Partners.

Staff at One Equity will become independent from JP Morgan and form new investment advisory firm OEP Capital Advisors (OEPCA) as part of the deal.

OEPCA will manage the portfolio being sold by JP Morgan, as well as investments set to be retained by the US banking giant.

SECTOR PERSPECTIVES: SECONDARIES


Hutton Collins to sell Fund III stakes

The global private equity secondaries market hit $22bn in the first half of 2014 amid the busiest period in the asset class’s history, new research by Setter Capital suggests.

Deal volume was up 47 per cent from the same period last year thanks to new and incumbent buyers being optimistic and ag-gressive, according to the report.

It said that in addition to higher dollar vol-umes in almost all areas, the first six months of 2014 saw an even greater increase in the number of transactions.

That reflected the same trends and broader adoption of the secondary market strategies being employed by active LPs, the report added, with many more investors becoming permanent fixtures on the secondary market.

Setter said it arrived at its $22bn figure by taking the $14.3bn of volume reported by the 81 survey respondents and grossing it up in proportion to the number of small, medium and large active buyers that did and did not participate.

Global secondaries volume hits $22bn in just six months

Hollyport collects 60x return

UK-based private equity firm Hutton Collins Partners is reportedly looking to sell stakes in its €600m 2009-vintage Fund III.

The firm has hired Campbell Lutyens & Co to help find buyers for the stakes according to Bloomberg, which cited two sources.

A Hutton Collins spokesman said, “The effort has been initiated by the manager as a number of existing limited partners no longer participate in the

asset class and might therefore seek to achieve early liquidity.”

Earlier this year the firm agreed to invest €50m in Italian healthcare IT systems business Dedalus Group.

Hutton’s co-investors have also agreed to invest €15m in the business, which has revenues of about €70m and EBITDA of €17m.

Hutton’s portfolio companies also include restaurant chains Pizza Express and Wagamama.

Private equity secondaries specialist Hollyport Capital has made more than 60-times its initial investment by selling its minority stake in Sauflon Pharmaceu-ticals in a deal worth about $1.2bn.

The firm bought into the contact-lens maker in 2007 by picking up a stake from Quester Capital, which had gone beyond the life of its LP agreements.

Hollyport forming a dedicated vehicle to buy Quester’s interest in Sauflon and offered the Quester fund investors the option of either taking cash or rolling over into the new vehicle.

The firm raised capital from its clients

to buy out investors and arranged a £5m mezzanine loan for the company from Bond Capital Partners to finance new production facilities.

Hollyport chief executive John Carter said, “We were able to use our experi-ence as a specialist secondary investor to customise an approach which offered both liquidity for original investors whilst also allowing the option of ongo-ing equity participation.

“Addressing and resolving these shareholder issues facilitated the continued rapid growth of the business, maximising value for all stakeholders.” Akina-managed Euro Choice Secondary has

held a €73.5m first close to help it target mid-market secondary investments in Europe.

The fund-of-funds adviser said it aims to use the vehicle to pick up value and high-discount investments focused on smaller deals of between €5m and €30m.

Euro Choice will target mostly-drawn funds investing in healthcare, energy, food, infrastructure, and distribution and real-estate companies.

The firm’s head of secondary funds Chris-tian Böhler said, “Akina is currently in the advanced stages of executing further invest-ments in excess of €100m.

“Most of these opportunities are with country funds in the core of Europe, comple-mented by pan-European mid-market funds.”

Euro Choice closes first round on €73m

Sharp dealmaking: Hollyport bought into contact-lens maker Sauflon in 2007

SECTOR PERSPECTIVES: SECONDARIES

62 Q4 2014

Lexington Partners buys $1.2bn of Citi’s stake in Metalmark fund

Investment firm Arcis is seeking €350m for its new European secondaries fund.

European Secondary Development Fund V has yet to register its first commitment according to a document filed with the US Securities and Exchange Commission.

The firm is raising the fund via a main US-based vehicle and a parallel fund registered in the Cayman Islands.

Threadmark and PTP Securities are acting as placement agents for both vehicles, which have not set minimum commitment require-ments for outside investors, the documents showed.

The firm invests in funds which are still in their investment period and have not been fully called down.

It also looks at the positions of all the limited partners in a fund or portfolios of positions in private companies.

Arcis targets growth capital, LBO and early-stage investment funds that have a lifespan of ten years.

Arcis launches fifth Europeansecondaries fund

Partners Group buys LP interests

Private equity secondaries major Lexington Partners has agreed to buy 80 per cent of Citigroup’s $1.5bn interest in Metalmark Capital Partners II.

The remaining 20 per cent will be offered to New York-based Metalmark’s existing LP investors.

Lexington managing partner Brent Nicklas said, “We are excited to expand our longstanding relationship with the princi-

pals at Metalmark, a leading middle-market sponsor with whom Lexington has been an investor for nearly 20 years.”

Metalmark was spun out of Citi’s New York-based private equity unit in December 2013. At the time Citi said it would retain its LP interest in Metalmark Capital Partners II.

Metalmark recently exited its invest-ment in Canadian company PTW Energy Services.

European private equity firm Partners Group has bought secondary interests from 31 LPs invested in Venator Real Estate Capital Partners’ Trophy Fund.

The transaction makes Partners Group the second-biggest investor in the $1bn China-focused Trophy Fund vehicle, with a 12 per cent stake.

The deal coincides with a fund restruc-turing, with the management changing from original manager Winnington Capital to Venator, after Winnington hit capital and timing hurdles when it invested in projects that were unlikely to be complet-

ed within the vehicle’s 10-year lifespan. Venator has upped the lifespan of the fund by two years, with investments to be realised by 2017.

The sale is a rare example of a private equity real-estate secondary deal in Asia, Partners said.

Head of private real-estate secondaries Marc Weiss said, “The secondary market for private equity real estate is still in its infancy. Before the global financial crisis, there was no reason to sell real estate interests, as most institutions were behind in their allocations.”The State of Wisconsin Investment Board is

selling part of its portfolio of private equity investments which was worth $203m at the end of last year, public documents have revealed.

The portfolio comprises 48 investments managed by Brinson Partners, with the state set to retain 14 of them.

Winsconsin’s pension system currently has assets of around $100bn and plans to invest $1.2bn in private equity this year.

It will make further investments in its ex-isting GPs and back new managers on a very selective basis, according to the documents.

Back in 2012 Wisconsin sold $1bn worth of private equity funds in one of the largest ever secondary deals involving an institu-tional investor.

Wisconsin to sell part of PE portfolio

Dealmaking: Partners Group has become the second-biggest investor in China’s Trophy Fund

SECTOR PERSPECTIVES: INFRASTRUCTURE

64 Q4 2014

Fortress lines up rail deals in strong infra climate

Bank spending restrictions and governments seeking private investment partners has made it a heyday for transport and infrastruc-ture deals, according to Fortress Investment Group which made a rare move to reopen its fund to take on more deals.

The New York-based private equity firm held a final close for its Transport and Infrastructure fund on $395m in January 2013, but decided to seek more fundraising

because of new opportunities, particularly in rail and rail infrastructure, that the team felt it could not miss.

The strategy paid off, with the fund’s capitalisation shooting up by $600m, closing just shy of the $1bn mark.

Fortress CIO for the fund Joe Adams said, “Earlier this year we had the good fortune of having more investment opportunities than we had capital.

“We went to our investors to discuss options and ideas and they all supported us creating a bigger portfolio, so we chose to re-open the fund, making it more diversified and enabling us to take advantage of these attractive opportunities.”

The firm is coy about its recent deals, but investments within Fortress’ other funds include RailAmerica and Florida East Coast Railway, both acquired in 2007.

On track: Fortress has seen the capitalisation of its Transport and Infrastructure Fund shoot up by $600m

Hermes hits £700m with cash injection from SantanderPrivate equity firm Hermes has hit the £700m mark for its GPE Infrastructure fund thanks to £210m of new commitments from LPs including Santander UK’s Common Investment Fund.

The vehicle and its related accounts have also attracted capital from UK local govern-ment pension schemes, the firm said.

Hermes Infrastructure currently manages a portfolio of 11 assets valued at around £1.2bn. These are predominantly direct

investments in its UK core and value added strategies.

Santander director of pensions Antony Barker said, “Partnering with Hermes Infra-structure is our first dedicated infrastructure commitment for the Santander CIF, with Hermes selected because its strategies of-fered us the opportunity to tailor a direct and indirect portfolio that satisfied our risk-and-return requirements.”

Hermes Infrastructure’s total AUM now

stands at £2.7bn, £2bn of which is a direct-investment, managed-account programme for the BT pension scheme.

Hermes’ Infrastructure head Peter Hof-bauer said, “We remain focused and com-mitted to delivering enhanced risk-adjusted returns for investors.”

Hermes tapped its Infrastructure fund to buy a 50 per cent stake in the 72MW Braes of Doune wind farm in Stirlingshire, Scot-land, for £59m in cash in May 2013.



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66 Q4 2014

Large insurers poised to fill infra funding gap

Insurance companies are in the best posi-tion to fill an infrastructure funding gap of $500bn a year, with private equity firms set to benefit the most according to a new study.

Global infrastructure programmes will require a total investment of $3.4tn a year until 2030, according to researchers from Standard and Poor’s Ratings Services. De-spite government and bank investment, there will still be an annual shortfall of $500bn.

S&P said insurance investors could be the

perfect fit as these companies are often look-ing for long-term, high-yielding assets. But risks such as technical and design failures and a lack of industry data could make it un-viable for insurers to back projects directly, meaning private equity is the best way for them to gain exposure.

The report said, “Diversifying into in-frastructure investments requires specialist knowledge, of which insurers have relatively little experience, in our opinion.

“We therefore believe larger insurers with specialist teams of investment professionals may be more inclined to invest in infrastruc-ture directly through private equity and loan structures, compared with smaller insurers which are more likely to participate through bonds and shares in investment funds.”

Nevertheless, the S&P researchers rank infrastructure investment via private equity as ‘high risk’, equating it with investing in the asset class through bonds.

Bridging the gap: Global infrastructure programmes will require $3.4tn a year until 2030

Aberdeen launches fifth infra fundUK private equity firm Aberdeen Asset Management has launched its fifth infra vehicle, Global Infrastructure II.

The new vehicle will be used to invest in social and economic infrastructure projects including sectors such as health, education, social housing and waste management.

Aberdeen said its target investment would include those underpinned by long-term government contracts, characterised by stable and inflation-linked cash flows.

Aberdeen’s global head of alternatives Andrew McCaffery said, “The interest in

this fund is an insight into the increasing demand from institutional investors who are attracted by the potential for a stable income over a sustained period.”

Aberdeen has a bias towards greenfield infrastructure and is focused on geographic areas with high political stability such as Europe, Australia and North America.

Aberdeen team leader Gershon Cohen said, “Our focus is on undertaking rigorous due diligence before investing, leveraging off the numerous deep relationships we have built with industry partners.”

Swiss-based Partners opens Texas officeSwiss-headquartered private equity firm Partners Group has opened a new office in Houston, Texas to build on its private mar-kets coverage in the US and Latin America.

Managing director and head of infra-structure for the Americas Todd Bright will head up the new office and continue to build the firm’s investments in the US and Latin America.

Bright said, “Houston is the undisputed energy centre of the US and therefore this office opening is a natural next step for Partners Group.”



White House unveils $10bn rural economic infra fund

Canadian fund manager Northleaf Capi-tal Partners has held a $520m final close for its Infrastructure Co-Investment Partners fund, easily beating the $300m target.

The fundraise brings Northleaf’s total infrastructure capital under management to more than $900m.

Northleaf managing partner and managing director Stuart Waugh said, “We sincerely appreciate the support we have received for NICP from both exist-ing and new investors.

“They have entrusted us with a signif-icant pool of capital and we are focused

on investing this capital in a disciplined, thoughtful and productive manner.

“NICP is designed to provide direct access to mature infrastructure assets in OECD countries through an innovative cost structure with enhanced portfolio construction and liquidity features – an investment strategy and approach that has resonated with investors.”

NICP hopes to build an attractive portfolio of mature assets in OECD countries and has already invested about 15 per cent of the fund’s capital. Earlier this year Northleaf held a $255m final close for its debut secondaries fund.

The White House Rural Council has launched a $10bn infrastructure fund to promote potential investment opportu-nities throughout rural America.

US national cooperative CoBank, a member of the Farm Credit System, is the fund’s anchor investor, having laid down the initial $10bn.

Capitol Peak Asset Management will

manage the new fund and try to recruit more investors to add to CoBank’s initial commitment.

