[E1] LP Magazine Q1 2015

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

www.LimitedPartnerMag.com Q1 2015

Treasure hunt: which GPs will catch a following wind

Wouter Jan Naborn: managed account lowers costs for LP

Connecting LPs & GPs worldwidePublished by

Digging for cash: plugging infrastructure’s $57trn hole

Survey: two-thirds of LPs actively looking for secondaries

Big Bang theory: Christophe Baviere predicts a golden age for Europe’s SMEs

Spice trader: Allianz takes on risk to boost returns

Plus: Expert insights on funds, markets & regions

Strong on service

Buyout pricing and leverage are up. Are returns heading down?

1

Welcome to a new year and a new issue of Limited Partner magazine. As always, we bring you all 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 pages for Asia, the Middle East, Africa and Latin America – and perspectives from LPs around the world.

The new year is a time for reflection and prediction and we take an in-depth look at the market for private equity fundraising. Record distributions, buoyant public markets and increasing allocations to private equity are the foundations on which 2015 will be one of the busiest years of fundraising since the global financial crisis.

We take a look at the issues that are affecting deal pricing in the current market. With price-to-EBITDA multiples and leverage approaching levels last seen in 2007, are current vintages going to disappoint investors? It’s a complex relationship and we find that GPs are, on the whole, being disciplined about the quality of assets they are buying, if not the price they are paying.

On the cover is a profile of Dutch LP Pensioenfonds Horeca & Catering, which has more than one million members, €6bn of assets under management and a five per cent allocation to private equity. Head of asset management Wouter Jan Naborn tells Limited Partner how private equity is reducing volatility across its equity portfolio. We also feature Idinvest, a multi-product manager exclusively focused on lower mid-market transactions in continental Europe, German giant Allianz Capital Partners and emerging French fund-of-funds manager Parvilla.

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 has logged over 75,000 LP-to-LP and LP-to-GP connections during the year, as it continues to establish itself as the world’s most effective and wide-reaching online private equity network.

Grant MurgatroydEditor

Introduction Editor Grant Murgatroyd

Online Editor, AltAssets Mike Didymus

Reporters Vita Millers Jack Hammond

Design Olivier Pierre

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Publisher Richard Sachar

Director, AltAssets Richard Sachar

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In 2014, over 75,000 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 Q1 2015

High-flierFarah Shariff, Adveq

Features

Women in Private EquityNetwork Summit

04 Treasure hunt

After years in the doldrums, the fundraising environment has improved dramatically over the past two years – but that doesn’t mean all funds will catch a following wind

If the price is right…10

The buyout market today looks a lot like 2006. Prices are rising, leverage is up, T&Cs lax, competition for assets is fierce. Does this mean that returns are heading down?

Digging for cash14Infrastructure projects need $57trn over the next 15 years. But with many investors disappointed by their experience, how can deals be structured to give institutions the returns to justify the risk?

Secondaries survey & pricing19Two-thirds of LPs are actively looking for secondaries – at the right price

24The inaugural meeting of the Women in Private Equity Network Summit, organised in conjunction with AltAssets, took place in London recently. One of the key themes for delegates was the small number of women at the top of the industry in the West, compared with emerging markets. Adveq vice-president Farah Shariff was among the delegates

Q1 2015

www.LimitedPartnerMag.com 3

28

Pensioenfonds Horeca & Catering has switched from funds of funds to a managed account to help diversify the portfolio and bring stability to the fund

Strong on serviceWouter Jan Naborn, Pensioenfonds Horeca & Catering

36 Adding a dash of spiceMichael Lindauer, Allianz

Allianz Capital Partners spices up its private equity portfolio with a smattering of ‘riskier’ funds and is now exploring whether the time is right to invest in Africa

74

Private equity fundraising in Italy is still challenging, but GPs such as IDEA are leading the way as the industry begins to see encouraging signs of growth

GP Perspective: Leading Italy’s PE growthFederico Cellina, IDEA

32Idinvest is focused on continental European SMEs – a market that has generated returns to growth investors “north of 25 per cent”, says Christophe Bavière

Big Bang theoryChristophe Bavière, Idinvest

LP Perspectives News & Views

Funds40Insider perspectives and exclusive coverage on fundraising, new funds in the market and the latest industry developments

People56 Appointments, spin-outs and people moves from both limited partners and general partners across the globe

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

38

French private equity firm Parvilla looks to limit the risk of emerging markets by investing in the ‘more exporting’ countries of northern Europe

Small is beautifulJean-Marie Fabre Parvilla

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

60 Secondaries

64 Infrastructure

69 Real Estate

75 Buyout

82 Venture Capital

86 Cleantech & Sustainability

FEATURE

4 Q1 2015

Few in the private equity space will have failed to notice that there is a spring in many a general partner’s step once more. While some had predicted private equity’s demise in the dark

days of 2008 and 2009, the past couple of years have proved the sceptics wrong, as fundraising levels have improved markedly and show signs of sustained growth for the foreseeable future.

In fact, more capital than ever is heading in private equity’s direction. As quantitative easing and historically low interest rates have persisted over the medium to long term (and look set to continue in a number of markets, most notably Europe), lower

returns from other asset classes, such as fixed income, have left investors seeking higher yielding opportunities. The result is that allocations to alternative assets, and private equity in particular, are up and look set to continue their upward trajectory.

A recent report by McKinsey predicts that the amount flowing into global alternatives will increase by five per cent annually over the next five years and that by 2020, they will account for 15 per cent of global asset management industry assets, up from 12 per cent currently. Private equity is a big beneficiary of this trend. More than 30 per cent of LPs have increased their allocations to private

After years in the doldrums, the private equity fundraising environment has improved dramatically over the past two years – but that doesn’t mean all funds will catch a following wind

FUNDRAISING


Added to this is pressure on allocation percentages. As other asset classes such as public equities have risen in value over the past couple of years, so the absolute amount LPs need to commit to private equity needs to increase to keep pace in percentage allocation terms.

At the same time, distributions from GPs are up on the back of welcoming IPO markets in developed economies (albeit with a slowdown in the second half of 2014). In the first half of 2014, 134 private equity-backed companies had completed an IPO globally, raising a total of $55.9bn, or a massive 47 per cent of global IPO

equity over the past two years, according to the Coller Capital Summer 2014 Barometer, against just 17 per cent reducing it, with family offices and insurance companies leading the charge – nearly 70 per cent of the former have increased their allocations, while half of insurance companies have done so.

“There is an appetite for all alternatives, including private equity, as investors look for ways to generate higher returns,” says Helen Steers, partner at Pantheon. “Private equity has outperformed public markets, and that is encouraging investors to be quite bullish about the asset class.”

Treasure hunt

FEATURE

6 Q1 2015

proceeds, according to data from Ernst & Young. In addition, the highly liquid debt markets seen in the past two to three years, driven by the appetite among investors for leveraged loans and high yield bonds, have enabled many private equity players to complete dividend recapitalisations. This has also boosted distributions. In the US alone, GPs returned $134bn to LPs in 2013, according to Cambridge Associates – the highest amount on record.

This is undoubtedly having a positive effect on LPs’ ability to commit to funds in the market, as LPs strive to maintain or increase their allocations to private equity.

Rising totals“The last year or so has been a good fundraising environment,” says Dominique Gaillard, who heads up the direct funds business at Ardian. “Thanks to the debt and IPO markets, GPs have been able to distribute a massive amount of cash to LPs from 2013 through to now. LPs are now cash-rich and so if they want to keep their exposure to the asset class, they need to recommit at quite dramatic levels.”

The fundraising figures certainly reflect these trends. In 2013, private equity funds globally raised a total of $524bn, up markedly from 2012’s figure of $389bn, according to data from Preqin. In the first three quarters of 2014, fundraising totals stood at $327bn, with the historically busiest fourth quarter still to go.

There is also a record number of funds in the market, with 2,205 seeking an aggregate $774bn as of Q3 2014 – and the prospect of many more funds to come to market over the coming year.

“It has been a good year for fundraising in Europe this year and the positive momentum appears likely to stay with us into 2015,” says Jim Strang, managing director at Hamilton Lane in London. “This last year has been a great one for distributions, with significant liquidity from exits and re-caps. LPs are looking for new commitments to help maintain their exposure to the asset class. Next year should see several high profile fundraisings from large European focused GPs.”

Behind the numbersYet the overall figures don’t tell the whole story. While fundraising in general terms has returned to healthy levels, at a more granular level, there are clear disparities between different funds, geographies and strategies.

Predictably, the mega-fund space has driven much of the uptick in numbers. The Carlyle Group’s $13bn sixth US fund, a $3.9bn Asia-focused fund, Apollo Global Management’s eighth $12bn fund and KKR’s $9bn North America Fund, together with a $2bn special situations fund and a $1.5bn real estate fund, have all reached a final close in the past 18 months.

With large amounts of capital to deploy and a desire to reduce the number of GP relationships they manage, larger LPs such as US pension funds are attracted by the mega-funds’ ability to accept big cheques. “There will be a lot of capital heading towards the larger funds,” says Steers. “The large pension funds and SWFs need to

Capital Dynamics’ John Gription says you have to look long-term

The performance questionPrivate equity’s performance has improved steadily since the nadir of 2009, with both buyout and venture capital comfortably outperforming the S&P 500 index, even through the downturn – and this is clearly one of the reasons LPs are seeking to increase allocations to the asset class.

“Private equity has outperformed the S&P 500 by between 400 and 600 basis points over the last 30 years,” says Carlo Pirzio Biroli of DB Private Equity. “It is not as liquid as the public markets, but the returns have historically compensated for that.”

And while the performance numbers of boom-time deals may have looked shaky a couple of years ago, increased market valuations together with actions to increase value at an individual company level, have seen even these deals improve in multiple terms, even if not in IRRs.

“I think it may still be possible to get north of 10% to 12% on the boom era vintages,” says John Gripton of Capital Dynamics. “That’s not too far out of line with stock market performance during that period. Most investors see that period as a blip rather than the norm, and the only ones really affected will be those that had just started investing in the 2006-07 time frame.

“You have to look at it over the long term. Private equity has otherwise consistently outperformed public markets and there have been some very good returns on investments made since the crisis.”

FUNDRAISING


deploy their capital somehow, and they don’t necessarily have the resources to commit to large numbers of smaller funds.”

At the very large end, LPs are also being lured by the fact that many firms have chosen to diversify into other alternatives, from real estate through to credit and special situations, providing LPs with a one-stop shop for many of their alternative investment needs.

Further down the fund-size spectrum, however, there is a clear bifurcation between the haves and the have-nots. “The best mid-market firms are able to raise funds,” adds Steers. “And because they tend to be quite disciplined and not increase fund sizes too dramatically, they have limited capacity for taking on increased commitments and are raising quickly.

“However, there are also funds that have struggled and had a much more prolonged fundraising period.”

Gaillard agrees: “Since the crisis, the market has become much more black and white in terms of LP appetite for a particular GP. Those GPs with good LP relationships and good performance can raise at or above their target quickly; others drag on for months and either don’t reach their target or abandon fundraising completely.”

One recent casualty of this binary market was Gresham Private Equity, which dropped its £150m fundraising effort in early 2014 after a series of departures at the firm. It has now gone into run-off. At the other end of the success scale, Inflexion Private Equity attracted a total of more than £1bn in 2014 to be split across buyouts and minority stakes.

The venture capital space, meanwhile, has undergone something of a revival after many years in the doldrums. While most LPs have historically concentrated their VC portfolios on a few top-tier managers (if they have been lucky enough to be able to access them) given the tremendous divergence in returns seen since the 2000 crash, the past couple of years have seen more successful fundraisings. The first three quarters of 2014 saw $38bn raised by 220 venture capital managers, up from the $31bn raised by 274 managers for the whole of 2013, according to Preqin.

Distributions reached $105bn for 2014 to Q3, a higher total than for any full-year period since 2007, boosting performance figures. Many LPs remain circumspect about VC, however, and so while we may continue to see a steady increase in fundraising, there’s unlikely to be an investor stampede into the market any time soon.

What’s hot for 2015Investor appetite for alternatives led to impressive figures in both the real estate and infrastructure fund spaces during 2014. In real estate, two years of strong fundraising has led to the highest amount of dry powder globally on record.

By Q3 2014, the sector had $220bn to deploy, a significant increase on the $186bn seen at the end of 2013, according to Preqin. At the same time, fund sizes have been creeping up, with the average fund raised in Q3 2014 coming in at $546m, up from the previous high of $466m in 2008.

Meanwhile in infrastructure, the average fundraising total has exceeded $1bn for the first time since 2007, with nearly two-thirds (61 per cent) having exceeded their fund size targets in the first three quarters of 2014.

“Infrastructure and private debt will be the hot sectors in 2015,” says Ardian’s Dominique Gaillard. “Insurance companies and pension funds are craving yield that is higher than the couple of basis points they can achieve in Treasury bonds. Infrastructure ticks a lot of their boxes in this respect.”

As the low interest rate environment has persisted, so investors have been seeking yield. One of the main beneficiaries of this quest has been the private debt funds – with many of them raised by private equity players or distressed/special situations firms. In the first three quarters of 2014, $37bn had been raised for private debt funds, and in 2013 a total of $77bn was raised for these vehicles – far higher than the $23bn raised in 2009, according to Preqin. And while mezzanine and distressed debt have historically been the mainstay of this corner of the market, direct lending has rapidly increased in importance, making up 42 per cent of the volume of funds raised in 2014 to Q3.

The supply of deals for these funds is also being boosted by the trend for bank deleveraging, and the need for diversified sources of capital among corporates – factors that will not dissipate any time soon. So, with both supply and demand on the high side, this is an area to continue watching during the coming year.

“Private equity has beaten the S&P 500 by 400 to 600 points over the last 30 years. It is not as liquid as public markets, but the returns have compensated for that”Carlo Pirzio Biroli, DB Private Equity

FEATURE

8 Q1 2015

As far as geography is concerned, with many of the mega-funds based in the US, it’s unsurprising that the US has been behind much of the rise in fundraising over the past year or so. But it’s also a function of a pick-up in its economic prospects, as well as the fact that GPs there have been able to take advantage of a vibrant exit market. “The market in the US has been very strong, partly driven by the fact that it is a deep well of opportunity that includes high-quality managers,” says James Moore, global co-head of UBS’s private funds group.

“In addition, you’ve had a public market that has rebounded very strongly and has been hitting all-time highs, providing a great exit market and therefore LP distributions. As well as that, you’ve had new LPs setting up new programmes and the existing deep pool of LPs increasing their allocations. The market has been so hot that, while two years ago the average timeline for fundraising was 18 to 24 months, for the US funds we’ve raised recently it’s taken more like a year, with some raising in as little as six months or less.”

Meanwhile in other regions, fundraising conditions are less clear-cut. In Europe, concerns remain among some investors about the region’s economic outlook, particularly as countries such as Germany posted some disappointing GDP growth figures in the year. Overall, sentiment is improving from the nadir of the sovereign debt crisis days, but investors are not as bullish about the region as they might be about the US.

While many pan-European funds are likely to gain traction, the success or otherwise of smaller, more country-focused funds will depend much more on macro factors. Germany, the UK, Ireland and the Nordic region are the most promising regions in Europe for LPs, according to the Coller Barometer. Meanwhile, only a quarter to a third of North American LPs (and not many more European LPs) viewed Spain, Portugal, Italy and France as having good opportunities over the next three years.

“The market for funds below €1bn has a slightly different dynamic. Most of these funds are country-specific rather than pan-European or pan-regional,” says Strang. “Here we see a relatively small number of funds that the market deems highly attractive and where there is considerably more demand than investment capacity. These fundraises tend to happen extremely quickly. Outside of this group we see fundraising taking longer, but for the most part funds are being raised, as we’ve seen relatively few failed fundraisings.”

In Asia and emerging markets, appetite among LPs is being heavily influenced by exit markets – or lack thereof. While the slowdown in China and some other emerging markets has inevitably pushed company valuations downwards – creating a better deal-making environment for private equity players – many LPs are still awaiting distributions before committing further.

“A lot of money went into emerging economies post-crisis, but not much has yet come back,” says Moore. “As a result, there is

“There will be a lot of capital heading towards the larger funds. The large pension funds need to deploy their capital somehow and they don’t necessarily have the resources to commit to large numbers of smaller funds”Helen Steers, Pantheon

FUNDRAISING


some caution among investors who want to see proof of concept before committing further. With the US market looking much stronger now and with many emerging markets, including Asia, not having delivered the numbers that justify further investment on a risk-adjusted basis, many US investors, in particular, are now reappraising their portfolios. If they can get as good, if not better, returns in the US with funds that are just down the road, they’re asking themselves why they would go to far-flung parts of the world where the perceived risks are higher.”

Asset management is about selecting the manager and a good manager in any asset class will outperform the market. “In established markets like the US, Europe and now, to some extent, Asia you have a lot of choices,” says Carlo Pirzio Biroli, global head of DB Private Equity. “Where you are probably still a little bit short on choices is emerging markets like Africa, or even LatAm, or some new sub-asset classes. It is also true that those are new markets where you still need to prove that the risk-return profile of the private equity asset class justifies an investment in those regions.”

Ingredients for successWhile there is little doubt that increasing amounts of LP capital are flowing towards private equity, it’s also apparent that this capital is increasingly discerning. While many GPs used to be able to count on re-ups from existing LPs, this is no longer the case. Coller’s Barometer found that 84 per cent of LPs are prepared to refuse to reinvest with GPs whose last two funds they backed. This may well increase the divergence between the haves and the have nots.

While performance may have ticked up slightly over more recent times, most LPs recognise that the days of 30 per cent plus IRRs have passed, if they were ever anything more than a myth. They are therefore on the hunt for ways of accessing the market in a more economic way than the traditional fund investment charging two and 20. But that doesn’t necessarily translate into lower fees.

“Management fees are very sensitive and we always want to make sure that we don’t overpay,” says John Gripton, head of global investment management at Capital Dynamics. “But you have to look at the quality of the manager, and I would much rather invest with a well performing manager with a slightly higher fee than one that hasn’t had such good performance but is willing to negotiate.”

Instead, the hunt for value is concentrated on gaining access to direct deals. Co-investment rights have long been a feature of fundraising discussions, although few LPs have historically taken up these rights. However, there is now evidence to suggest that those who have co-invested in the past are more keen on doing so in the future, with 56 per cent of LPs planning to increase their direct, co-investment activity over the next year, according to a Preqin report. Some of this may be the result of funds-of-funds increasingly offering this type of service to its LPs, but whatever the reason, offering co-investments is clearly a box to tick for GPs.

Beyond that, LPs are looking for consistency in the managers they back. “Teams can and should evolve, but there needs to be a

degree of stability in the team and strategy,” says Gripton. “GPs also need to have a good position in their market and, most importantly, consistency of returns.”