The investment fund will aim to grow the rural economy by increasing access to capital for rural infrastructure projects and speeding up the process of rural infrastructure improvements, said the rural council.

Northleaf holds $520m final close

Infracapital nears £900mfund target

Antin buys Roadchef

European private equity firm Infracapital has registered more than £770m of commitments for its second infrastructure fund.

The capital for the £900m-targeting vehi-cle has been raised via 22 LPs, which invest-ed a minimum of $17.1m each, according to a filing with the US securities regulator.

Infracapital held the third close of the fund on £530m in September last year, saying it had attracted funds from LPs in the UK, Europe, North America and Asia.

The investments from the fund include UK utility company Affinity Water, which the firm bought in 2012.

The second fund is fast approaching the same size as Infracapital’s 2005-vintage debut vehicle, which closed on £908m and is fully invested in seven core infrastructure assets. It has an expected term of 12 years.

Other companies in the firm’s portfolio include gas and electricity meter business Calvin Capital, and Swedish heating and electricity distributor Falbygdens Energi.

In May last year AltAssets reported that Infracapital and venture capital firm Citi Infrastructure Investors was looking to sell their stake in Kelda Group, which owns the UK’s fifth largest UK water and sewerage company Yorkshire Water, for £1.5bn.

Europe was the dominant region for infra-structure deal activity during the first decade of this century. While deal activity steadily declined from the levels reached prior to the global financial crisis, signs of recovery were noted from 2011.

Europe-focused Antin Infrastructure Partners has agreed to buy UK motorway services operator Roadchef from Israeli energy company Delek Group.

It is believed that Antin is tapping its sec-ond vehicle, which closed on €2bn in June this year, for the deal. That vehicle is one of the largest ever infrastructure fundraises dedicated to Europe.

State of the nation: the fund will grow the rural economy by increasing access to infra capital


68 Q4 2014

Mumbai-based L&T Infra Finance has held the first close of its $1bn-targeting private equity fund after pulling in INR5bn ($83m) from investors.

The capital has been raised purely from domestic investors including pension funds according to a spokesman for the firm, and L&T is now considering raising capital from outside India.

The spokesperson said, “We are cur-rently assessing the interest of international investors given the change in their outlook towards India, and will begin the formal process after completing the first level as-sessment.”

Although the firm is said to be targeting $1bn, a source close to the firm said it was unlikely to reach that size.

L&T Infra Finance is a subsidiary of engineering and construction conglomerate Larsen & Toubro.

Its private equity arm focuses on invest-ing in companies experiencing a funding gap during periods of sectoral or regulatory instability, loan constrains, volatile equity markets or weak investor sentiment.

L&T holds £83m first close for $1bn-targeting infra fund

CalSTRS commits $150m to First ReserveThe California State Teachers’ Retirement System reportedly committed $150m to private equity firm First Reserve in the second quarter of this year.

The mammoth $186bn pension fund allocated the capital to the firm’s Energy Infrastructure Fund II, which closed on $2bn in June this year, according to Pensions and Investments. CalSTRS partnered with Indus-try Funds Management on a two-part, $500m global funds commitment and invested $150m in the debut First Reserve Energy Infrastructure Fund in April 2011.

Calpers, UBS in $500m partnership

Powering up: CalPERS has signed a $500m infra deal with UBS Global Asset Management

The California Public Employees’ Retirement System has signed a $500m global infrastructure partnership with UBS Global Asset Management.

CalPERS will contribute $485m to the newly-formed company, with the Swiss bank contributing the remaining $15m and acting as managing member.

The Golden State Matterhorn venture will target infrastructure investment op-portunities in the US as well as globally.

CalPERS interim chief investment officer Ted Eliopoulos said, “UBS brings extensive experience and a proven track record in global infrastructure investing that makes them a great fit for this partner-ship.

“We’re excited to work with them as we identify and acquire core assets that will provide the best risk-adjusted returns for our portfolio.”

CalPERS looks for investments in public and private infrastructure, primarily in the transport, power, energy, and water sectors.

The pension fund said that infrastructure investments returned 22.8 per cent during the 2013-14 fiscal year and 23.3 per cent over the past five years, outperforming the benchmark by more than 17.2 percent-age points and 16.6 percentage points respectively.

CalPERS currently holds approximately $1.8bn in infrastructure assets.

Morgan Stanley’s second infrastructure fund raised more than $1.5bn in the first six months of the year.

The figure was achieved through two parallel vehicles, with Morgan Stanley Infrastructure Partners II raising more than $881m via commitments from seven investors.

The capital raised is still less than half

that of the investment bank’s first infra-structure vehicle, which closed on $4bn in 2008. Morgan Stanley has not revealed the target for its second fund.

Investments in the portfolio include gas transmission and storage facility provider Southern Star, electricity, steam and chilled water company MATEP, and Chicago Parking Meters.

Morgan Stanley in $1.5bn fundraise

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70 Q4 2014

Actis invests $250m in Mexican energy platform

Emerging markets investor Actis has invested $250m in Mexican energy platform Zuma Energía.

The new vehicle which will be used to target projects providing at least 500MW of installed electricity generation capacity.

Zuma said it would build on Actis’s exper-tise, especially in project finance, construc-tion and operations, in a bid to become a leading independent power producer.

The deal represents Actis’s fourth invest-

ment in a power generation platform in Latin America, following recent investments in Brazil, Chile and Central America.

The platform has already been tapped for the acquisition of PE Ingenio, a 50MW wind farm located in the state of Oaxaca.

PE Ingenio will be built by Acciona Energía, which will also supply its 33 wind turbines. The company will receive debt finance from Bancomext and will have hydro projects company Comexhidro as a local

partner, with a five per cent stake. Once in operation the wind farm is expected to produce enough clean energy to power more than 125,000 Mexican households, reducing CO2 emissions from conventional genera-tion by more than 200,000 tons.

Actis co-head of energy Michael Till said, “Mexico has compelling fundamentals for investing in power generation, including superior natural resources and a deep project finance capacity.”

Hot deal: Zuma Energia will target projects providing at least 500MW of electricity generation capacity

Zouk quadruples size of debut fundPrivate equity firm Zouk Capital has raised more than four times the amount of its debut Renewable Energy & Environmental Infrastructure Fund by closing the follow-up vehicle on €220m.

The oversubscribed Fund II will be used to finance construction and operational im-provement in areas such as waste-to-energy, geothermal, biomass, storage and energy efficiency.

Zouk’s first renewable-energy vehicle closed on €52m in 2008, with the firm saying the plan was to start small and aim

higher for the follow-up. LPs committed to the second vehicle include institutions from around the globe, including public pension funds, sovereign wealth funds, funds of funds, corporates and large family offices.

CEO Samer Salty said, “Zouk’s infra-structure partners, Colin Campbell and Er-ich Becker, offer a genuinely differentiated approach to investing in Europe’s renewable energy market, one which the success of our first fund demonstrates by combining high returns, specialist sector expertise and rigor-ous risk management.”

AlpInvest hires Justine Gordon as MDCarlyle’s private equity fund-of-funds arm AlpInvest has hired Justine Gordon as managing director in its secondaries investment team.

Gordon was previously head of acquisi-tions for Guggenheim Infrastructure, a unit of asset management firm Guggenheim Partners.

She will be tasked with leading the build-out of AlpInvest’s energy and infrastructure investment practice according to the firm’s website.

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SECTOR PERSPECTIVES: REAL ESTATE

72 Q4 2014

Heitman plans $400m January closeTristan exits for €523mGlobal real-estate investor Heitman has held the second close of its Value Partners III fund on just under $179m worth of commitments.

Heitman said it was planning to hold the final close of the $400m-targeting fund in January 2015. The latest vehicle in the series was launched last year and has attracted investment from nine LPs according to the firm’s filing with the US securities regulator.

Heitman has also laid down a GP commitment of $15m, equivalent to two per cent of the total equity.

A spokesman for the Chicago-based firm said investments so far included a “diversified portfolio that currently includes apartment, office and speciality assets”.

The fund looks set to be smaller than its pre-crisis predecessor Value Partners II, which closed in June 2007 after receiving $800m from 20 existing and new clients.

Heitman closed its debut fund on $400m.

Tristan Capital Partners has sold a 627,000 sq m Czech logistics portfolio to PointPark Properties in a €523m deal.

The transaction includes logistics ware-houses and associated development land in the Czech Republic, which were bought by two funds advised by UK-based Tristan and VGP.

The deal marks the fourth-largest logistics portfolio transaction in Europe since the be-ginning of 2012 according to research from Real Capital Analytics.

PE doubles share of real estate debt marketThe proportion of private equity funds active in the European real estate lending market has nearly doubled in the last two years ac-cording to a new report.

Private equity debt funds mak-ing European real estate loans ac-counted for 27 per cent of the total number of debt providers in the first half of this year, compared with around 15 per cent two years ago according to the European Real Estate Lending Update, which tracks ‘active’ lenders to real estate.

While the largest proportion of real estate debt providers in the first half of 2014 were from the commercial bank sector, at 37 per cent, ‘alternative lenders’ now make up nearly 40 per cent, the report shows.

The research, compiled by financial services firm Cushman & Wakefield Corporate Finance (CWCF) stated, “The breadth of lenders has continued to grow over the past 12 months, creating a diverse and increas-ingly liquid lending market.

“Over the past six months European property debt funds have continued to play a key role, having stepped into a lend-ing market vacated by traditional lenders

during the recent downturn.” CWCF also revealed that investment banks made up 18 per cent of active debt providers, followed by insurance and pension funds, which ac-count for 10 per cent of the total number of real estate lenders.

The top target countries within Europe

for real estate lending are the UK, with 79 per cent of the lenders being active there, followed by Germany with 43 per cent and France at 42 per cent.

Interest in Spain, Portugal and Italy has grown “considerably” since the first quarter of 2012, the report added.

Home run: PE debt funds making Euro loans accounted for 27 per cent of the total number of debt providers in H1



Investment management firm Mesirow Financial has registered more than $270m of capital for its Real Estate Value Fund II.

The institutional real estate arm of the firm pulled in the investment from 16 LPs according to its filing with the US securities commission.

Mesirow said the target for the fund was $500m, but that it could be raised to a $700m hard cap.

The minimum investment for the fund is listed as $5m, although the GP said it may accept smaller investments at its own discretion.

Mesirow’s previous RE Value Fund was significantly smaller, closing in June 2012 with a capitalisation of $379.3m. According to a report from the board, the strategy for the vehicle included targeting renovations, repositionings and management enhancements.

Mesirow halfway to $500m target

Lone Star shoots to $7.4bn at final close of Fund IX

Real estate private equity firm GTIS Partners has launched its second US Residential Strat-egies Fund targeting $750m just 10 months after it easily beat the target for its previous vehicle.

GTIS’ debut fund in the series had a target of $400m, but the firm left that figure in the dust by closing on $716m in October last year.

At that point president and CEO Tom Sha-piro said the fund was 60 per cent invested, with a primary focus on markets including New York, Georgia and states in the south-west of the country.

The follow-up vehicle has so far raised $30.3m according to a filing with the US securities regulator.

GTIS says it targets opportunistic real-estate investments through direct equity investment in addition to non-traditional lending.

GTIS launches second fund targeting $750m

SC Capital Partners raises $365m for 4th real estate fundSingapore private equity firm SC Capital Partners has registered about $365m worth of commitments for its Real Estate Capital Asia Partners IV fund.

The SC Capital vehicle has so far attracted investments from 10 LPs, according to a source with knowledge of the fundraise

No target was given for the real estate ve-hicle, but it is well on its way to being at least as big as Real Estate Capital Asia Partners III, which closed on $530m exactly two years ago.

The third vehicle from SC Capital was formed to acquire real estate and real estate-related assets across Asia.

Investments in the portfolio include proper-ties in Shanghai, Sydney and Tokyo.

Real Estate Capital Asia Partners II fund closed on $190.3m in 2008.

Texas private equity firm Lone Star Funds has held a $7.2bn final close of its ninth distressed real estate fund.

A further internal commitment from the firm brings the total capital in the fund to $7.4bn, said a source with knowledge of the fundraise.

Capital was raised from more than 94 investors, with the minimum invest-ment set at about $120,000, according to regulatory documents filed in the United States.

Lone Star founder John Grayken

reportedly committed $350m of his own cash to the pool.

The filing revealed that $10.6m would be used to reimburse Lone Star Global Acquisitions and Lone Star Partners IX for expenses incurred on behalf of the fund, as well as for potential manage-ment fees.

Dallas-based Lone Star invests in real estate, equity, credit and other assets across the globe. Investors include pen-sion funds, sovereign wealth funds, funds of funds and high net worth individuals.