Ultimately, there is no substitute for developing good relationships with LPs. “We like to get to know managers at least a fund ahead so that we can understand their strategy, know how the portfolio is performing and track what they are doing,” says Steers. “That way we know even before they launch whether a GP’s new fund is one we might want to back, and if it is, we’ll aim to make sure we get a slot.”

And finally, timing is vital. “Some managers are better prepared than others,” says Steers. “By that I mean that they come out fund-raising at a point when they have shown some traction in terms of exits and portfolio company performance in the immediately prior fund, as well as in the older funds under management.”

With improved conditions across most markets and the prospect of ever more capital flowing towards private equity, the fundraising environment is clearly returning to health. Nevertheless, no-one is expecting a return to pre-crisis days – LPs are now much more discerning about where they deploy their capital, with the automatic re-up now pretty much consigned to the history books.

While most mega-funds are almost guaranteed fundraising success, for the rest, the basics matter: firms should at least hit their target if they have a solid track record, good LP relationships and a consistent and relevant strategy that targets a market that doesn’t face too many political or economic hurdles. Those with a blot or two on their copybook will find the going much, much harder.

“The market in the US has been so hot that, while two years ago the average time for fundraising was 18 to 24 months, recently it’s taken more like a year”James Moore, UBS

FEATURE

10 Q1 2015

F inancial products come with a health warning: past performance is not indicative of future performance. It’s a tricky issue in the world of private equity, where track record

is king and academic studies have shown a stronger degree of return persistence than in other asset classes. But if past performance is not the best guide, what is? To what extent does entry price determine the eventual return in private equity?

“Entry price and return is a complex relationship,” says Robert Ohrenstein, global head of private equity at KPMG. “Several other factors, such as market position, geography, synergies and/or growth prospects go into the mix, which is why it becomes very judgemental when people comment on a deal at what looks to be a ‘rich’ multiple that it will not generate a good return. The multiple is a big part of it, but it’s by no means the only part.”

Exit valuesOn an individual basis, entry price may not determine exit value, but what is the picture when the industry is looked at in aggregate? The Centre for Management Buyout Research (CMBOR) at Imperial College tracks entry multiples for small (less than €10m), medium (€10m-€100m) and large (over €100m) European buyouts.

Its data shows price-to-EBITDA multiples for large buyouts rising from 10.9 times in 2005 to a high of 12.5 times in 2007, falling to 8.7 times in 2009 before climbing back to hit 11.5 times in 2014. It is worth observing that for the same time periods, exit multiples on large buyouts were 12.1 times, 13.3 times, 9.7 times and 11.9 times, so exit multiples did stay higher than average entry multiples in every year.

But what of returns? It is, of course, too early judge later vintages, but data from the European Private Equity & Venture Capital Association (EVCA) appears to follow a pattern set by pricing. Because of the fundraising cycle, you need to look at investment periods after a particular fund was raised. Buyout funds of vintage 2004 have returned a net IRR of 15.8 per cent, 2006 funds 3.9 per cent, and 2008 funds 5.0 per cent. Vintage 2009 funds, invested in

The buyout market today looks a lot like 2006. Prices are rising, leverage is up, T&Cs lax, competition for assets is fierce. Does this mean that returns are heading down?

If the price is right…

the years 2009-12 when entry multiples were relatively low, have already returned an impressive 15.4% per cent, driven by a high level of realisations.

“As you would expect, 2006-07 funds are not performing as well as other vintages,” says Richard McGuire, private equity funds leader at PwC, which works with Capital Dynamics and the BVCA on UK performance data.

“But, one of the things to point out is that, in the UK anyway, two-thirds of the value is still unrealised, and we typically find there is an uptick between the unrealised value and the valuation when it comes to exit because the liquidity event creates more value.”

“Is it fair to say the fuller the price the worse the return?” asks Tim Jones, CEO of Coller Capital. “It’s a slightly simplistic

“2006-07 funds are not performing as well as other vintages. But two-thirds of the value is still unrealised”Richard McGuirePrivate equity funds leader, PwC

PRICING OUTLOOK


generalisation, but one that I would with agree in an ordinary market. However, if you had taken that view in 2002-03, for example, when we were at the start of a bull market in equities, then it would have been an incorrect assumption. At the time you could pay a very full price and still get fabulous returns, because we had a good run until 2008 of huge growth in the equity markets. As a generalisation, though, I would agree with you.”

Historically, private equity has benefited from market inefficiencies, with high realised equity returns in 2005-07 boosted by low prices at acquisition.

“There were some markets, like German industrials in the early 2000s, where you could buy great businesses at low multiples. These market inconsistencies in pricing meant that for those who spotted them, or got lucky, there was a material boost to their returns,” says Harry Nicholson, private equity partner at EY. “Across Europe, that’s now largely gone. There are still some differences and patterns in pricing, but the gap is much narrowed.”

Private equity performance depends on the health of the equity market, both in terms of IPOs and giving trade buyers the firepower to make acquisitions at full prices.

Stockmarket performance is itself (loosely) correlated with the health of the economy, though the bull run of the past few years shows that equity markets can perform well even when economic

growth is lacklustre. The global economic recovery continued in 2014, but failed to strengthen to the extent that many economists had expected, according to Tim Drayson, head of economics at Legal & General Investment Management.

A number of factors kept growth in check – tighter fiscal policy in a number of countries, geopolitical tensions, bank deleveraging in the euro area and in emerging markets, attempts to either constrain credit growth or meet inflation targets held back growth.

“Next year, we expect these headwinds to fade and global growth to gradually strengthen as monetary policy deviates further between the US and UK versus the euro area and Japan,” he says.

“US and UK growth is expected to maintain momentum, while the drag from Japan’s VAT increase diminishes and China’s switch to policy loosening stabilises growth. While the outlook for the euro area remains uncertain, further policy easing should support the economy.”

Private equity investors generate returns in three ways – profit growth, multiple expansion and de-leveraging. Nicholson says that in today’s market, GPs can only rely on the first. “If you go back to the mid-late 2000s, European private equity was generating strong returns to its investors because it was achieving profit growth and multiple expansion. It was buying low and selling high. That feature of private equity investing has gone. Our data shows that equity

FEATURE

12 Q1 2015

returns are now driven almost entirely by profits growth. There is the occasional deal where there is multiple expansion, and there’s some with multiple contraction, but in aggregate what we’re seeing is that equity gain is very significantly from profits growth and, in my view, that is going to continue.”

GPs argue that the private equity model with concentrated shareholdings, active ownership and strong alignment of interest between manager, GP and LP, is at the core of value creation in private equity.

The top line“Most people will look for EBITDA growth. That is where they look to make the value,” says McGuire. “Clearly, there is still a focus from PE houses around what they pay for the investment – can they get deals off market and avoid an auction process? If they have a buy-and-build strategy, how can they convert lower multiples for smaller businesses into a bigger multiple by combining things? But I don’t think they would expect a large proportion of the value to come from an increase in multiples.”

Basic economics says that private equity should not be able to pay more for an asset than trade buyers, who can extract cost and revenue synergies from a deal. But for the past couple of years, that has not been the case with private equity players making life challenging for corporates in the M&A market.

“Asset prices have been relatively high, there’s a scarcity of high quality deals, the market is almost bifurcated,” says the corporate development director of a FTSE 100 company. “You’ve got relatively challenged opportunities that aren’t particularly appealing that either confer low valuations or don’t get done, or high quality

assets of such scarcity value they go for very high multiples. Part of the reason for the high valuations has been the resurgence of debt for private equity firms.”

Neil Campbell, global head of alternative investments and illiquid assets at Tullett Prebon says, “Interestingly enough, the atmosphere now is very similar to 2006. Leverage today is almost at 2006 levels – there are lot of covenant-lite transactions, which are always a sign the market is toppy. The only difference between today and 2006 is that the risk-free rate is now almost zero, and that is having a huge effect on pricing.”

Getting carried away?Advisers counter by saying that in this ‘recovery’, private equity buyers are being more restrained. “If you look at the buy side, they are relatively cautious,” says Ohrenstein.

“There is a clear recognition that whilst it’s been buoyant on the sell side, then clearly as buyers they need to be somewhat careful. Multiples across various sectors are one to two times earnings ahead of 10-15 year averages.

“Also, current economic conditions are pretty benign: low GDP growth, but there is not a lot of stress. Corporates have generally been conserving cash over many years, and hence there are relatively few forced sellers, and corporates are therefore providing stern competition in the M&A market. On the other hand, debt availability is pretty high and frequently cheaper than pre-crisis.”

Private equity buyers have become used to paying high multiples for quality assets, and are modelling pricing for transactions at lower exit multiples.

“Private equity buyers are being quite disciplined around making sure they have a strong investment thesis and ensuring they have good liquidity in the early years – all the good lessons learnt from the crisis,” continues Ohrenstein.

“However, a relatively high volume of deals is being done at today’s pricing. The funds would say they have a specific angle, and that they believe the company has a position to justify that multiple. However, one of the key things we are seeing is that buyers are being realistic about exit multiple assumptions, and pricing in a multiple decrease on exit where appropriate. This should ensure better discipline on pricing.”

Secondary pricing: supply and demandAs in the primary market, the same trends in pricing can be seen in the more opaque secondary market. Secondary market players have raised huge sums of money. Estimates by advisory firm Evercore gauged the overall secondary market’s size for 2013 to be around $26bn, with approximately $45bn of dry powder available at the end of 2013 and a further $30bn expected to be raised in 2014.

“If you look at buying simple LP books, which is where probably two-thirds of the secondary market is by value, they are very full priced at the moment,” says Tim Jones, CEO of Coller Capital. “You have portfolios which are regularly being sold at par, and some even at a premium. The buyers of those assets have to be either

Most people look for EBITDA growth, says Richard McGuire

PRICING OUTLOOK


Tim Jones: All down to supply and demand

underwriting to lower returns, or assuming there’s going to be a macro bull market, or applying a lot of leverage to try to generate returns that are acceptable.

“The question is, is it the right return for the risk? Prices are very full, and also there’s not a huge differentiation in pricing between a US book and a European one. The reason for that, in my view, is pure supply and demand, which is the same as we’re seeing in the primary market. There’s a lot of capital chasing simple LP books.”

But it is not just – or even mainly – the weight of secondary fund money that is pushing up pricing. Increasingly, buyers and sellers are cutting out the middle man and dealing with each other direct. Institutions such as pension funds and insurance companies have considerably lower return expectations than secondaries specialists and are thus in a position to pay a higher price.

“Secondary buyers have certain parameters based on their return profiles, in some cases the bid they show may not be high enough for a seller. The market is changing, with sellers seeking an end-user with a lower return profile,” says Neil Campbell, global head of alternative assets and illiquid investments at Tullett Prebon.

“Instead of selling to secondary funds with fairly high return profiles, they are finding end-users such as insurance companies, endowments and family offices who may have lower return requirements. If you are a pension fund your return profile could be 4-6 per cent, but if you are a fund-of-funds it will be early teens. This is what has changed significantly over the past 12-18 months. The massive pension funds feel the market is becoming more commoditised, easier to transact, more efficient, so it makes perfect sense for them to invest directly.”

The trick for sellers is to maximise the potential pool of buyers. “If you’re selling a substantial position across a variety of strategies and a variety of different GPs, the only way you can do something sensible is have some sort of process with a variety of buyers – dedicated secondary traders or secondary investors, high net worth individuals, family offices – because you need to create investor tension,” says Robert Ohrenstein, global head of private equity at KPMG.

“For the larger intermediated deals we are currently seeing high prices,” says David Jeffrey, partner and head of the European business at Stepstone. “But for the smaller transactions there is still what I would call a traditional secondary discount for the illiquidity. I view the market as bifurcated right now. There’s the large, well-diversified portfolio transactions that are occassionaly leveraged to increase the price that buyers can pay. And there are the smaller single asset sales that sometimes clear at a bigger discount.”

This is not to say there is not a role for dedicated secondaries players, but they are having to work much harder to generate the returns – and justify the fees. “A large part of our business model is looking at portfolios that are more complex by nature and around how they are held,” says Jones.

“Take our acquisition of Lloyds Bank’s Integrated Finance business in 2010. We lifted out the team and the assets, finding value by being a partner with the seller in trying to sort through some of the issues and some of the complexities around disposing of the whole business. There’s a lot more complexity, and therefore it takes you away a little bit from the pricing pressure that you’re seeing with the plain vanilla stuff.”

“The question is, is it the right return for the risk? Prices are very full. There’s a lot of capital chasing simple LP books”Tim Jones, CEO, Coller Capital

FEATURE

14 Q1 2015

Digging for cash

Infrastructure projects need $57trn over the next 15 years. But with many investors disappointed by their experience, how can deals be structured to give institutions the returns to justify the risk?

Projects such as London’s Crossrail, pictured, require huge investment from the private sector

INFRASTRUCTURE


In September 2014 Ontario Teachers’ Pension Plan (OTPP) took control of Bristol Airport, the UK’s ninth busiest. OTPP bought the 50 per cent of the airport it did not already own

from Macquarie European Infrastructure Fund in a deal that Reuters reported was worth up to £250m. OTPP, Canada’s largest single-profession pension plan first invested in Bristol Airport in 2001 and raised its stake to 49 per cent in 2009.

The transaction is the logical extension of a trend towards direct investment that is being seen across the infrastructure space, with LPs increasingly eschewing the traditional route of investing through GP-managed funds and preferring either co-investment or direct investment. As with traditional private equity funds, reducing the overall fee burden is a critical motivation.

“We have to go direct or we have to work as a co-invest. Going through funds is too expensive for us,” Edmund Truell, chairman of the London Pension Fund Authority (LPFA), told AltAssets’ LP-GP Forum in October.

“The fee drag and the J-curve drag kills our returns. On the other hand, we do want to be in these assets. We want to be in infrastructure. Why? It has characteristics that can be exploited by that ultimate illiquid investor – the defined benefit pension plan. But there is a scarcity of assets, so we’ve got to be cleverer. We’ve got to work out ways in which we as a pension fund can invest, without being number 77 in the queue and paying the highest price. We have to take on development risks.”

The moment you move down the curve towards direct investment, you are taking on additional operational and development risk. Investors that have taken this route argue those risks can be manageable, however. Ken Manget, vice-president at OTPP, is quick to defend the Bristol Airport investment: “I hate to think of it as a brave investment. We think it’s a prudent investment.”

For a start, OTTP has been a shareholder in Bristol Airport, which generated pre-tax profits of £25.8m in 2013, for more than a decade, so has a relationship with the asset that had evolved over time.

“Buying an infrastructure asset is not the same as buying an inflation-linked bond and putting it away in a safety deposit box for 30 years,” says Manget. “It’s much more complex, requires rigorous and disciplined analysis and intensive due diligence.

“We actually started as an LP in an airport portfolio including Bristol, Birmingham, Brussels, Sydney and Copenhagen. We were simply an LP investor, but there was a strategy to get familiar with the asset class, to get familiar with the assets, and to understand the disciplines involved in being an effective manager of our pensioners’ money.”

In 2007 OTTP received direct stakes in the airports when a fund run by Macquarie was wound up, and also took over direct stakes from other LPs that did not want to hold them. Manget says that with six years of ownership under its belt, OTTP was ready to be a direct owner.

“We evolved from indirect LPs, passive investors, and made sure we involved ourselves in the ongoing operations of these airports to a point where we felt comfortable taking direct ownership.”

In 2011 OTPP carved out a speciality asset manager, Ontario Airport International (OAIL), which has five London-based individuals managing the European airport assets.

“When the other 50 per cent of Bristol became available it was just a very natural evolution to take it on – because essentially we had been associated with that asset for almost 13 years,” says Manget “If you look at that evolution of investment expertise, the investment is consistent with our strategy. We currently have in the infrastructure group 40 individuals; 30 are based in

“We’ve got to work out how we as a pension fund can invest, without being number 77 in the queue and paying the highest price. We have to take on development risks”Edmund Truell, chairman,London Pension Fund Authority

FEATURE

16 Q1 2015

Toronto, five are based in Santiago and five are based in London. There are intensely rigorous management activities involved in being a direct owner. It’s not just attending board meetings and it’s not just receiving the annual reports, it’s actively engaging in the management, with the management team and the asset managers, to make sure that value is being created at all stages.

“We have considerable expertise, but we weren’t endowed with that expertise. We just grew with the market and the assets to a point where we were fortunate enough now to be in a position where we can make an investment such as Bristol and not think of it as brave.”

Size mattersSo does OTPP’s experience mean that the role of the infrastructure fund manager is redundant? Far from it. Specialist managers are an essential part of the jigsaw if investors are to move further up the risk-return curve.

“Infrastructure is perceived as inflation-protected through regulatory cost adjustment; stable, with predictable cash flows; low risk and easy to manage. Anybody can do it,” says Volker Häussermann, director, infrastructure asset management at First State Investments. “So why should we actually go through funds? What justifies funds and fees and why should we not go direct? Why should I pay more if I could do it myself?”

Experience has shown that infrastructure is anything but stable and predictable. Häussermann cites the example of Anglian Water, a UK water utility that First State invested in, where Ofwat has recently published the framework for the next regulatory period. On one side there is the classical regulatory regime, where the operator is allowed an inflation-adjusted nominal return, but on the other is where the regulator has introduced new elements for performance management, service and operational delivery.

“If you’re not best in class, you’re not able to capture the potential the regulator allows you to earn, so you need to make sure when you manage your assets you lock in all these various elements, manage all your costs – operational and investment – and set clear guidelines as to what you want to achieve.”

Lands of opportunityThere is no shortage of infrastructure opportunity. The numbers boggle the mind. According to a 2013 report by the McKinsey Global Institute, Infrastructure productivity: how to save $1trn a year, worldwide demand for infrastructure investment to 2030 is $57trn. This includes spending on roads ($16.6trn), rail ($4.5trn), ports ($700bn), airports ($2trn), power ($12.2trn), water ($11.7trn) and telecoms ($9.5trn).

But there are significant challenges. Professional services firm Ernst & Young lists some of the most “daunting” in its latest infrastructure report – providing the basics, including drinking water, waste-water treatment; building multi-modal mass transit systems; converting from coal and oil to less polluting, lower

CO2-producing energy sources; anticipating the next wave of communications requirements for business; maintaining existing infrastructure; and convincing cash-strapped governments and other bodies to pay for all of the above.

The demand is such that both public and private sector capital will need to be mobilised if the world is to come even close to satisfying its infrastructure needs. A big problem for private capital is accessing opportunities that provide the right risk-return balance, particularly given the efficiency of the market.

“Europe has a very broad opportunities set,” says Christoph Manser, head of infrastructure investments at Swiss Life. “Unfortunately, most of the opportunities are coming through the form of auction processes, and there is limited deal flow that can be kept purely in bilateral discussions.

“We are prepared to engage in auction processes where we think we have a better than average likelihood of winning. The way we look at businesses is with a relatively low cost of capital, but obviously we want to make our returns with moderate or low levels of risk, and we want to be able to achieve that with robust business cases.