Star fundraise: The firm has tapped more than 90 LPs for the $7.4bn vehicle


74 Q4 2014

Bayside benefits as banks sell loan books

Building its business: Bayside is now seeing an overwhelming number of opportunities

HIG affiliate Bayside Capital’s is benefit-ing from banks being more relaxed about selling off distressed real estate loans and has struck a string of deals.

The move is happening to such an extent that there is now an overwhelming num-ber of opportunities that Bayside could be considering, according to managing direc-tor Ahmed Hamdani.

He said, “It used to be the case that if we weren’t invited to sales pitches, you’d get annoyed and want to know why not. Now we don’t have enough bandwidth to view all of them.”

The London-based team invests in both assets and real estate loans in distressed situations, and focuses purely on Europe.

Hamdani is especially looking at places where there is dislocation in the pricing of the investments, such as Ireland, Italy, the Netherlands and the UK.

He said, “It is an area that some Euro-pean banks are only starting to get more involved in. It’s been six years since the banking crisis, but only now is the delever-aging starting. The banks didn’t feel it was the right time to sell these assets for a host of reasons, such as regulation.”

Carmel’s Fund V reaches $1bn hard cap in just nine months

Carlyle picks up $1.5bn for new fund

Private equity firm Carmel Partners has held a final close for its Investment Fund V having reached a $1.02bn hard cap, well ahead of its initial $850m target.

Carmel’s fifth US multi-family value-creation fund, launched in October 2013, attracted more than 50 LP commitments from existing and new investors.

The vehicle had already reached its target by its second close in March of this year and included a $25m GP commitment, Carmel said.

The latest vehicle brings the multi-family value-creation fund series to more than $3bn since it was launched in 2003.

Carmel’s fourth fund closed on a hard cap of $820m in October 2012, and three-quar-ters of the LPs from that fund reinvested in the latest vehicle.

The fifth fund attracted new investment from corporate defined-benefit pension plan investors, as well as the usual endowment, foundation and family offices, Carmel added.

The firm said it would use capital from the fund to invest in multi-family properties in supply-constrained US markets with high barriers to entry. The firm also invests in new development and high-yielding multi-family debt opportunities.

Listed alternative investments firm Carlyle has raised another $200m for its seventh real estate vehicle, bringing the total to $1.5bn.

Carlyle has pulled in capital for Realty Partners VII from 61 LPs, according to its filing with the US Securities and Exchange Commission.

The fund had raised $1.35bn in May this year, with Carlyle reportedly targeting $4bn.

The firm has yet to reach the figure it raised for its sixth realty fund, which closed on $2.3bn in 2012.

LPs investing in that fund included Texas County & District Retirement System and San Diego City Employees.

Fluent in real estateThere is no substitute for local expertise and insight when searching for the best real estate investments. It is this knowledge and experience that has built AEW Europe’s reputation as one of the leading real estate investment managers in Europe. AEW Europe continues to expand its European platform with more than 280 people managing €18.1billion of real estate across Europe.

www.aeweurope.com

SECTOR PERSPECTIVES: BUYOUT

76 Q4 2014

Private equity-backed exits via IPO are on pace to set a new record this year thanks to strong global equities markets and rising investor confidence, according to a recent report.

Companies backed by private equity have raised $55.9bn across 134 deals so far this year, compared with 187 deals total-ling $58.5bn in the whole of 2013, which marked an all-time high.

The pace of IPO issuance has some fearing a summer slowdown, but such con-cerns are overblown according to EY.

The report noted that the second quar-ter saw record amounts raised by private equity-backed companies and the pipeline remains strong. There were 87 such IPOs totalling $38.1bn during the period, setting a new quarterly record.

The EMEA region was particularly strong, seeing a fourfold increase in pri-vate equity-backed IPOs to $16.5bn.

Firms took 51 companies public in the region in the first six months of the year, raising $24bn, up 200 per cent from the first half of 2013.

“After years of stop-and-start activity, investors are clearly favouring a risk-on stance, allocating significant portions of their portfolios to new issues. Barring any systemic disruptions, year-end volumes

might even double last year’s record activ-ity,” said EY. Meanwhile, secondary offer-ings have also seen a substantial increase on the back of strong equities markets,

said EY. Private equity firms have raised $58.9bn across 178 separate follow-on deals this year, keeping it on track to ex-ceed the $109.2bn raised last year.

PE-backed IPOs on track to set new record

Knocking down records: PE-backed companies look set to easily outstrip the amount raised in 2013

PE seals solid ex-US returns for 2013Audax wins 3x return in TriMark USA exit

Developed market private equity outside the US returned 16.3 per cent in 2013 according to the latest benchmark figures from Cambridge Associates.

The firm’s Global ex US Developed Mar-kets PE/VC index returned 6.5 per cent in the fourth quarter of the year to hit the 16.3 per cent annual mark, an improvement of 200 basis points over its 2012 performance.

Cambridge said returns across the four largest vintage years in the index, 2005 to 2008, ranged from 5.6 per cent to 7.8 per cent during the fourth quarter.

For the year they were all in double digits, ranging from 11 per cent to 21.4 per

cent. These years represented about three-quarters of the benchmark’s value.

More than half the index’s value resided in the two largest vintages, 2006 and 2007, while the only vintage year of the four largest to underperform the index in the fourth quarter and year was 2005. The 2008 vintage year was the best-performing in both the quarter and the year.

For 2008, write-ups in financial services and information technology (IT) companies were the key drivers of fourth-quarter per-formance, while manufacturing and media businesses were the strongest performers in fourth quarter for 2005.

The Audax Group has reportedly tripled its initial investment in TriMark USA by selling the company to fellow private equity firm Warburg Pincus after an eight-year holding period.

Financial terms were not disclosed by Audax, but peHub reported the exit multi-ple citing an unnamed source.

Audax bought the business in 2006 through its $700m second fund, which it closed a year earlier. The company, which provides restaurant equipment and design services, has grown its revenues from $260m to more than $1bn.



Aurelius seals 25x return in Connectis, Softix sale

US private equity major Oak Hill Capital Partners has agreed to buy rigid packaging maker Berlin Packaging from Investcorp in a deal worth more than $1.4bn.

The company, founded in 1898, provides services including structural and brand de-sign, worldwide sourcing, warehousing and logistics and capital financing.

Oak Hill invested alongside the company’s current management team, led by chairman and CEO Andrew Berlin, in the $1.43bn transaction.

Firm managing partner Tyler Wolfram, said, “Berlin Packaging is a high-calibre business experiencing double-digit growth and targeting a large addressable market opportunity.”

Oak Hill agrees$1.4bn MBO from Investcorp

Carlyle hires banks for Axalta IPOPrivate equity giant the Carlyle Group has reportedly hired Citigroup and Goldman Sachs to oversee the IPO of coating maker Axalta Coating Systems, which it bought less than 18 months ago.

The flotation of the company could raise as much as $1bn according to Reuters, citing people familiar with the matter.

Carlyle bought the coatings company from DuPont Capital Management in February 2013 for a reported $4.9bn. It tapped its Europe Partners III and Partners V vehicles for the deal.

Exit revenues hit an all-time highRevenues from exited deals have increased significantly from last year, to reach the highest level on record according to a recent report.

Exit revenues amounted to $3.6bn in the first eight months of the year, up 50 per cent from a year earlier, Dealogic said.

It also marked a 23 per cent increase from the previous record of $2.9bn set in 2011. The report showed that pending M&A revenues from exits for the past 24 months amounted to $571m.

Revenues generated by M&A and

equity capital markets (ECM) exit deals reached $2.2bn and $1.4bn respectively.

ECM currently accounts for 61 per cent of total exit revenues, which is the highest share since 2004, when it was 70 per cent.

Meanwhile revenues from IPO exits more than doubled from the previous year, surging to $1.3bn from $498m.

Consumer and retail was the most ac-tive sector, with exit revenues of $656m, up from $428m in the same period of last year. This is also above the previous record high of $503m set in 2007.

German-headquartered private equity firm Aurelius has sealed a stunning 25.7-times return by selling Swiss ICT provider Connectis and its sister company Softix to France’s SPIE Group.

The Munich-based firm bought Con-nectis for just €1.7m in the summer of 2008, and has driven its EBITDA in that time from CHF500,000 to more than CHF9m, AltAssets can reveal.

The firm forged the huge return

through a buy-and-build strategy, which saw it take on employees and clients of Telindus in 2009, take over Grouptec in 2011 and buy Getronics Switzerland in 2012. It also bought the distribution business of NEC Unified Communi-cations last year, which it has since rebranded to Softix.

SPIE has agreed to pay CHF48m for Connectis, which is now the second-biggest ICT provider in Switzerland.

Splashing the cash: Munich-based Aurelius bought Connectis for just €1.7m

Private equity firm Madison Dearborn Partners has sold tyre pressure-monitoring sensors maker Schrader to Sensata Technolo-gies in a $1bn deal.

The firm is believed to have made a return of around three times, but a spokesperson for Madison Dearborn declined to comment on the financial terms of the deal.

Madison exits Schrader

GP PROFILE: NIGEL BINGHAM – PENCARROW PRIVATE EQUITY

78 Q4 2014

Opportunity knocks for PE in New Zealand

W ith a GDP around $180bn, or roughly one eighth of Australia’s economy, New Zealand is a small

market, but according to Pencarrow executive director Nigel Bingham it offers enough investment opportunities – and the size can actually give private investors an advantage.

Pencarrow is focused exclusively on New Zealand, which is also where all its LPs are based. It invests in companies with enterprise values of between NZ$20m and NZ$100m. It started out with a close (semi-captive) relation-ship with Australasia’s largest insurance group AMP and had a couple of other LPs, but later separated its fund management arrangements to become a fully independent firm.

Bingham, who is one of the firm’s two own-ers, notes that New Zealand currently has one of the Western world’s strongest economies, and investing in established local GPs with solid domestic experience gives LPs good ac-cess to the country’s private markets.

“We are a reasonably small private equity firm with five investment professionals, but it’s not an unusual size for a country the size of New Zealand. Here we have teams that know the country extremely well and give investors good access to deal flow,” says Bingham.

He points out that New Zealand was among the first country to start tightening its monetary policy and is expecting GDP growth of around four per cent in the next 12 months.

Australian managers do invest in New Zealand, normally targeting companies with enterprise values of NZ$100m to NZ$150m or more. According to Bingham, the presence of Australian investors in the market makes it easier to realise investments, giving an ad-ditional exit route.

“We’re in the lower mid-market – if you move up the spectrum you get more and more interest from Australian GPs, but we don’t see them entering our segment,” says Bingham.

Australian GPs are not the only investors taking a look at New Zealand, which also draws attention from pan-Asian and even glob-al funds. One example of that is Blackstone’s acquisition of Antares Restaurant Group, which operates the local Burger King franchise, from Anchorage Capital Partners.

When looking at potential investees, one

type of investment Pencarrow seeks is what Bingham calls “emerging global champions”, or companies that have developed a niche product or service with global potential.

One such company is Aranz Geo, which has developed 3D geological modelling software for the mining industry. Its clients include min-ing majors such as BHP Billiton, Rio Tinto and Anglo American, and virtually all its revenues are generated from exports.

“We like those companies in New Zealand that have that ability to create those global op-portunities. I think that because New Zealand is such a small economy you reach the limit of the domestic market’s size pretty quickly and this means that if you want to grow, you need to go offshore,” says Bingham.

Another strategy used by Pencarrow is acquiring an established market leader in New Zealand and expanding it into Australia.

“New Zealand is a small market and has very concentrated industries,” says Bingham.

“You can often buy into the number one or number two players in the country and have quite a solid position in the market that gives you higher returns on equity. Then you can often use that base to expand into Australia.”

When it comes to exiting companies, Pencarrow’s preferred route is a trade sale as, in Bingham’s words, “we never like to rely on the IPO market because it can open and shut depending on the health of markets and economies”.

Bingham says the firm currently sees the best investment opportunities in the healthcare sector, as well as in food and beverage. An-other interesting sector is IT and software.

“We’ve had a very large number of technol-ogy companies listed on the market in the past six months. It’s quite an extraordinary number. This sector has grown under the radar, but we’ve got quite a few companies with good globally scalable software capabilities in New Zealand.”

New Zealand story: Nigel Bingham of Pencarrow Private Equity



Global private equity firm HIG Capital has sold Capstone Logistics to New York PE firm the Jordan Company to seal a 10-times multiple of its initial investment.