“That’s not always the case in these auction processes, where people are not only willing to bid for relatively low levels of returns, but also with relatively aggressive business plans.”

Competition among investors for equity assets has pushed

Petersen-Lurie: “You need to assess the politics of the country”

INFRASTRUCTURE


down returns, which is making more investors look at debt. “Is this still an attractive asset class for an equity investor?” asks Nicola Beretta Covacivich, head of infrastructure finance at ECM Asset Management.

“If you own the equity side clearly you are taking an equity risk position. And does that really differ very much from corporate equity risk? When you had double-digit returns the answer was very easy. When you start to get into single digits, or low single-digits equity returns as is the case now in the UK in the renewable energy market, it makes sense to look at the debt, whether its senior or subordinated. For the type of risk you are taking, it’s an attractive proposition.”

Infrastructure is suited to pension funds and other institutions with long-term investment horizons, but that very long-term nature brings a whole new set of challenges. “One very obvious point which is sometimes missed, is that you need to assess the politics of the country not just in terms of stability, but also in terms of sustainability,” says Fagmeedah Petersen-Lurie, CIO of Eskom Pension & Provident Fund, the pension fund of South Africa’s state-owned electricity generating company. “I tend to favour democracies simply because you understand them and they’re slightly more predictable than other areas.”

Geopolitical events, from the Arab Spring to Ukraine, can have a huge impact on infrastructure investors because of their time horizon. “The environment we are operating in at the moment

Skandia: constructing an infrastructure portfolio

Swedish insurance group Skandia is a committed investor in alternative assets. At present it allocates 25 per cent of its €46bn of assets to alternatives, with 10 per cent in private equity and venture capital and four per cent in infrastructure.

“Skandia has been actively investing in alternative assets for a long time,” explains Roger Johanson (pictured), head of venture capital and direct investments at Skandia Mutual Life Assurance Company.

The institution has been investing in private equity since the mid-1970s, when it was a founding partner of one of Sweden’s leading buyout groups.

“We have learnt how to invest in these asset classes over time and we approached the infrastructure the same way,” says Johanson.

“You have to learn what you are actually investing in before you actually start doing co-investing and direct investing, and that’s how we did it.

“I started to build our programme in late 2007, beginning of 2008, and now we feel we have a deal flow that is of high enough quality, and that we actually know what we are doing ourselves so that we can be more active in looking at co-investing and also direct deals. “

Johanson says a different skill set is required to do direct investments from fund investments. The key difference is in the depth of understanding that is required of the investor to be a partner to the operational partner of the asset.

“You have to have some people internally – or at least some people you can recruit to be your speakers – that actually understand the asset, because as a financial institution you are not the guy who can actually run the wind turbines or build the toll road.”

The core of Skandia’s infrastructure programme comes through fund investments. Johanson says the institution has seven active relationships with GPs, a number he does not expect to increase significantly in the coming years.

Skandia is able to vary the risk profile of the portfolio by selecting managers who take on different levels of risk themselves.

Johanson accepts that fund investments come with a cost. “We do have to pay them, but we have also realised that we don’t have the skill sets that are necessary to do these type of investments ourselves.

“I would love to do more direct, and I have said internally that if we had ten people I would gladly do more direct investments, but as long as we are only nine people in the whole private equity group it will not really happen, not on a big scale.”

“One very obvious point which is sometimes missed is that you need to assess the politics of the country not just in terms of stability, but also in terms of sustainability”Fagmeedah Petersen-Lurie, CIO, Eskom Pension & Provident Fund

FEATURE

18 Q1 2015

is becoming more challenging,” says Serge Lauper, managing director at BlackRock PEP. “It’s more difficult to assess the macro risk you invest in when you look at the asset.

“One of our key elements when we think about the attractiveness of a region is not only looking at the infrastructure sector as a kind of sub-sector, but looking first of all top-down at how attractive the region is and what is its outlook.”

As with all investment classes, emerging markets are perceived as having a higher degree of risk, but Petersen-Lurie believes they can also offer some of the best opportunities.

“A big potential growth area I’ve seen infrastructure is India,” she says. “One of the things I’ve deduced from my experience is that infrastructure projects give higher yield where there is less infrastructure. India as a subcontinent has very little infrastructure and the infrastructure projects that have been successful there have given significantly high yields.”

Edmund Truell, chairman of the London Pension Fund Authority, says creating a SWF with the expertise to invest in infrastructure is the only way of affording ever-increasing pension liabilities.

“The real challenge in public sector pensions today is that our liabilities are growing faster than our assets.

“Despite all the political rhetoric, the UK – one of the fastest growing economies in the G7 – is still going to add £100bn to the deficit this year. How on earth can it afford to pay for these ever-increasing pension liabilities?

“How can we actually make workable investments out of the billions and billions – the hundreds of billions – that needs to be put to work in that infrastructure sector?

“There is a solution, and that is to get the pension funds pooled, merged and then investing into British infrastructure.

“We have to take on development risks. We’ve got an objective in our fund of getting to real plus four. The first thing you do is fire the pension consultant that says you should be investing in gilts because they are safe. They safely guarantee bankruptcy. We’ve got to get rid of that stuff and into much higher yielding assets if we are going to stand a chance of getting to fully funded.

“Now, why private capital? These pools of capital have to be harnessed because governments have no longer got the money to invest. This is a nice asset

class. It has low correlation. Returns are less volatile. And, of course, it actually promises, in many cases, inflation linkage which, when you have inflation-linked liabilities, is incredibly important.

“How can we source infrastructure investments? We can go into fund-of-funds, we can go into funds, managed accounts, all sorts of different structures. But increasingly we want to be going into either co-invest or direct because the cost of funds can be excessive.

“So let’s look to other models, at the Canadians, the Dutch, the Australians. How are the best sovereign wealth fund type investors actually getting into this asset

class? They are investing directly into the assets, they’re resourcing up their teams. But that’s expensive.

“I’ve got George Osborne’s agreement that we can actually pay people properly in the public sector. That’s really, really important if we’re going to have the right team, the right experience to make good investments. People are beginning to realise you’ve got to do this properly or not at all.

“We need to pull together all the public sector money. According to the Rotman Institute in Toronto, it would save about half a per cent a year, which over the lifespan of a pension scheme is an awful lot of money. Build scale and go direct. Welcome Trust reckons that returns from direct investments are about 10% a year better than the returns from the pooled investments.

“Pull it together, improve our expertise, improve our governance. If we just take the LGPS, that’s £178bn. The Department of Business has got £120bn in its pension funds. Defra has over 100 pension schemes under its umbrella. They’ve all got their own consultants and actuaries and rather badly invested assets. Pull them all together and create a SWF.

“It would bring significant benefits to the UK in terms of making proper investments. If we can make proper investment returns – real plus four, rather than gilts at two or three per cent – then we have a chance at least of eradicating that enormous deficit.”

‘We need to create a sovereign wealth fund for Britain’

Truell: The UK must pool its pension resources

Lauper: “We should be looking top-down at how attractive the region is”


FEATURE SECONDARIES SURVEY & PRICING

Two-thirds of LPs actively looking for secondaries – at the right price

Whilst secondaries dealmaking has experienced a huge surge in the past few years, picking the right deals at the

right time can be make or break for fund investors. Digging out reliable and trustworthy data to base those decisions on can be tough given the relative scarcity of information about transactions and pricing.

AltAssets Secondaries Platform aims to change that. The new initiative, which will be fully launched in early 2015, will provide pricing and liquidity data for hundreds of funds on the secondaries market, as well as letting users follow funds of interest and connect with LP investors in the vehicles through the LP-GP Network.

To coincide with the impending launch, AltAssets has called on more than 100 active investors from

AltAssets survey reveals increasing appetite in the secondaries market as deal volume continues to grow

across the private equity marketplace to provide an in-depth review of the current state of the market. The following survey reveals some of the surprising findings, as well as providing data to back up anecdotal trends surfacing in the market.

They include the rise of Latin America as a surprise destination for LP demand, the huge opportunities presented by some ailing venture capital funds and the real reasons institutional investors are looking to divest their private equity stakes.

The full secondaries survey and pricing data is available via the AltAssets LP-GP Network (www.lpgp.net).

20 Q1 2015

Demand for growth capital funds is surging with nearly two-thirds of investors actively interested in acquiring secondaries stakes

LP interest in both buying and selling stakes continues to be strongest for buyout funds, but other sectors have made huge gains in the past few years and are providing enormous opportunities for discerning investors. Growth capital and infrastructure both show serious discrepancies between large demand and short supply, a situation sure to drive up prices in these areas. Better buy-side deals are likely to be had in venture capital fund stakes, which have seen a surge of both buying and selling interest since 2009 as LPs look to pull out of underperforming investments or take advantage of cut-price bargains.

What type of secondary transaction would you consider:

Buyout

Venture Capital

Infrastructure

Growth Capital

BUYING SELLING

76%63%

56%58%

65%40%

32%15%

Interest in the secondaries market remains high with 73 per cent of investors actively looking to acquire stakes

Somewhat surprisingly, investor interest in buying secondaries stakes is no higher than it was in 2009 according to the survey. What is striking, however, is the amount of LPs that have actually managed to acquire stakes has jumped to 58 per cent from 55 per cent five years ago. That shift could partially stem from LPs significantly broadening their sources of dealflow, with 35 per cent now tapping multiple sources compared to 25 per cent in 2009. The data also reveals that LPs are increasingly shunning intermediaries as they hunt for deals, with the proportion completing a transaction using that method halving during the period. Sell-side data shows a similar story, and highlights the increasing stability and maturation of secondaries dealmaking as a source of fund investment.