Atlanta-based Capstone provides outsourced supply chain solutions at 230 sites across the US in the grocery, foodservice, retail and auto sectors.

The company was formed in 2011 through the merger of two industry-leading players, HIG-backed Progressive

Logistics Services and MSouth Equity Partners-backed LMS Intellibound.

HIG principal Camilo Horvilleur said, “We created an industry-leading brand in Capstone, and management flawlessly executed on its strategic ini-tiatives to deliver a highly differentiated client value proposition.

“A transaction providing more than 10-times cash-on-cash returns to HIG and its investors speaks volumes for the quality of the Capstone business.”

Clairvest makes impressive 13.5x return exiting KUBRA

HIG makes 10x return on Capstone

Private equity firm Clairvest Group has sold its remaining stake in digital bill delivery and payment services company KUBRA, making a hefty 13.5-times multiple on its investment.

Toronto-based Clairvest sold its stake to media and information company Hearst, which now owns 80 per cent of KUBRA.

The firm first invested in the online payments company by tapping its Clair-vest Equity Partners III fund in 2006.

Since then KUBRA has multiplied its EBITDA by more than six-times, which

the company said was achieved through continued investment in technology and enhanced service offering.

Clairvest has posted an IRR of more than 40 per cent on the investment.

Managing director Michael Wagman said, “We are very proud of KUBRA’s growth during our investment period.

“KUBRA’s continued focus on innovation, investment in talent and relentless emphasis on service improve-ment allowed them to win some of the industry’s most coveted and sizable clients.”

New York private equity firm the Jordan Company has bought Capstone Logistics

US private equity major Thoma Bravo has agreed a $2.5bn take-private deal for Nasdaq-listed IT support business Compuware.

The deal, which requires shareholder ap-proval, works out at about $10.92 per share, a premium of 17 per cent to the company’s closing stock price on August 29.

Thoma Bravo managing partner Seth Boro said, “We have been incredibly impressed with the business that the Compuware man-agement team has built, and look forward to working with them on this next stage of growth for the company.”

Thoma Bravo in $2.5bn Compuware deal

Oaktree’s Store Capital files for $500m IPO

Swander Pace exits Insight Pharmain $750m sale

Private equity-backed real estate company Store Capital Corp has filed to raise $500m via an IPO on the New York Stock Exchange.

Goldman Sachs, Credit Suisse and Morgan Stanley are acting as underwriters for the IPO, although it is not known how many shares will be sold or at what price. Oaktree invested $400m in the company at the time of its launch in 2011.

Private equity firm Swander Pace Capital has agreed to sell over-the-counter products company Insight Pharmaceuticals to strategic investor Prestige Brands Holdings for $750m.

Consumer-focused Swander Pace first invested in Insight in 2009. Since then the company’s sales have more than doubled, from approximately $80m to more than $200m.

The sale of Insight to fellow pharma products company Prestige represents the Swander’s second successful exit in the OTC industry, the firm said.


80 Q4 2014

Canadian private equity firm Onex Corporation has made a whopping 8.5-times return exiting its stake in aeronautical engineering company Spirit AeroSystems.

Onex has sold its remaining 8.4 million shares of common stock in Spirit, which produces structures for commercial and military jets worldwide.

The Toronto-headquartered firm bought Spirit for $950m when it was carved out of the Boeing Company in June 2005, investing around $375m of equity.

In the following nine years Onex has received proceeds of approxi-mately $3.2bn, equating to a return of 201 per cent a year.

Onex Senior managing director Seth Mersky said, “Spirit’s leader-ship, employees, and board of direc-tors have been wonderful partners and friends. Without their efforts and support, Spirit would not have become the thriving business it is today.”

Earlier this year the firm exited its investment in Cypress Insurance Group after 16 years of ownership for an IRR of 17 per cent.

Onex makes 8.5x return on Spirit AeroSystems

Toronto-based Onex has received roughly $3.2bn from its exit of Spirit AeroSystems

HgCapital sells Voyage Care for £375mUS LBO loan volumehits six-year high

HgCapital’s six-year investment in UK supported living service Voyage Care has come full-circle after a consortium includ-ing former owner Duke Street bought the business for £375m.

Duke Street sold Voyage Care to HgCapi-tal in a £322m deal in 2006, when it was still named Paragon Healthcare Group.

Duke Street made a 3.5-times return through that exit and an IRR of about 50 per cent.

Voyage Care provides residential services and supported living for people with learn-ing disabilities, associated physical disabili-ties, autistic spectrum disorders, acquired

brain injuries or other complex needs which require high levels of support. HgCapital has grown the business to 290 care homes supporting more than 2,000 people.

Duke Street partner Charlie Troup said, “This is a company and sector we know very well, having owned the business and worked with management closely over a very successful period of its development through to its sale to HgCapital.

“We have also worked closely with Partners Group and are delighted to be com-bining our deep knowledge of this sector to support the business through its next phase of growth.”

Marketed loans for leveraged buyouts in the US have hit the highest level since 2008, new data shows.

US-marketed syndicated loans for LBOs have reached $64.4bn so far this year, up 15 per cent from a year earlier according to Dealogic.

This marked the highest loan volume since 2008, but it is down 70 per cent from the peak in 2007.

Professional services companies were in the lead with $9.4bn of loans attracted so far this year, an increase of 165 per cent from the previous year.



Private equity giant The Carlyle Group has agreed to sell a stake in roadside breakdown company RAC to Singapore sovereign wealth fund GIC.

Following the transaction Carlyle and GIC will jointly own a majority stake in the business, with RAC management holding the remaining shares.

Plans to float RAC on the London Stock Exchange have been shelved as a result of the deal. The investment is expected to be completed by the end of the year.

Carlyle bought RAC in 2011 and has invested more than £40m into the business to strengthen the operational

capabilities and reinvigorate the brand. Since then RAC has increased its net revenue from £433m to £485m.

The firm’s group partner Andrew Burgess said, “Both Carlyle and GIC believe that RAC has a clear strategy with significant growth potential, which its talented and experienced manage-ment team will continue to deliver. GIC will provide a solid partnership for the business.”

RAC is the second largest roadside assistance provider in the UK after AA, and had approximately eight million roadside members at the end of June this year.

RAC’s IPO cancelled as GIC buys stake from Carlyle

Omnes exits Legoupil IndustrieFrench buyout house Omnes Capital has agreed to sell its stake in industrial building business Legoupil Industrie to a consortium led by Bpifrance and Capitem.

Omnes bought into the business in 2007 and has seen Legoupil’s revenue grow 56 per cent in that time.

Last year Legoupil had revenues of €25m and an installed base of 170,000sq.m, up 80 per cent on 2007.

Omnes partner Bertrand Tissot said,

“We are proud to have helped Legoupil grow despite the adverse economic en-vironment. Today, the company has all the attributes, in terms its staff and the depth of its product ranges, that it needs to conquer new markets.”

The transaction is the 11th disposal by the CACI 2 fund, which now has four companies in its portfolio. Earlier this year Omnes sold its stake in mining and underground works equipment-maker Melkonian Group.

Off the road: RAC’s planned IPO has been cancelled

Blackstone-backed travel booking busi-ness Travelport Worldwide has picked up $480m through its listing on the New York Stock Exchange.

The buyout house, which did not sell shares in the offering, bought Travelport back in 2006 and had to pilot the company through the aftermath of the financial crisis.

Travelport previously planned a London IPO that would have valued the company at £1.2bn.

Blackstone made back most of its initial $775m investment through a dividend in 2007, but saw almost all its stake wiped out when the company ceded control to junior creditors in 2011.

Travelport raises $480m through IPO

Vista eyes Misys exit

CVC bid to revive sale of phone firm Sunrise for €4bn

Vista Equity Partners is already looking to exit UK banking software business Misys just two years after picking it up in a £1.27bn deal. The private equity firm clinched a deal for Misys after shareholder ValueAct pulled out of a potential rival bid.

London-headquartered private equity firm CVC Capital Partners is reportedly ready to revive the sale of Swiss mobile phone company Sunrise for more than €4bn.

The firm could hire a bank to advise on the deal by the end of the year according to Reuters, which cited several sources familiar with the matter.

CVC paid €2.4bn for the business in 2010 and was originally thought to be plan-ning to float the company, though this did not happen.

Reports surfaced in December last year that the firm was eyeing an exit of the busi-ness, although at that point the company only had a valuation of about €2.6bn.

GP PROFILE: VINCENT LAURIA – GOLDEN GATE VENTURES

82 Q4 2014

‘I like investing early in disruptive companies’

T aking a Silicon Valley-style approach to web and mobile-based startups in South-East Asia is what Golden Gate

Ventures’ Vincent Lauria is all about.The firm’s partner moved to Singapore

more than three years ago, after taking time off work to travel in Asia. Having experience in internet startups, Lauria was attracted to the area because it had budding entrepreneurs and fledgling companies which he felt could ben-efit from US-style venture capital investing.

He said, “By ‘Silicon Valley-style’, I mean the idea of investing early for a minority stake in high-growth companies that can disrupt an industry. When I would meet investors in South-East Asia they would want a majority stake in a business, and the founders would become like employees rather than owning their own company. That’s not a Silicon Val-ley approach.”

In the past three years GGV has invested in 20 companies, and typically takes on a maxi-mum stake of about 25 per cent, being keen to let the owners stay in charge of the operations. The VC firm is also able to invest in startups at a very early stage.

Lauria said, “We’re investing in most of those companies pre-revenue. It was often the case that if they weren’t making any money, there were no investors they could talk to who would be a fit.

“But we look a lot of stats, such as Google analytics, mobile stats and user behaviour, and we make the decisions based on that.”

Since moving to Singapore, Lauria reckons he has seen significant in the tech startup market. “The number of startups being cre-ated each year, and the number that are raising money each year, has hit an inflection point – within the past two years it has really turned around,” he said.

“When I first moved out here I thought finding a company to invest in would be like finding a needle in a haystack, but since then we’ve actually been able to pass on compa-nies that are doing well. It’s a good sign that we have enough good deals that we can really pick the ones that we’re 110 per cent behind.”

GGV is in the middle of fundraising for its second fund, which has a target of $50m, hav-ing held a first close of $35m.

LPs include sovereign wealth funds in Sin-gapore, big family offices and corporates from Japan and Korea. Lauria said, “We’re now raising money outside of South-East Asia, so globally the investor network sees that the bar has been raised.”

GGV invests in web and mobile-focused companies based in Singapore, Malaysia, Vietnam, the Philippines, Thailand and Indonesia, with online grocery store Redmart being one of its success stories.

The firm was one of the first investors in the company in 2011. Redmart is now valued at $80m and has raised a total of $25m in equity-backing to date.

“When we first invested it was a very small shop, and the team was just a handful of peo-ple. Now they have 150 employees.

“There were a few different ways we helped them to raise follow-on rounds – we helped with their expansion strategy, intro-duced them to other CEOs in our portfolio,

took them out to have a look at their ware-houses; also we helped early on with hiring.”

There are particular areas with internet and tech companies that GGV is fond of, includ-ing online payments providers, e-commerce companies and online marketplaces. One example of such as company is Carousell, a secondhand marketplace that is only available via a mobile device.

GGV avoids certain areas of the market which are particularly competitive, namely companies that deal in flash sales, loyalty apps, fashion e-commerce and services which are just geared on the luxury goods sector.

Of the latter Lauria said, “It’s a very big market and start-ups doing well there, but it’s a different play than a straight consumer app. It’s more difficult to get into, it’s harder to pick the right horse.”

“We do try to find companies where there’s some competition, that’s a good thing, but we don’t want to invest when it’s over-saturated.”

Vincent Lauria: taking a Silicon Valley-style approach to South-East Asian investment

SECTOR PERSPECTIVES: VENTURE


The highest number of IPOs in Europe since 2006 has seen venture capital exit opportunities nearly double across the first half of 2014.

Venture capital firms were able to benefit from 19 VC-backed IPOs in the second quarter – up from 11 in the first three months of this year, according to a Dow Jones Venture Source report.

While the number of deals was up, however, the capital raised actually fell,

with the firms pulling in €407m via their companies’ listings compared with €449m in the first quarter of this year.

The Europe-focused report reveals that consumer services continue to be the favourite sector, attracting 37 per cent of total investment – a total of €788m via 109 deals.

Second in the popularity contest was business and financial services, which pulled in 25 per cent of the total capital.

IPOs soar as VC exits double

Raine wins $80m for first fund

Multiplier closes popular debut fund at $227m

JP Morgan’s asset management unit is within a whisker of equalling the $1.2bn it gathered for its debut digital growth vehicle through a follow-up fundraise.

The firm has collected about $1.05bn of commitments for Digital Growth Fund II according to an updated filing with the US securities regulator.

AltAssets revealed in the summer that the firm was nearing $1bn after drawing commit-ments from 438 LPs, and has since received pledges from about 50 more investors, ac-cording to the filing.

A second filing for an ‘offshore’ vehicle shows it has now collected $488m, although it is believed that is included in the figure for the main fund.

The firm intends to tap the funds to target internet and digital media businesses.

JP Morgan passes $1bn mark for Digital Growth II

Media-focused Providence set for new growth vehicleMedia-focused private equity major Provi-dence Equity Partners has launched a new growth equity fundraise a year after closing its most recent flagship fund on $5bn.

No target is given for the Providence Stra-tegic Growth Capital fund in a pair of linked filings made with the US securities regulator.

Managing director Mark Hastings is lead-ing the growth strategy according to Provi-dence’s website – which shows he joined the firm in 2013 from Garvin Hill Capital Partners.

Providence Equity Partners targets investments in the media, communications, education and information sectors, and cur-rently has more than $40bn of assets under management.

The firm has invested in more than 140 companies globally since its inception in 1989.

Venture debt-focused investment firm Multiplier Capital has closed off its debut vehicle after collecting $227m in an oversubscribed fundraise.

Liberty Peak Capital acted as an anchor investor in the fund, which also received commitments from a college endowment, a publicly-traded bank, a family office and high net worth individuals in the US and Canada, Multiplier said.

Multiplier was founded by partners Ray Boone, Ezra Friedberg, Henry O’Connor and Kevin Sheehan, bringing with them almost 80 years and $1bn of debt transactions experience.

Sheehan said, “Our strong capital base and nimble decision-making process consistently provide a solid financing al-ternative to shrewd company managers, and our venture debt experience offers very attractive risk-adjusted returns.

“We are gratified by the strong inves-

tor support in establishing Multiplier Capital.”

Multiplier said it planned to provide loans ranging from $3m to $15m to rap-idly growing, expansion-stage, profes-sionally backed companies.

Multiplier’s debut vehicle was oversubscribed

Merchant bank the Raine Group has raised nearly $80m for its first venture capital fund.

Raine Venture Partners I has secured commitments of just over $77m from 40 LPs, a document filed with the US Securities and Exchange Commission shows.

In February this year AltAssets revealed the fund had secured $62m from 24 investors. The latest filing also revealed that Raine has added London-based firm EFP Capital and Tokyo-based GI Capital Management as placement agents.


84 Q4 2014

Meritech V closes on targetVista eyes $5.7bn hard capLate-stage venture capital investor Meritech Capital Partners has closed its latest fund with $500m of registered commitments.

Meritech has raised the amount via 53 investors, according to its filing with the US securities commission.

A separate ‘sidecar’ filing for Capital Partners V registered $65m and pulled in via 23 LPs. A sidecar vehicle is generally dedicated to a small number of specific deals.

Meritech focuses on investing in late-stage tech companies. Its portfolio has included Facebook, Wonga.com, ZipCar and Counter-pane Internet Security.

The fifth vehicle is slightly bigger than the firm’s fourth fund, which targeted $400m and raised $425m in 2010.

US venture capital giant Vista Equity Partners has picked up a commitment from Taiwan’s Cathay Life Insurance towards its latest multibillion-dollar fund.

The company has pledged $20m to Vista’s Fund V according to a filing with the Taiwan stock exchange.

Vista has already passed its $3.5bn target by holding a $3.8bn first close in April, and is now eyeing its $5.75bn hard cap for the fund.

Other backers include the New Jersey Division of Investment, which committed $200m, and the Texas County and District Retire-ment System, which agreed to part with up to $75m.

Vista closed its previous fund on $3.5bn in 2012, four years after it raised $1.8bn for its third fund.

Silicon Valley VC valuations hit 12-year highThe valuations of Silicon Valley-based companies picking up venture capital financing hit the strongest quarter in 12 years recently according to research by law firm Fenwick & West.

Up rounds exceeded down rounds by 80 per cent to just 6 per cent in Q2, with 14 per cent of investments remaining flat.

Fenwick said that was the big-gest difference between up and down rounds since it began calcu-lating figures in the first quarter of 2002.

The firm’s Capital Barometer revealed an average price increase of 113 per cent, the highest amount since it began recording that statis-tic at the start of 2004.

Fenwick corporate partner Barry Kramer described the survey results as demonstrative of the con-fidence that game-changing com-panies are inspiring in the Silicon Valley venture capital community.

However, he doesn’t view the record increases as an indicator of a tech investment bubble, because a bubble would require a much higher volume of individual venture fi-nancings, initial public offerings, and merger and acquisition deals.

The Fenwick research showed that the internet and digital media, software and

hardware industries all had very strong results, with internet/digital media having an increase of 169 per cent, while software con-tinued not only to have strong valuations but also increased its percentage of post-Series A financings to 48 per cent.

The hardware industry registered a very strong second best barometer result of 132

per cent, Fenwick added. It said the life sci-ence industry also posted solid results, while cleantech lagged other industries but still had reasonable results.

Fenwick analysed the terms of 174 ven-ture financings closed in the second quarter of 2014 by companies headquartered in Silicon Valley for its research.

Global leader: Valuations of Silicon Valley tech companies taking VC capital have reached a 12-year high



Venrock bags $450m for new fund Former Rockefeller family venture-cap-ital arm Venrock has closed its seventh fund with commitments of $450m.

The new fund is $100m larger than the Palo Alto-based firm’s sixth vehicle.

Venrock partner Bryan Roberts said, “The establishment of a new fund feels like one part cause for a proud an-nouncement, and 99 parts assumption of a decade or more of responsibility

to relentlessly strive for excellence for our two crucial constituencies – the teams in whom we invest and the limit-ed partners who have invested in us.

“We are really excited about what’s happening at the intersection of health-care and technology, as the opportunity to dramatically remake our healthcare system attracts a quality of entrepre-neurial talent that is truly staggering.”

Interest in European venture invest-ments is on the rise as more exit routes are now available and the general macroeconomic backdrop is improving, according to DFJ Esprit partner Richard Marsh.

He said that there were plenty of companies and funding opportunities to support a greater level of venture investment in Europe.

“If you go back three, four years ago, it was all M&A. Absolutely all M&A. We had $2.5bn of M&A exits from our portfolio in three years,” Marsh told AltAssets.

“Right now public markets are open, we have had a listing on Nasdaq at the end of last year and listings in London and Euronext this year.

“There is no question that it is a much more receptive environment in Euro-pean venture thanks to the high-profile successes in the last 12 months.”

Marsh said the main challenge faced by LPs that come into the European venture space is picking the right man-ager. He noted that a lot of capital was invested during the dotcom bubble era

in 1999-2000 in funds that failed to per-form by investors that have since stayed away from the asset class.

“What has happened is there is a relatively small number of managers who are demonstrating that they are consistently successful, so these manag-ers are raising funds, they are making money for LPs and they are getting repeat investments from LPs and slowly and steadily more people are looking at the asset class,” said Marsh.

European VCs win more cash as confidence grows

Biotech-focused Sofinnova Ventures has held a final close of its ninth fund on its $500m hard cap, confirming an AltAssets story from mid-July.

The firm plans to tap SVP IX to back companies with promising later-stage clinical programmes, as well as select investments in earlier-stage businesses.

AltAssets revealed earlier this year that Sofinnova was eyeing up to $500m and could outstrip the $440m it gathered for its eighth fund.

The new vehicle will target both US and European drug-development businesses.

SVP VII was generating a cash multiple of 1.65 times and an IRR of 16.9 per cent at the end of March this year, according to the Oregon Public Employees Retirement Fund.

Sofinnova is focused on life sciences and technology and leads 90 per cent of its investments.

Its life-sciences team targets components, systems, and software companies, and in-vests between $15m and $30m per company, with an initial commitment of $5m to $15m. It also makes seed-stage investments from $100,000 to $1m.

Sofinnova tops out Fund VIII at $500m

Weinberg sets sights on hard capPerella Weinberg Partners is well on the way to the hard cap for its debut growth equity fund after picking up about $444m for the vehicle.

The firm has won commitments from 106 LPs to date according to a filing with the US Securities and Exchange Commission, which shows Barclays Capital is acting as a place-ment agent.

Fortune revealed in March last year that Perella Weinberg was targeting $400m for the growth equity fund, to be led by former Weston Presidio partners Chip Baird and David Ferguson.

MORE SECTOR PERSPECTIVES For daily updates on the latest industry developments, visit: www.AltAssets.net

Marsh: confidence is returning

SECTOR PERSPECTIVES: CLEANTECH

86 Q4 2014

Mexican green energy fund halfway to target

Powering on: A Mexican cleantech fund managed by Rohatyn and BK Partners is halfway to its $200m target

A Mexico-focused fund jointly managed by private equity firms the Rohatyn Group and BK Partners has registered $93.3m of com-mitments.

Balam Fund I has pulled in the capital via four LPs according to a filing with the US se-curities regulator, bringing it almost halfway to its $200m target. The minimum investment is set at $5m.

Rohatyn and Spain-based BK formed a partnership in 2013, and set up Balam I the same year to invest in renewable power generation and energy-efficiency industries in Mexico.

The firms held a $70m first close of the vehicle in August last year after securing a $40m commitment from the Japan Bank for International Cooperation.

An announcement from the bank’s board stated that “JBIC’s participation in the fund

will contribute to reduction of GHG emis-sions in Mexico and thus enhance such efforts of the government”.

The Japanese bank also said that it is expected the fund managers would provide information on its portfolio investments to Japanese companies with interests in the renewable-power generation and energy-efficiency businesses in Mexico.

TRG specialises exclusively on investing in emerging markets. The firm recently sold its minority stake in Colombian energy-holding company Transportadora de Gas Internacional to majority shareholder Empresa de Energia de Bogota.

BK Partners was created following the launch of the RLD fund, which was estab-lished in 2007 to pursue tourism-focused land development opportunities in Mexico. The firm opened its first office in Madrid in 2010.

KKR, Acciona near $2bn IPO for AEIGlobal private equity giant KKR has reportedly hired banks to work on the IPO of Acciona Energia International (AEI).

The firm is said to have recruited JP Morgan and Goldman Sachs, together with fellow shareholder Acciona, according to the Wall Street Journal.

The US flotation could value AEI, which comprises Acciona’s interna-tional renewable energy assets, at around $2bn.

KKR agreed to buy a one-third stake in AEI for €417m in June using capital from its first Global Infrastructure Fund.

SECTOR PERSPECTIVES: CLEANTECH


Robeco Institutional Asset Manage-ment, Japanese financial services com-pany ORIX Corporation and the Asian Development Bank (ADB) have formed Asia Climate Partners to invest in low-carbon companies across the continent.

The ACP fund currently has $400m in its coffers which has been invested by the founding partners.

Target investments from the vehicle will include companies in the renew-able energy, clean technology, natural resource efficiency, water and forestry sectors.

ADB director general Todd Freeland said, “ACP will benefit from the com-bined strengths of Robeco as a global asset manager and ORIX and ADB, which are two of the most active and successful investors in the low-carbon sector in Asia.

“The substantial resources that the founding partners are committing to ACP will help position it as the pre-eminent investor in this asset class in Asia from day one, and represents a clear signal of the depth of our collec-tive belief in the investment strategy and its return potential.”

The Who’s Winning the Clean Energy Race report published last year found that investment in renewable energy declined overall in 2012, but that China managed to attract 20 per cent more that year than in 2011, with $65.1bn invested in its clean-energy companies.

Three years ago the Asian Develop-ment Bank committed $60m to three clean tech-focused venture capital funds – Aloe Environment Fund III, Keytone Ventures II, and VenturEast Life Fund III.

TPG leads $110m round for VitAg

Target, Shortcut up investment in Tado

TPG Alternative and Renewable Technologies (ART) has led a $110m investment in VitAg Corporation to become the Florida-based company’s largest shareholder.

The round included an equity investment led by TPG, tax-exempt bonds worth $64m from the Orange County Industrial Finance Authority, and a credit facility from Tennenbaum Capital Partners.

Fertiliser firm VitAg’s other backers include iron micronutrients producer Agro-Iron and industrial supplier Shrieve Chemical.

The company will use the funds to build a biosolids-to-fertiliser facility in Zell-wood, Florida, which will produce organically-enhanced fertiliser.

Target Partners and Shortcut Ventures have renewed their commitment to Ger-man smart thermostat company Tado by backing a €10m financing round.