No and do not expect to buy

SellBuy

PREFERENCES

Yes, bought directly via intermediary

1. Have you ever bought a Limited Partner secondary interest?

ACTIVITY

3. What size of secondary transaction have you bought/sold or would consider buying/selling?

$0 to $5m

$5 to $10m

$10 to $25

$25 to $50m

$50 to $100m

$100m+

YES=58% NO=42%

Yes, bought directly from another LP

Yes, bought from multiple sources

No, but do expect to buy

Nearly three-quarters of respondents are activelyinterested in acquiring secondary stakes

• 73% of investors have either already bought LP stakes(58%) or expect to buy secondary interests (15%)

• 35% of respondents have bought secondaries frommultiple sources ensuring they do not limit themselvesto only one source of dealflow

• None of the surveyed investors has acquired stakesthrough auction processes exclusively and only 8%rely solely on intermediaries

Transaction sizes within the $0-$10m rangeare the most popular for the purchase andsale of secondaries

• Investors’s bite sizes for secondary transactionsare in line with their primary commitments with overhalf of respondents looking to buy stakes below $25m

• An increased appetite in the middle market is observed,where 54% of investors are seeking to buy stakes in the$25-$50 range and 41% are interested in selling fundsin the same range

• More than one in four investors (28%%) is looking tobuy stakes or portfolios of funds greater than $100m,which is testament for the maturity and high liquidityof the secondary market

YES=43% NO=57%

8% 15%

35%

15%

68% 69%

69% 55%

50%

54% 41%

27%

Yes, sold via an auction

2. Have you ever sold a Limited Partner secondary interest?

Yes, sold discreetly via intermediary

Yes, sold directly to another LP

Yes, sold through multiple sources

No and do not plan to sell

No, but do plan to sell

Nearly two-thirds of respondents have soldor plan to sell a secondary stake

• Of the 43% of investors that have sold a secondary,sales using multiple sources has been the mostcommon method (16%)

• 13% of respondents have sold stakes directly toanother LP and 10% via intermediaries

• Using auctions is not a popular source of dealflowand only 4% of investors have solely relied on it tosell stakes in the secondary market

4%

13%

10%

16%22%

35%

37% 25%

28% 24%

Source: AltAssets Survey





BUYING SELLING

North America

Europe

Australasia

Asia

71%64%

79%72%

43%29%28%

13%

South America 25%11%

In which region would you consider:

52%

0 to -5%

0 to -5%

0 to -5%

-5 to -10%

-5 to -10%

-5 to -10%

-10 to -15%

-10 to -15%

-15 to -20%29%

What level of premium/discount to NAVwould you expect to see for post-2009 vintage funds?

23%

22%

3%

3%

3% 19%

18%

18%

21%

21%

21%

1%

1%

1%

1%

15%

15%

16%

16%14%

5%

5%

5%

5%

5%

2%

2%

2%

2%

2%

2%

2%

4%

12%

11%

13%

48%

48%

48%

49%

44%

38%

36%

33%

46%26% 8%

8% 8%

3%

3%

3%

2%

Mega buyout fund

Large buyout fund

Medium buyout fund

Small buyout fund

Venture fund

Real Estate

Infrastructure

Growth Capital

Fund of funds

+20 +10 NAV

NAV

-10 -20 -30 -40 -50 -60

-10 -20 -30 -40 -50 -60

Average

+20 +10 Average

10%

9%

9%

9%

Reduce numberof GP relationships 33%

What motivates you to sell?

Portfolio rebalancing

Poor performance

Change ininvestment strategy

Liquidity requirements

Industry regulations

Other 18%

3%

26%

26%

22%

63%

Valuations for buyout funds are surging with over one-third of investors expecting them to transact above NAV

Venture capital funds raised after 2009 are ripe candidates for a hefty discount to net asset value according to the survey, with half of respondents saying they expected a discount of between 10 and 20 per cent for the asset class. Growth capital and fund of funds are also seen as likely options for discounts, while infrastructure and real estate are regarded as more stable options trading closer to NAV. Large and mega buyout funds are particularly well thought of by LPs, with almost 90 per cent of respondents expecting them to be trading between 10 per cent over and under NAV.

There is increased geographic interest in emerging markets, with over 25 per cent of buyers interested in buying South-American and Asian fund stakes

While Europe and North America continue to hold the most interest for fund stake buyers and sellers alike, Latin America has made a surprise emergence as a favoured destination for picking up fund interests. One in four LPs responding to the survey said they would consider buying secondary stakes in the region, while just 11 per cent said they were interested in selling. Rising demand for Asian and Australasian fund stakes also looks set to outweigh supply in the regions, pushing up prices in both and creating a strong market for LPs looking to exit their commitments early.

Nearly two-thirds of investors quote portfolio rebalancing as the main motive for selling

The rise in secondaries sellers in the past few years has been accompanied by a shift in the motivation behind their dealmaking. More than 60 per cent of survey respondents cited portfolio rebalancing as the main reason for selling their stakes. Poor performance has seen a corresponding dip as a reason for selling, while industry regulation has all but disappeared as banks and insurance companies have largely completed their enforced portfolio restructurings following the financial crash.

22 Q1 2015


LP-GPNetworkwww.lpgp.net

The big name buyout funds with 2011 vintages are receiving the highest prices on the secondary market according to the new AltAssets Secondaries Platform. The platform, which has been running in beta mode for the past month, has received valuations hovering around net asset value for the 2011 buyout funds, reaching a peak of 3.5 per cent premium to NAV. It appears that now is the perfect time to buy 2011 vintage funds for those looking to mitigate the J-curve effect, and a great time for sellers to gain early liquidity at a premium to NAV. However, demand for these funds remains low in comparison to the pre-2009 buyout funds, which look to be a significantly better deal for buyers. The pre-2009 vintages are consistently receiving valuations of between 89 and 94 per cent of NAV as the funds reach the latter half of their lifetime.

Many more insights are revealed by the pricing data soon to be available on the AltAssets LP-GP Network.

The new initiative, which will be officially launched in early 2015, is the industry’s first Secondaries Platform to include a pricing and liquidity index. The platform allows users to view pricing and liquidity for hundreds of funds on the secondaries market. Additionally, users can follow funds they are interested in, provide price estimates and connect with LPs invested in the fund via the LP-GP Network. The full secondaries survey and pricing data is available via the AltAssets LP-GP Network.

Secondaries pricing index shows highest valuations for 2011 vintage buyout funds

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FEATURE

24 Q1 2015

Europe and the rest of the Western world are lagging behind other regions in the number of women at the helm of private equity firms and the companies they invest in,

according to panellists at the inaugural Women’s Private Equity Network Summit.

Development Partners International founder Runa Alam told the event, staged in conjunction with AltAssets, that said she had seen a marked difference between the proportion of women on the boards in US and European offices compared with other regions.

“In Africa I find much it’s easier to work as a woman. Maybe it’s because there’s both a shortage of skills as well as shortage of capital, so there’s a lot more acceptance of just anybody who shows up with the correct skills,” she said.

“Boards in Nigeria had women long before anybody here had them. [In Nigeria] it’s very common to have 25 per cent, or up to 40 per cent women, not because they’re trying but just that they were there to be on the board.”

Women ‘in majority’Amadeus Capital Partners co-founder Anne Glover told attendees she had seen the same phenomenon in other parts of the world. “My experience of going to Asia and Africa, particularly Asia, is that there is much less surprise when you have a majority of women in the room – it’s taken for granted,” she said.

“[In Asia] there are very senior women all over our industry and all over industry in general. It started with Singapore, but now we see it across southern Asia, so I think it’s more of a Western culture, not a gender culture issue.”

Fellow panellist and CEO of the European Venture Capital and Private Equity Association (EVCA) Dörte Höppner shared her experience growing up in Germany, where in the eastern part of the country women working was the norm because of the principles of communism that every person had to be part of the workforce.

She said, “In East Germany it was normal that women went to

work, and were provided with childcare that made this possible. The same goes for all the other countries in Eastern Europe. So it’s not really a big surprise that in these countries you have a higher number of women in management positions.

“If you want to change something it’s not just sufficient to discuss quotas, you need to look at the whole of society – things like childcare need to be taken into account if you want to increase the ratio of women.”

Some speakers during the day detailed discrimination they had come up against when trying to scale the private equity ladder, such as being passed over for promotion because of having children, or in one case, the boss attempting to fire someone on the spot because he could not understand how a woman could be in sales.

Other industry figures however shared more positive experience, including GMT Communication Partners’ Natalie Tydeman.

“I’ve found it’s only an advantage to be a woman when it comes to deal sourcing,” she said. “I will go in regularly to meet perspective investments and they’ll be so pleasantly surprised, because it’s the first senior woman that they’ve met.

The inaugural meeting of the Women in Private Equity Network Summit took place in London recently – and one of the key themes for delegates was the small number of women at the top of the industry in the West, compared to emerging markets

West ‘lags emerging markets on female representation’

Delegates discuss the issues at the WPEN summit

WOMEN IN PRIVATE EQUITY NETWORK SUMMIT


“With a lot of the men we’ve met, the idea of having a woman on their board was very attractive – it has been a positive differentiator and we as a firm feel that as well.”

Amadeus’ Glover said, “There are men in my organisation who have a bias towards hiring women, they will openly say ‘actually I think they work harder’. If they want to exercise that bias, and genuinely think they’re getting a better talent, I’ll support them.”