The business makes products which automatically adjust heating or air-conditioning systems to users’ needs, with the app recognising when users are leaving or approaching home and

setting the temperature accordingly. Tado says its control strategy, which takes into account weather forecasts and house characteristics using smart al-gorithms, can reduce household energy costs by more than 30 per cent.

In January Google bought private equity-backed smart home automation company Nest Labs for $3.2bn.

Robeco in $400m in jointlow-carbon Asian venture

UK growth investor BGF has backed one of the country’s leading home-focused sustain-able energy system suppliers with £3.6m.

Ecovision provides heat pumps, solar panels, biomass and gas boilers in homes, businesses and community buildings across the UK, and has installed more than 5,000 systems since 2005.

The company said it expects to gener-ate revenues of more than £20m in the next financial year.

BGF investment director Ned Dorbin said, “This is an opportunity to back a fantastic management team with considerable experi-ence and success already in this sector.

“There are a number of opportunities in the household sustainable energy market for Ecovision to capitalise on and the team has worked hard to establish themselves in this market and build up their excellent reputation.

“Our capital, together with the debt facil-ity from Shawbrook, will immediately be invested in the increased marketing of Ecovi-sion’s Hassle Free Boiler offering so that it gains increased momentum and traction in the market.”

BGF backing for home energy firm Ecovision

Otter leads $17m round in NewLeafOtter Capital has led a $17m Series B round of financing in agricultural bio company NewLeaf Symbiotics.

Otter was joined by existing investors Rockport Capital, Open Prairie Ventures and Pangaea Ventures, who had all previously backed the company’s $7m Series A invest-ment round.

NewLeaf said the investment would be used to further accelerate its R&D pro-gramme and ramp up production from pilot to commercial scale.

Otter Founder John Pasquesi said, “I am a big believer in the future of biologicals as an alternative or supplement to conventional agriculture inputs and GMO.”

88 Q4 2014

REGIONAL PERSPECTIVESAFRICA 94MIDDLE EAST 92ASIA 88 LATIN AMERICA 98

Orchid Asia beats $750m target for Fund VI

TPG affiliate Northstar eyes $1bn fund close

Navis hits $1.4bn for Fund VII and eyes a December close

TPG Capital’s Indonesian private equity affiliate Northstar expects to hit the $1bn hard cap for its fourth fund no later than December.

The firm was said to be nearing a $500m first close for the fund in July according to AVCJ, which cited sources familiar with the situation.

The firm raised $820m for Fund III in 2011, but is hoping to eclipse that figure after strong exits such as last year’s 7.7-times return from BTPN bank.

TPG owns about 20 per cent of Northstar, which in turn has a five per cent holding in TPG.

The firm manages more than $1.2bn dedicated to investments in South-East Asia, with a primary focus on Indonesia.

Since its foundation Northstar has backed more than 20 companies in areas including banking and insurance, mining, telecoms and agribusiness.

Kuala Lumpur-based private equity firm Navis Capital is eyeing a December close for its seventh Asia fund on its $1.5bn hard cap.

The firm has already pulled in $1.4bn and is just waiting to tie up commit-ments from a few final investors accord-ing to a source.

Navis easily reached its $1.3bn target for Fund VII in February, just four months after launching the vehicle.

It has since been working on raising a Sharia-compliant parallel fund, and appears certain to close before the end of the year.

The firm held an $860m first close

for the fund in December last year. Navis’s latest vehicle follows the firm’s sixth fund, which it closed on $1.2bn in September 2010.

The firm focuses on buyouts, recapi-talisations and financial restructurings in Asia, and has invested in the food processing, dining, industrial products, consumer goods, advertising, auto rent-als and professional services sectors.

Previous deals include last year’s purchase of more than 50 per cent of Malaysia’s HG Power Transmissions.

Fund VII is expected to maintain the focus on South-East Asia, while shying away from Indian deals.

Flowering opportunities: Orchid Asia has beaten all expectations with Fund VI, which received $1.3bn of interest

Orchid Asia has held a $920m hard cap final close for its sixth China growth capital vehicle.

The fund was significantly oversubscribed according to Orchid, which said it had received about $1.3bn of interest.

Orchid easily beat the $750m initial target thanks to invest-ment from LPs including the Pennsylvania School Employees’ Retirement System, which agreed to commit up to $75m.

PSERS previously commit-ted $40m to the firm’s fifth fund, which it closed on $650m in 2011.

Orchid Asia VI will make investments of between $5m and $50m in mid-market businesses based in China according to docu-ments published by PSERS.

It will focus on the consumer, healthcare, high-tech and outsourced manufacturers and services sectors in Greater China, with up to 25 per cent expected to be invested in other markets.

REGIONAL PERSPECTIVES: ASIA


South-East Asia-focused private equity firm Creador has stormed past its fund target to hit a $300m final close for its second vehicle.

Firm founder Brahmal Vasudevan, a for-mer GP at ChrysCapital, said LPs including Siguler Guff and Hermes GPE had helped push the fund close to its $325m hard cap.

That figure could still be reached accord-ing to Vasudevan, who said a “couple of guys were still looking” at a potential late capital injection.

He said many investors were tempted after the progress made by the firm’s debut fund, but a number left it until the last couple of months before committing.

Other LPs backing Fund II include a large Boston-based university, a large Malay-sian pension fund and “a bunch of funds of funds”.

Creador has already spent half the fund’s capital through six deals, including the acqui-sition of an interest in Indian sanitaryware-maker Somany Ceramics for $10m.

Another Indian business, two from Indone-sia and two from Malaysia make up the rest of the investments to date, with the firm aim-ing to invest about 80 per cent of the vehicle in South-East Asia.

Avendus Fund II generates 1.4x returnIndian private equity firm Avendus Capital has seen its Special Situations Strategy-II Fund generate a net annualised return of 13 per cent in 3.5 years.

The fund has returned 1.4 times its capital on a net basis and 1.5 times on a gross basis, compared with returns of 4.6 per cent and 10.8 per cent generated by BSE mid-cap index and BSE Sensex.

SSS-II has now been fully exited and capital returned to LPs. The firm’s Fund III is currently generating annualised gross returns of around 52 per cent.

Creador cruises past target to seal $300m final closeInternational private equity

giant Bain Capital has agreed to sell a 49.9 per cent stake in its investment in telemarket-ing company Bellsystem24 Holdings to Japanese trading company Itochu Corporation.

The deal will leave Bain with 50.1 per cent of the shareholding and takes place as part of a new joint venture company established along-side Itochu.

Bain first bought Bell-system for JPY93.5bn ($1bn) in 2009 from private equity fund Citigroup Capital Part-ners Japan, beating off com-petition from rivals Permira, Blackstone and KKR.

Bain took on a 93.5 per cent stake in Bellsystem24 through the transaction, and went on to complete a $1.1bn recapi-talisation of the telemarketing giant in 2011.

Bain MD David Gross-Loh said, “Since Bain Capital acquired Bell sys-tem in 2009, our investment in the com-pany’s advanced IT infrastructure, and implementation of significant operating improvements, have transformed the business into a world-class operation.

“The continued improvements in service quality and productivity have enabled Bellsystem to strengthen its leading industry position.”

Bellsystem24 is Japan’s largest call centre operations service provider, with approximately 20,000 operators in 22 locations.

IDG leads $100m round for WomaiChina-focused venture capital firm IDG Capital has led a $100m round for Chinese online grocery company Womai.com.

Existing investor SAIF Partners, which led the Series A round in 2012, re-upped in the latest financing round.

Womai said it would use the cash to build storage facilities, logistic centres and IT systems, as well as improving the online experience of its customers.

The company has 1.5 million users and executed RMB1bn (US$160 mil-lion) worth of transactions in 2013.

Womai was founded in 2009 by Chinese state-owned food conglomer-ate COFCO, which remains the largest shareholder in the business.

Previous deals by IDG include buying all the shares of micro electro-mechanical systems business MEMSIC in an $88.5m deal in April last year.

Bain sells 49% stake in telesales giant Bellsystem

Capital call: Bain is selling a 49 per cent stake in Bellsystem


90 Q4 2014

It was a case of second time lucky for private equity-backed pork giant WH Group after it raised $2.05bn at its Hong Kong IPO.

The flotation saw 2.57 billion new shares offered at a fixed price of HKD6.20 ($0.80) each.

Private equity backers of WH Group include CDH Investments, which before IPO had a 33.7 per cent stake, New Horizons, which held 4.2 per cent, and Goldman Sachs’ private equity arm, which owned 5.2 per cent.

The listing on the Hong Kong Stock Exchange valued the company at about $11.7bn, or 11.5-times its 2014 earnings.

WH Group previously sched-uled to start pre-marketing its initial IPO on March 31 last year and hoped to raise $6bn through the share sale.

It was forced to pull that pro-cess in April, however.

In addition to high valuations sought, investors were said to be turned off by mismanaged marketing after a record 29 banks were hired for the offering, as well as sky-high executive compensa-

tion which raised corporate governance concerns.

WH Group bought US firm Smithfield Foods for $4.9bn in 2013 and planned to

raise up to $5.3bn to pay down debt. BOC International and Morgan Stanley were hired as joint sponsors and global coordi-nators of the IPO.

Second time lucky as pork giant’s IPO raises $2bn

Messy: WH Group’s IPO had to be rescheduled after the first attempt went awry

Olympus passes the halfway mark for environmental fund

Flipkart secures $1bn in GIC-backed round

Private equity firm Olympus Capital Asia has passed the halfway mark for its $300m-targeting second fund focused on the environmental and cleantech indus-tries.

Asia Environmental Partners II has received commitments of $152.85m from 18 LPs, a document filed with the US securities regulator showed.

LPs backing the fund include World Bank’s investment arm IFC, which ap-proved a $25m commitment in February this year.

The fund follows Olympus’ second

Asian environmental fund, which raised $250m in 2009.

The first vehicle also received a $25m commitment from IFC.

Olympus makes investments of $30m to more than $200m in mid-market com-panies with annual revenues of between $100m and $2bn.

Besides environmental and clean-energy companies, the firm also invests in the agribusiness and resources and financial and business services sectors.

Olympus has investment teams in China, India, Japan and South Korea.

Indian e-commerce business Flipkart has raised a $1bn funding round not long after securing $210m of financing.

Singapore’s sovereign wealth fund GIC took part in the latest round, alongside Flipkart’s existing investors, including Tiger Global and Naspers. The round, which will help Flipkart compete with e-commerce giant Amazon, valued the business at about $7bn.

The $210m round was raised in October last year and was backed by Morgan Stanley Investment Management, Vulcan Capital and Tiger Global. Tiger and VC firm Accel Part-ners joined South African technology group Naspers to provide $200m in July 2013.



Telecoms and media-focused private equity firm China Broadband Capital has launched a $500m fundraise for its third vehicle.

The firm expects to complete the capital raise within a year according to a filing with the US Securities & Exchange Commission. No capital has been registered for China Broadband Capital Partners III, the filing shows.

CBC currently manages two US dollar funds with more than $500m under management, as well as a paral-

lel renminbi vehicle with more than RMB1.4bn ($225m).

The firm has targeted China’s TMT sector since 2006, looking to back entrepreneurs from start-up through to expansion-stage growth companies.

Last year CBC led a Series C round for Pluribus Networks, which brought the company’s total financing to more than $44m.

It also led a $20m financing round for digital advertising exchange platform iPinYou.

BAML spin-out NewQuest hits $316m close for first fund

China Broadband back for cash

Asian direct secondaries firm NewQuest Capital Partners has beaten the target for its second fund by holding a $316m final close.

Firm managing partner Darren Mas-sara said the vehicle would focus on greater China and India to take advan-tage of GPs in need of liquidity from their portfolio investments.

AltAssets revealed NewQuest had hit a $215m first close for the vehicle in December 2013, with a source confirm-ing the fund was targeting $300m.

That source said the new fund was already more than 50 per cent invested,

although Massara said he could not give any more details about fundraising.

NewQuest’s first fund, which was raised before the firm spun out of Bank of America Merrill Lynch’s Asian private equity arm in 2011, is now fully invested and has already returned all its capital, the source added.

Paul Capital, HarbourVest Partners, LGT Capital Partners and Axiom Asia were limited partners in that fund, with HarbourVest and LGT reportedly returning to invest in the latest vehicle.

NewQuest has already tapped its de-but vehicle for a string of deals in Asia.

Tapping connections: China Broadband has come back to the market with a third vehicle

US banking group Morgan Stanley’s Asian unit has closed its latest vehicle on $1.7bn, beating its $1.5bn target.

Morgan Stanley Private Equity Asia (MSPEA) IV has invested in two companies in South Korea and India.