It could just be that women themselves are put off the private equity industry because of their perceptions of it, suggested HgCapital partner Lisa Stone.

“It starts with recruitment,” said Stone. “We just don’t get female applicants – it’s not that we weed them out or have some bias about hiring them, it starts with not having enough coming into the pot.

“I think it’s about the perception – people perceive it as being very aggressive, people feel it’s a very male environment, or perhaps women are put off by the commitment you need to make to it.”

Women need to be ‘more bold’Afternoon speakers at the WPEN summit revealed that while men get in touch with them constantly with queries or to ask for LP introductions, their female counterparts are simply not picking up the phone.

“The guys all do it,” said Omega Fund Management partner Renee Aguiar-Lucander. “If they’re coming up in front of the board, every guy who can find my email or my phone number will [contact] me and say, ‘have you got five minutes? I’m interested in this or in that’.

“I have never had a woman call me or send me an email prior to a job interview or a board interview.”

Aguiar-Lucander’s comments were echoed by other women speaking in the afternoon panels.

Emerald Ventures managing partner Gina Domanig, for example, said that she is regularly asked for introductions or recommendations by men within private equity. “I think I receive 10 emails a week from men asking me for a favour,” she said. “I barely know these guys but they ask for personal introductions to some of my LPs. Sometimes I’m hesitant to do it, sometimes I do it to get the person off my back.”

Domanig added, “Granted there aren’t many women in our industry, but I very rarely I receive any requests from women, I think they hesitate to ask for a favour. I think probably as women we could be more bold and ask for favours more often.”

Marianne Germain, CEO & co-founder at EpiGaN, said she has realised that her male peers call each regularly other even if they have no particular reason.

She said, “Men are constantly calling each other for anything, I’m not sure there is an outcome, but the mutual confidence increases a lot between them. Now I’m trying to pick up the phone to make sure I keep the relationship and to make sure there is nothing else that has to be discussed.”

Key terms now part of due diligence, says LP

The terms and conditions part of a deal can be so contentious that Illinois Municipal Retirement Fund CIO Dhvani Shah considers them alongside a fund profile when deciding whether to invest.

Speaking at the Women’s Private Equity Network Summit, she told delegates,” “I felt so strongly about this I moved terms and conditions up into our due diligence part, so we can view terms prepared at the outset. Because we’ve learned that once a deal is approved, it can be painful to pull out.”

Details Shah would look at, she said, include partnership and organisation expenses, but there are other reasons for agreeing terms from the outset. “We’re also looking to see how they negotiate – are they going to be a good partners? That’s also really important to know from the onset as well,” she said.

Fellow panellist Vicky Williams, head of private equity at BP Investment Management, agreed that she is “very focused on terms and conditions these days”.

The BP exec said she had experienced a scenario where a deal is all but signed off, but the firm did not agree to meet them halfway on the legal terms, so the LP pulled out. She said, “It is painful, very frustrating having to do that, but things like the key man, etc, we need those investor protections.”

Williams also told delegates that her current focus is on lower market-focused funds which “hopefully have the potential for outsized returns”.

She said, “We’re also concentrating on early stage and venture capital funds.”

Williams added that pension funds tends to avoid larger vehicles, with a current focus on sub-$500m private equity players. She said, “In my experience, generally the returns seem to go down, the larger a fund gets.”

Williams is especially keen to avoid markets that appear to be becoming overcrowded. “I saw a lot of people go into the Asian market in 2007 and 2008, who didn’t do too well,” she said. “I don’t like it when there’s too many people going into the same market, it gets very heated – for example Latin America the last few years, and that’s now fallen away again.”

Speakers respond to questions at the WPEN summit

FEATURE

26 Q1 2015

Adveq eyes more agriculture investments

A £116m deal for the world’s largest almond orchards has sparked Adveq’s interest in global

agriculture and the firm is now seeking more investments of the same ilk.

The Swiss fund of funds and co-investment specialist announced the acquisition of 18,000 hectares of orchards in February this year, made via its Almond Trust II vehicle under its real assets investment division.

The farm includes 12,000 hectares planted with three million trees and accounts for around 50 per cent of Australia’s almond production and 3.5 per cent of the nuts grown worldwide.

London-based vice-president at the firm Farah Shariff said that agriculture investment such as this one provide the characteristics that Adveq’s investors are looking for. “The almond orchard deal provides an inflation hedge and the returns that you get are long-term and stable in nature,” she said.

The firm entered the deal alongside co-investment pension fund partners the Municipal Employees’ Retirement System (MERS) of Michigan, and Danica Pension.

The timing was especially propitious as almond production has been falling in California, one of the biggest regions in the world for the nuts, which has driven up prices, said Shariff. “We’re now looking globally for similar deals,” said the VP.

Adveq has a number of different investment themes including technology, Europe, opportunity, Asia, secondaries and real assets.

The firm employs 90 members of staff across eight offices worldwide, with the head office in Zurich and others in New Jersey, London and New York. Over the course of the past six years the investment manager has also expanded into Asia, opening offices in Shanghai, Beijing and Hong Kong.

While there may be debate about China’s potential for growth during the next few years, Shariff reckons private equity investment is a good way to benefit from any upturns.

“You can capture the consumption growth in places like China through private equity investing more readily than you can through

the public markets,” she said. “We are finding very favourable dynamics for private equity in that region.”

The firm has an “emerging market view” said Shariff, but its deals in Asia so far have mostly been in China and India.

Adveq’s investment focus tends to vary depending on where it is operating, backing venture capital in the US while targeting small buyouts and turnaround opportunities in Europe and Asia.

At the moment the firm is looking to be part of more co-investments through its primary and secondaries programme, and is targeting companies at the lower end of the market.

Shariff said, “We believe that at the smaller end, valuations are more reasonable. We are finding good valuations for high-quality companies which are much more difficult to come by at the larger end of the spectrum.”

While opportunities are plentiful, Shariff

does not rate all of them. “There’s a lot being offered to LPs but not everything offered is worth taking. One has to be discerning.”

Recent investments by Adveq include backing new Danish SME focused investor CataCap, which had exceeded its hard cap by 10 per cent, closing its first fund on DKK1.1bn ($191m). It was Adveq’s first investment in Denmark, and made alongside Access Capital Partners.

Earlier this year the firm also invested in Dutch spoolable pipeline maker Airborne Oil & Gas, which serves offshore oil and gas and service companies.

As of June this year Adveq had a total of $5.7bn assets under management.

Adveq says it incorporates environmental and social governance into its investment analysis and decision-making processes and promotes acceptance and implementation of these principles within the private equity industry.

Farah Shariff:: Looking to capture consumption growth

WOMEN IN PRIVATE EQUITY NETWORK SUMMIT


Private equity firms looking to France for small cap deals

Global private equity firms are zoning in on the opportunities provided by France’s small cap companies and their need for debt providers, according to Monica Dupont-Barton, counsel

at law firm Reed Smith.“We are acting for a number of alternative capital providers and

sponsors currently looking to invest in the French market at all levels of the capital structure,” she said.

France is particularly popular, said Dupont-Barton, because of the high-quality companies emerging from the country. “In contrast, perhaps, with the French economy, there are a number of small cap companies in France, particularly in the biotech and retail space, that are performing well and have attracted interest from international investors, in particular US investors.

“These companies require capital to grow, and there are a number of debt providers who are interested in helping them grow.”

There is also plenty of scope for investing in a French business and bringing them to other countries, said Dupont-Barton.

“The most prominent example was the acquisition of the SMCP Group by KKR in April 2013, but other smaller companies have followed suit,” she said.

As a French speaker, Dupont-Barton is well-suited to facilitate these firms, particularly those that are concerned about recent changes in financial regulation.

New fast-track regime“One of the areas of my expertise is to work with alternative capital providers and sponsors looking to invest in France and educate them on the risks of investing in France, particular with regards to restructurings,” she said.

“The new fast-track sauvegarde regime has gone some way towards meeting the concerns of foreign investors into France but it has not addressed all the shortcomings of the French legal system.”

Reed Smith’s specialism on the French market also helps with firms looking to invest in African regions. “We find that there are a number of funds focusing on energy and mining in West Africa, and you need to have a French capability to be able to provide meaningful advice, because a significant number of African countries’ legal systems is based on the French system of law,” said Dupont-Barton.

Among Reed Smith’s specialities is putting European deals into terms that US private equity investors can understand and use.

“In an environment where a number of French companies require refinancing or growth capital, and French banks are restricted (from a regulatory perspective) from lending, there is an opportunity for private equity houses and funds to invest in France.

“We find that French corporates are becoming increasingly comfortable with borrowing from funds who can provide financing on more bespoke terms better attuned to a particular business,” she said.

“In this space, we advise on a number of French private placements, and we see this becoming increasingly sophisticated from a covenant-package perspective.”

In the US, Reed Smith has a number of firms as clients, particularly in the real estate space, who are looking to raise funds in the US market including in Chicago, LA and New York.

Reed Smith also has a base in Kazakhstan, which is ‘thriving’ according to Dupont-Barton. The law firm is being pulled in, however, because of the knock-on effects of sanctions with Russia.

“We have seen a number of investors focusing on investments in Kazakhstan this year, or through Kazakhstan into Russia,” said Dupont-Barton.

“This year we have acted for the Ministry of Finance of the Government of the Republic of Kazakhstan in relation to the multi-billion debt facilities put in place to finance the public-to-private acquisition of Eurasian Natural Resources Corporation. We continue to advise the government in its capacity of shareholder in ENRC.”