The bank committed $50m to the fund, with the rest of the capital provided by out-side investors.

MSPEA IV follows Morgan Stanley’s third Asian fund, which raised $1.5bn in 2007.

The firm has seen the most attractive entry prices in China for ten years since 2012, MSPEA CEO Chin Chou told Reuters.

LPs committing capital to the fund include the Pennsylvania Public School Employees’ Retirement System and the University of Michigan.

The fund will be focused on buyout deals across India, China, South Korea, Singapore, Japan, Taiwan and Australia.

CMC leads $100m round for China’s Secoo.comCMC Capital Partners has led a $100m Series D financing round for Chinese online luxury goods retailer Secoo.com.

Existing backers including IDG Capi-tal Partners, Vangoo Capital Partners and Ventech Capital also took part in the round, which company CEO Rixue Li said would go towards global expansion.

Secoo, which was launched in 2008, sells about 100 global brands through its site and has bricks-and-mortar stores in several large Chinese cities and Tokyo.

Vangoo previously led a Series C financ-ing round for Secoo in 2012, with IDG, Ventech and Crehol Capital taking part in a $30m round last August. Silicon Valley Bank agreed to provide a double-digit dollar credit line for the business.

Morgan Stanley beats $1.5bn fund target

REGIONAL PERSPECTIVES: MIDDLE EAST

92 Q4 2014

Early-stage tech investor Magma Venture Partners has held the final close of its fourth fund after pulling in $150m.

Magma said the fund received strong interest and was oversub-scribed within weeks of announce-ment.

The vehicle is believed to be slightly bigger than the firm’s previous fund, which closed on more than $100m in February 2013.

Magma did not specify how much larger the latest fund was.

Fund IV was only registered with the US securities regulator in August this year. At that point no LP commit-ments were registered.

The vehicle will continue Magma’s strategy of investing across areas of information, communication technol-ogy including mobile, cloud and e-commerce within Israel, according to the firm.

Magma expects to use the fund to invest in approximately 25-30 seed and series A financing rounds, with typical investments of between $500,000 and $6m.The firm expects to begin investing in early 2015 after Magma III reaches investment capac-ity.

Israel’s Magma Venture launches fourth fund

ADIA set to expand private equityStanChart seals first MENA deal Mammoth sovereign wealth fund the Abu

Dhabi Investment Authority plans to up its investments in infrastructure and other alter-native assets in 2014 after hitting its return target for the asset classes last year.

The UAE-based authority is looking to allocate between five and 10 per cent of its capital to real estate, between two and eight per cent to private equity and up to five per cent to infrastructure according to its 2013 review.

ADIA managing director Hamed bin Zayed Al Nahyan said, “We have built out our investment teams in the illiquid space,

such as real estate, infrastructure and, more recently, private equity, adding consider-able expertise across geographies and asset specialisation.”

Overall ADIA has achieved annualised returns of 7.2 per cent over the past 20 years. The report said its private equity de-partment had a busy year in 2013, review-ing investment opportunities across primary, secondary and co-investments.

Despite the positive comments on alterna-tives, ADIA still plans to invest between 32 and 42 per cent of its capital in development equities.

Standard Chartered Private Equity has bought a minority stake in offshore vessel operator Topaz Energy and Marine for $75m.

StanChart’s head of global private equity portfolio management Taimoor Labib will take a seat on the company’s board of direc-tors as part of the deal, which is its first in the Middle East and North Africa energy sector.

Topaz is headquartered in the UAE and operates a fleet of 99 offshore support vessels throughout the Middle East and the Caspian Sea.

Magma has launched a new fund just a year after closing its previous vehicle

REGIONAL PERSPECTIVES: MIDDLE EAST


Dubai’s financial regulator has amended the region’s financial rules to attract more fund managers, including private equity funds.

The Dubai Financial Services Authority (DFSA) has announced it has amended the Collective Investment Law 2010 to allow the creation of a new category of fund, called a Qualified Investor Fund (QIF).

The QIF would be available to pro-fessional investors willing to make an investment of at least $500,000 with a maximum of 50 investors per fund. This is lowered from a previous minimum

investment of $1m. The new QIF rules also stipulate lower regulation of funds, designed for higher net worth investors.

The new rules are designed to attract more investment into Dubai from richer and more risk-tolerant investors.

To accommodate fund managers the DFSA is also consulting on lowering both the authorisation and annual fees from $10,000 to $5,000.

The body said, “The DFSA has concluded that regulatory costs of set-ting up and carrying on certain types of fund management business in the DIFC appear to be relatively high.”

Standard Chartered in Jordan deal

Dubai regulator eases rules

Standard Chartered Private Equity has bought a significant minority stake in Jordanian poultry producer Al Jazeera Agricultural Company in a $35m deal.

The operation’s main products include fresh and frozen chicken, parent and broiler hatching eggs and chicks, and chicken feed.

SCPE’s investment is its first in Jordan and fifth in the MENA region, although it is the first time it has backed

a food and agriculture business on the subcontinent.

Taimoor Labib, regional head of MENA private equity at SCPE, said, “We are thrilled to become strategic partners with one of the leading poultry companies in Jordan.

“Al Jazeera’s high quality manage-ment team, strong growth prospects and successful backward integration has been impressive.”

New dawn: Dubai’s regulators have changed the rules to attract more fund managers

Israeli algorithmic pricing and business intelligence platform for online traders Feedvisor has secured $6m in a Series A round led by Square Peg Capital.

The round follows the Tel Aviv-based company’s $1.2m seed round raised in Octo-ber 2013 from JAL Ventures, Oryzn Capital and Micro Angel Fund, which also backed its Series A.

Feedvisor’s platform is currently used by online retailers worldwide and manages more than $1bn.

Its algorithms analyse the competitive environment, product demand and price-elasticity function of every retailer’s products and calculate its optimum price according to the retailer’s specific business objectives.

Square Peg partner Dan Krasnostein said, “Over the last few years, marketplaces have become the most rapidly growing sector of e-commerce, and we’ve realised there is a need for e-commerce retailers to have highly sophisticated technology they can rely on to achieve a competitive edge.”

Square Peg Capital was created last year via the merger of Square Peg Ventures and Victoria Capital.

Square Pegleads $6m round for Feedvisor

HSBC’s MENA eyes $500m for Fund IIDubai-based private equity investor MENA Infrastructure is looking to raise $500m for its second fund after “successfully” investing its first $300m vehicle.

The fund will be tapped to fund energy, transport, environmental services and social infrastructure projects in the Middle East and North Africa regions, as well as targeting Turkey for the first time.

MENA Infra, sponsored by HSBC, Waha Capital and Fajr Capital, said its strategy is to be a primary sponsor or co-sponsor of infra-structure and energy projects, together with early-stage and growth companies.

REGIONAL PERSPECTIVES: AFRICA

94 Q4 2014

Blackstone-backed African investment company Black Rhino has entered a joint agreement to lay down up to $5bn for energy infrastructure projects across Sub-Saharan Africa.

Black Rhino has part-nered with West African industrial conglomerate Dangote Industries for the venture.

The partnership will focus on power, transmis-sion and pipeline projects with an expected invest-ment term of five years, Blackstone said.

Black Rhino was formed in 2012 to develop and invest in transformational projects in the power generation and fuel-transporta-tion sectors.

Blackstone senior managing director Sean Klimczak said, “We look forward to bringing our collective resources and expe-rience together to develop energy solutions for Sub-Saharan Africa.”

Dangote and Black Rhino plan to pursue projects that represent their commitment to

sustainable development and social respon-sibility, including the involvement of local communities and adherence to environmen-tal and safety standards.

Blackstone’s investments in Sub-Saharan Africa include oil and gas exploration company Kosmos, which sold a 50 per cent stake in two of its exploration blocks off the coast of Suriname to Chevron in 2012.

Blackstone-backed Black Rhino invests $5bn in infra

Black Rhino has entered into a $5bn energy infra deal

Competition fierce forsub-Saharan buyout dealsPrivate equity investments in Africa at the larger end of the deal-size spectrum are set to become more competitive according to EY.

A report by the professional services firm said the lack of large deals available was driving a contest for assets among private equity buyers.

It predicted there would be opportuni-ties in the power production sector as privatisation takes place in Nigeria, and in the banking and financial services space as the Nigerian government sells its stakes in financial institutions that were obtained under the AMCON programme.

The report said, “While private equity will continue to focus on consumer-backed sectors such as financial services, FMCG, agribusiness, retail, education and health care, sectors such as power, logistics and infrastructure will also attract investment as increasingly wealthier populations will require the development of the continent’s infrastructure.”

Last year private equity investments in banking and financial services in Sub-Saharan Africa totalled $156m, 13 per cent of the region’s total investments.

Private equity firms closed 40 deals between 2010 and 2013 with an aggregate value of $772m, or about 19 per cent of the total, the report showed.

Investments in media and telecoms infrastructure reached $1.2bn last year. The relatively high transaction value was driven primarily by the $1bn follow-on investment in IHS Mauritius Ltd, which was led and managed by Emerging Capital Partners.

The sector saw nine deals during the three-year period, however, while the deal count was small, total investments reached $1.4bn, or nine per cent of the total.

Energy companies also attracted substan-tial investment volumes, with private equity firms having poured $747m into the sector.

Ascent closes growth fund at $50mAfrica-focused private equity firm Ascent Capital has held a $50m final close for a new growth capital vehicle targeting East Africa.

The firm picked up most of its commit-ments from pension funds according to Kenya’s Capital FM, which said about 10 per cent came from Kenyan-based funds.

Ascent plans to tap Rift Valley Fund for between eight and 12 investments across the region, it added.

Firm partner David Owino told the news outlet, “We are honoured to be the first private equity fund to have won the trust of local pension funds.

“In addition to the local institutional in-vestors, the fund has also attracted signifi-cant capital from international investors.”

He added that private equity as an alter-native asset class presented local pension funds with exciting investment options in untapped markets and sectors.



The second Africa-focused fund from Development Partners International is close to its $500m target, with $412m LP commitments registered so far.

The total raised for African Develop-ment Partners (ADP) II could go beyond the initial target, however, to reach what appears to be a $750m hard cap listed on the vehicle’s filing with the US securities regulator.

The cash has been pulled in via nine investors according to the filing.

Investors in the fund include UK-based develop-ment finance investor CDC, whose $75m investment last September helped the vehicle achieve its first close.

ADP has said it will use the cash to provide risk capital to businesses and take minority stakes in companies across a range of sectors.

The institution focuses on high-growth companies that are seeking to expand into liberalising countries, such as Angola, Ethiopia, Mozam-bique and Rwanda, with deal sizes of between $20m and $75m.

Earlier this year the vehicle was tapped for a $20m equity investment in Mo-rocco’s Université Privée de Marrakech to help the institution grow across Morocco and sub-Saharan Africa.

Development Partners International has paid $9.4m in sales commissions and $275,000 in finders’ fees, with New York-based Park Hill Group named as placement agent.

ADP’s first fund raised €271m in 2008, with CDC also investing in that vehicle.

CDC development cash helps ADP II near target

With a $400m war chest LeapFrog will now be able to do the type of deals its much smaller first vehicle had to pass on according to the emerging markets-focused firm’s co-founder Jim Roth.

LeapFrog recently announced it had closed its second fund on $400m, making it roughly three times the size of its $135m debut vehi-cle closed in 2010.

In an interview with AltAssets Roth said he did not expect it to be difficult to deploy the cash as there have been deals that the first fund has had to pass up.

Fusion picks up 40% stake in Kenyan newspaper

LeapFrog targets bigger deals

African private equity investor Fusion Capi-tal has bought a 40 per cent stake in Kenyan newspaper X-News through an investment in its parent Xtra Publishing Group.

The newspaper was launched in Nairobi in March with a hybrid print and digital model, and targets the young professionals demo-graphic.

Fusion said its investment would be used to advance Xtra’s IT and editorial systems and for working capital.

Xtra CEO Paul Marshall said, “The future for print media is free news, and the future for media as a whole is digital web and SMS services.

“Companies are looking for an efficient and targeted way to promote their products, and this is what Xtra will offer.

“The partnership with Fusion will go a long way in ensuring we realise our vision.”

Last summer Fusion Capital bought a 46.5 per cent stake in Rwanda-based stone-extraction specialist Rusororo Aggregate to take advantage of growth in the country’s construction sector.

Rusororo, which is the country’s only large-scale operation specialising in stone crushing for commercial purposes, owns sites worth a total RWF27bn ($41.5m).

Successful Angolan exit for AbraajMiddle East-headquartered Abraaj Group has exited its investment in Angola by selling plastic pipe manufac-turer Fibrex.

Fibrex was the first company in Angola devoted to the manufacture of plastic pipes and fittings.

Since investing in 2007 the private equity firm has provided operational support which resulted in Fibrex up-grading in energy supply infrastructure and improving governance, accounting and reporting standards.

During Abraaj’s investment Fibrex’s production volume increased by more than 70 per cent. The company also secured an internationally recognised award for quality management in 2010.

Abraaj managing director Sandeep Khanna said, “Fibrex remains in a strong position today to capture the continued growth of the construction industry.

“This successful experience in An-gola has strengthened our confidence in the country’s investment opportunities.”

ADPII will focus on providing risk capital to firms in Africa


96 Q4 2014

Providence Equity Partners and Albright Capital Management have re-upped in telecoms provider Helios Towers Africa through a $630m financing round.

Africa-focused private investment firm Helios Investment Partners also commit-ted capital again, while World Bank Group

member IFC invested for the first time, bringing total funds raised to $1.8bn.

Providence managing director Dany Rammal said, “As long-term investors in the global wireless industry we are excited about the tremendous growth potential across Africa, and HTA’s unique position

as the leading, independent telecoms tower company on the continent.”

More financing is also likely to be on its way according to Helios Towers, with the company expecting to complete negotia-tions on new and extended debt facilities of at least $350m.

Providence, Allbright in $630m telecoms deal

Financing boost: Helios Towers Africa has picked up $630m in a financing round including re-ups from Providence and Albright

Amethis raises $530m for Africa fundActis sells 9% stake in Alexander Forbes African investment firm Amethis has raised

$530m for the final close of its African Entrepreneurs fund, making it one of the biggest vehicles of its kind.

Amethis said the fund’s 55 investors in-clude banks, insurance companies and fund of funds, as well as successful private entrepre-neurs from the manufacturing and services sectors.

CBR CEO Johnny El Hachem said, “We were convinced that Amethis was the right team for this partnership, with whom we share the same vision of long-term responsible investment in Africa.”

Amethis held a first close for African Entre-preneurs a year and a half ago and has already used it to make five investments. They include companies in Kenya, Ghana, Côte d’Ivoire

and Mauritius in the banking, oil and gas retail distribution sectors.

Amethis’s focus is on supporting urbanisa-tion and consumer growth in Africa’s bottle-neck areas by taking minority stakes in deals.

The investment firm previously raised €134m for Amethis Finance Luxembourg and its subsidiary Amethis Africa Finance in December 2012.

Its shareholding structure is mostly private, split between shareholders of banks and financial institutions, corporates and family offices globally.

The firm was launched in partnership with Compagnie Benjamin de Rothschild Conseil (CBR), the Africa and private equity project finance arm of Edmond de Rothschild Group, in 2011.

Emerging-market private equity firm Actis has exited most of its stake in South African financial services company Alexander Forbes.

Actis has sold its nine per cent stake, leaving it with four per cent, following an oversubscribed offer of Alexander Forbes through the Johannesburg Stock Exchange (JSE), which raised $353m.

Professional services firm March & McLennan Companies subsidiary Mercer Africa bought a 14.9 per cent stake through the listing and plans to buy a further 19.1 per cent.

That will see Actis and other backers such as private equity firm Ethos, who col-lectively hold 54 per cent, make a full exit.



Cauris makes 2.5x return on S. African telecoms exit

West African private equity firm Cauris Management has exited its investment in South African telecoms company MTN-CI.

The firm originally invested in the business in 2009, tapping funds from its second fund, and has more than doubled its investment, reporting a 2.5-times exit multiple on the sale.

MTN-CI is a subsidiary of Johannes-burg-headquartered MTN and provides mobile, fixed-line and internet services to more than 6.5 million subscribers.

Cauris CEO Noël Eklo said: “We remain confident about the future and potential of MTN-CI and believe that it will continue to sustain growth to the benefit of all stakeholders.

“MTN-CI will continue to invest to maintain a high-quality, reliable net-work for the clients.”

Cauris has been investing in West African SMEs for 18 years.

The firm has backed 46 companies and completed 36 exits during that period, including in the agribusiness, financial services, hospitality and down-stream oil and gas sectors.

Earlier this year Cauris tapped its second fund to invest in Côte d’Ivoire pharmaceutical company CIPHARM.

The investment will go towards a new production line for injectable pharmaceutical products according to the firm, which said there was increas-ing demand and a severe lack of local production.

CIPHARM has been operating for more than 25 years and manufactures a broad range of generic pharmaceuticals in dry forms, syrups and powders under its own brand and licensed names.

Cauris has exited its investment in Johannesburg-based MTN-CI

African investment firm Injaro Investments has closed its inaugural fund on $49m.

Injaro Agricultural Capital Holdings received commitments of $15m, $10m and $7m from European development finance institutions CDC, FMO and Proparco, respectively.

The firm sees agriculture as a key sector for the development of West Africa as it represents 30 per cent of the region’s GDP, 65 per cent of its jobs, and 70 per cent of internal trade.

Injaro said, “Nevertheless the sector suf-fers from a lack of financing, low yields, an insufficient access to land and a weak busi-ness regulatory framework. Injaro is one of a very small number of private equity funds focusing on the sector.

“This investment in Injaro represents a much needed commitment to West Africa’s agricultural sector.”

Injaro closes inaugural fund on $49m

Africa-focused private equity firm 8 Miles, which boasts Sir Bob Geldof as its chairman, has bought a 25 per cent stake in Egypt’s Eagle Chemicals Group.

The company, which was established almost 60 years ago, manufactures products including acrylics, epoxy resins and saturated polyesters and is one of the market lead-ers in Africa. It employs about 600 people, produces about 100,000 of chemical products each year and had annual revenues of $120m in 2013.

8 Miles partner Emad Barsoum said, “Egypt remains an attractive investment destination and Eagle Chemicals offers solid fundamentals that are attractively priced.”

Sir Bob Geldof advises the team on politi-cal and strategic issues.

Geldof-backed 8 Miles buys stake in Egypt’s Eagle

REGIONAL PERSPECTIVES: LATIN AMERICA

98 Q4 2014

LatAm LPs more willing to invest in PE opportunities

Soaring ambitions: Latin American LPs are becoming more confident when it comes to investing in their own region

Latin American LPs are becoming more confident of investing in private equity oppor-tunities in the region according to Deutsche Bank’s David Koh.

He said the US and Canada continue to at-tract the bulk of private equity investments in the Americas, but there is a “greater willing-ness” among Latin American LPs to invest in local private equity funds.

Mr Koh, Deutsche Bank’s head of primary and direct investments for the Americas, told AltAssets that “broadly speaking, you are seeing a greater presence of Latin American LPs within the makeup of different GP funds, whether that’s on a co-investment, primary or secondary basis”.

“There is a greater willingness among in-stitutional investors in Latin America to have alternative investments in private equity and credit and represent a bigger portion of their aggregate portfolios,” said Koh.

“There is an increasingly large number of

family offices and high net worth investors coming out of Latin America that are deploy-ing capital to private equity, real estate and other forms of private markets investments.”

Koh also said that energy remained among the most attractive sectors and there would be more opportunities outside the US in future.

He said, “We are still big believers that there are fundamental energy-growth drivers, including the evolution of fracking technolo-gies, consumer consumption – especially in developing markets, as well as a growing level of interest in renewable energy sources such as water, wind and solar.

“Although we are bullish in terms of energy as a sector, we will continue to proceed in a very deliberate manner.

“I think that we are in the early chapters of the North American energy story. But the fact of the matter is there are compelling reasons as to why you would want to pursue non-OECD or emerging markets opportunities.”

LPs confirm Advent in $2bn fundraiseLimited partners have reportedly confirmed that Advent Interna-tional is fundraising for a $2bn Latin America-focused fund.

The vehicle will be the sixth in the series and one of the biggest to focus purely on the LatAm region, accord-ing to a source cited by peHub.

Advent held the final close for the previous vehicle in the series on $1.65bn in 2010, while its fourth fund closed on $1.3bn in 2007.

Advent says its Latin American funds focus mainly on companies in Brazil, Mexico and Colombia, and target high-growth sectors such as financial services, airport services, business services and education.



Mexico City-based investment firm Corporación Actinver has secured $62.3m for its new private equity fund.

The fund will acquire minority stakes in Mexican companies with a holding period of between three and five years, Actinver managing director Guillermo Rodriguez said.

Mexico’s Actinver raises $62m Acon closes fourth LatAm fund on $515m

Nexxus-backed hotel group raises $56mNexxus Capital and Walton Street Capital-backed Mexican hotel investment platform Grupo Hotelero Santa Fe has raised MX$750m ($56.7m) floating on the Mexican Stock Exchange.

Nexxus invested in the platform in 2010 via Capital Private Equity Fund III, which closed on $146m. The firm partnered with Walton Street and Mexican hotel developer Grupo Chartwell to form Grupo Hotelero.

Mid-market firm Acon Investments has closed its latest Latin American fund on $515m.

The firm also said it had issued $150m-worth of Mexican publicly-traded trust certificates, giving the fund total capital potential of more than $600m.

Acon Latin America Opportunities Fund IV was oversubscribed and received com-mitments from sovereign wealth and pension funds, insurance companies, development banks and family offices.

The fund will target Latin American pri-vate or “thinly-traded” companies, acquiring both controlling and minority interests.

Acon has invested in 30 companies in nine countries in Latin America.

Founding and managing partner of Acon Ken Brotman said, “We believe the current environment in Latin America provides a highly attractive opportunity to generate favourable returns.

“Furthermore, we believe our team’s long track record and expertise in these markets uniquely positions us to capitalise on this opportunity.”

Acon is focused on mid-market businesses based in the US and Latin America and cur-rently has around $2.75bn under manage-ment across its funds. It invests between $20m and $150m per deal.

MORE REGIONAL NEWS For breaking news across the global private equity market, visit: www.AltAssets.net

Patria pulls in $1.75bn for Brazil fundBlackstone-backed Brazilian private equity firm Patria Investimentos has reportedly held a $1.75bn hard cap final close for its fifth buyout fund.

AltAssets revealed earlier this year that the firm was within a whisker of its $1.5bn target for the fund, which Patria

has now closed, according to a source who spoke to Reuters.

Patria pulled in $1.25bn for its fourth Brazil fund in 2011, almost double the $630m of commitments it banked for Fund III in 2008. Blackstone acquired a 40 per cent stake in Patria in 2010.


100 Q4 2014

European investors crave Alta’s Mexico exposure

NEO well on way to $300m targetBrazilian private equity firm NEO Investimentos is seeking $300m for its third fund, which has already raised more than a third of its target.

The firm is looking to raise $150m from Brazilian investors and an equal amount from international LPs for NEO Capital III, US regulatory filings showed.

The fund has already secured a $50m commitment from the US Over-seas Private Investment Corporation (OPIC). Data from OPIC also showed that the fund has already secured $120m.

NEO plans to raise most of the funds from wealthy Brazilian families and domestic institutional investors including pension funds, sources told peHub.

Mexico-focused Alta Growth Capital nearly doubled the size of its first fund with its second fundraise, partly thanks to new investors from Europe committing capital.

The private equity firm recently an-nounced the $142m final close of Alta Growth Capital Mexico Fund II, easily top-ping its debut $75m vintage-2009 vehicle.

All previous existing investors from the US and Mexico re-upped their commitments to the firm, while this time Alta managed to get investors from further afield.

Co-founder and managing partner Scott McDonough said, “We didn’t have any in-vestors from Europe in our first fund, so we were very excited to make some inroads.

“It was just a case of hard work – we made more of an effort in the second fund to spend time in Europe and work with groups that have connections there. Mainly it’s just put-ting in the time and the effort to go and meet with people.”

The buzz around Mexico has already

been noted in a new report, which found that the outlook for the venture capital space in Mexico is bright, in large part due to strength in the energy sector.

While venture capital in the country is at an earlier stage of development than markets such as Brazil and Chile, it has seen an up-tick in activity over the past few years, with the number of funds climbing to 15 from just four between 2009 and 2013, EY said.

McDonough believes Mexico is also becoming increasingly attractive to private equity investors. “It has a very solid macro-economic profile,” he said.

“On top of that, the current government has engaged in a reform process and has been able to implement some reforms that have potential for some very interesting structural changes for the economy and for the investors.”

Deals are not always easy to make, how-ever, because private equity is such a small part of the financial sector, said McDonough.

Spiking interest: Mexico-focused Alta Growth Capital has attracted strong European backing for its second fund

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[E2] LP Magazine Q4 2014