Dupont-Barton, who spoke at the AltAssets Women’s Private Equity Network Summit, said that she was attracted to Reed Smith because of the relatively high number of women in senior positions.

“It makes it easier to link in with other women across the globe – a lot of US investors are women and it’s refreshing to be able to talk to them; I am not working in a room full of men,” she said.

Reed Smith has more than 1,800 lawyers in 25 offices throughout the United States, Europe, the Middle East and Asia.

The law firm’s activities this year include advising Sovereign Capital and the management of City & County Healthcare on the secondary sale of C&C to private equity firm Graphite Capital.

Monica Dupont-Barton: opportunities in France and Francophone Africa

LIMITED PARTNER PERSPECTIVES

28 Q1 2015

WOUTER JAN NABORN – PENSIOENFONDS HORECA & CATERING


More than a million Dutch hospitality and catering workers have their financial future tied to the performance of Pensioenfonds Horeca & Catering

(PHC), under the executive stewardship of head of asset management Wouter Jan Naborn. More than half of the €6bn fund is real estate or ‘riskier’ assets, which includes public equities, commodities and private equity.

Private equity is a relatively new addition to the portfolio, following a decision by the board in 2003 to allocate five per cent of assets under management to investments in private companies. “What attracted us to private equity?” says Naborn. “The diversification aspect of private equity within the total portfolio and the long-term, stable returns private equity provides are the main attractions to us.”

PHC’s team were fully aware of the downsides to investing in private equity. “Obviously there are examples of drawbacks,” says Naborn. “By that I mean the lack of liquidity, lack of transparency, the long-term commitment, the complexity of the asset class, the need for real expertise and the high costs are examples of some drawbacks we identified.”

The experience has been positive since the programme was initiated. “Our experience of the overall performance of the funds is more stable with private equity,” says Naborn. “There is a diversification aspect to it. Especially if we look at public equity versus private equity, private equity is more of a stabiliser within a portfolio. You get some years where public equity performs better but then the other years private equity is performing better. Overall the correlation is lower than one.”

Balancing effectNaborn runs through figures for the past six years. In 2008, private equity returned -5.8 per cent, a less than disastrous performance when compared with a -45 per cent return on public equities. The return was -2.9 per cent in 2009, 23.4 per cent in 2010, 19.8 per cent in 2011, 10 per cent in 2012 and seven per cent in 2013.

“Beforehand we thought the diversification aspect of it would help us lower the volatility of the total portfolio, and indeed it did. It really stabilised the overall performance of our fund, so it turned out the right way,” says Naborn.

Initially PHC approached private equity through the

“The diversification within the portfolio and the long-term, stable returns private equity provides us are the main attractions”

Strong on serviceA decade into its private equity journey, Pensioenfonds Horeca & Catering has switched from funds of funds to a managed account. Wouter Jan Naborn says it will help diversify the portfolio over different vintage years and bring stability

CVWouter Jan Naborn started working for Pensioenfond Horeca & Catering in June 2008 as a senior portfolio manager and was promoted to head of asset management in January 2011. He leads a team of four investment executives running the fund.

He joined PHC from Tridos MeesPierson, a Dutch private bank where he was responsible for sustainable investment management for more than three years, and also managed a number of semi-institutional discretionary mandates. Before Tridos MeesPierson he spent seven years with Fortis Bank.

Naborn says the role is challenging but rewarding. “I enjoy the more strategic part of my work, thinking about the strategy and deepening our knowledge about different asset classes we invest in.”


30 Q1 2015

traditional route of ‘blind’ commitments to fund-of-funds, committing to five managers, including Dutch heavyweight AlpInvest. The approach has since been amended, with the fund signing up a programme manager in 2014.

“Why did we look for a programme manager or a managed account?” Naborn says. “Over the last couple of years we invested in five different funds of funds, so we were over-diversified within this asset class within private equity. We didn’t have any oversight of the underlying companies, so we were looking for more transparency in our private equity programme.

“We were also looking for ways to construct a continuing programme instead of appointing new fund-of-fund managers every once in a while. We wanted to diversify over different vintage years, so we were looking for more continuity in our programme. We decided to choose a managed account, and we searched for a manager who was able to manage a managed account for us. We also want lower costs and more transparency.”

It is too early to say whether the change of strategy will pay off in terms of returns, but Naborn is happy with one crucial element, the cost. “I’m not going to give you numbers, but it has lowered our costs considerably and will have a material effect on the net IRR, absolutely.”

PHC beauty-paraded ten managers before deciding to award the mandate to AlpInvest, for a €500m investment programme between 2014 and 2018.

“What we found out is that in finding the right private equity

manager for us, performance really matters and expertise of the asset class really matters. So we looked for a top-quartile, fund-of-funds manager in the private equity space. We already had experience with AlpInvest, but researching it more, comparing it more to other firms in our search, we favoured AlpInvest

“During the selection process AlpInvest was our preferred choice because of the customised solution they can provide for our

Wouter Jan Naborn: Pleased with the cost savings of switching to a managed account

WOUTER JAN NABORN – PENSIOENFONDS HORECA & CATERING


private equity allocation and their solid historical returns,” says Naborn. “In addition, the focus on our requirements with regards to exposure planning and reporting exposure were an important consideration for our decision.”

One thing that surprised Naborn in the search was the lack of service from US fund managers, who instead of offering a tailor-made package for the LP, preferred to channel them into a fund-of-funds pool. “I was rather surprised to find that in Europe, managers are much more looking for solutions and offering managed accounts more than they do in the US. In the US, managers stick more to their fund-of-fund propositions. And they are not as flexible as in Europe to lower costs. I was really surprised about that – in Europe managers are further along in their thinking about their product offering.”

The programme manager, AlpInvest, will have discretion over where the funds are invested, subject to some broad geographic and segment guidelines. Global large buyout will account for 5-30 per cent; US mid-market 15-45 per cent, EU mid-market 15-45 per cent, non-traditional markets 15-30 per cent, and global venture capital 0-10 per cent. Of that, 75 per cent will be in primaries and 25 per cent in secondaries.

Naborn is clear about his role as an LP – it is about selecting the manager and letting them get on with the complex business of managing the fund. “We’re as good as AlpInvest is, to be quite honest. They are the ones who invest our money. That’s really

Pensioenfonds historyPensioenfonds Horeca & Catering is the occupational pension fund for the Dutch hospitality and catering industry. It is a mandatory fund with some 35,000 affiliated employers and over one million active or former participants at year-end 2013, making it one of the largest pension providers in the Netherlands. The coverage ratio of the pension fund as at the end of the third quarter of 2014 is 119%.

The fund was founded in 1963 by employee and employer organisations in the hospitality or contract catering industry. Participation in Pensioenfonds Horeca & Catering was declared mandatory for the entire industry in 1964. That means all individuals or legal entities operating a hospitality or contract catering enterprise that is required to register with the Bedrijfschap Horeca & Catering are obliged to participate in the fund.

All employees aged 21 and upwards who have a service contract with an employer falling under the mandatory participation rule are required to join the basic Pensioenfonds Horeca & Catering pension scheme, which provides for the accrual of a retirement pension.

“We didn’t have any oversight of the underlying companies, so we were looking for more transparency in our private equity programme”

the reason why we don’t invest ourselves – we don’t have the expertise and AlpInvest does have the expertise, so we’re as good as they are.”

PHC is not planning to increase its allocation to private equity in the near future. According to the latest Coller Capital Barometer, 31 per cent of LPs have reported increases in their allocation to private equity, compared with 17 per cent that have reported decreases.

However, for pension funds the trend is reversed, with 12 per cent having reported decreases and just nine per cent reporting increases. Coller said that family offices and insurance companies had increased their allocations the most. Pension funds are most ‘in balance’ around their allocations to private equity of all classes of investor, such that although more than 40 per cent are under-allocated, a similar percentage is over-allocated.

“We’re quite happy with five per cent,” says Naborn. “Once in every three years we look at our risk budget and we look at our allocation to the different asset classes.

“We are still happy with five per cent. It does have a liquidity aspect, so that’s also something we always have to take into consideration. There has to be a balance between the liquid and the illiquid parts of the portfolio.”


32 Q1 2015

Christophe Bavière exudes confidence and charisma. All the more impressive as Limited Partner caught up with the Paris-based CEO of Idinvest Partners over several phone

calls during a hectic schedule of meetings in Munich. He is open, honest and passionate about what his company is doing. Anyone that thinks private equity investors are ‘locusts’ would do well to spend a bit of time with the Frenchman.

“It is very important to be transparent,” he says. “There is absolutely no reason why you should not provide to your investors the information they deserve regarding investments. We deliver to our investors as much information as they ask for. Some has to be structured as regular, written information, some is better delivered by face-to-face meetings and by dedicated reporting for each investor.”

But his openness does not extend to the details of underlying investments. Asked for details of specific funds that Idinvest has committed to, Bavière is tight-lipped. “I cannot tell you who we invest in – I am sorry for that, but the reason is that when you think about the good mid-market players, they are very hot and it is hard to get into their funds. There is one Swedish buyout player typical of the funds we invest in. They are fully concentrated on their local market where they have deal-flow. They don’t increase the size of their funds that much and their fundraising is incredibly discreet.”

Idinvest specialises in the lower middle market in Europe and manages more than €5bn of assets for French and international investors. Since it was formally established in 1997 as part of the Allianz Group, the firm has supported more than 3,500 SMEs.

Idinvest Partners is strictly focused on continental European SMEs. CEO Christophe Bavière tells Limited Partner how this underserved market has generated returns to venture and growth investors “north of 25 per cent”

Big bang theoryImage: NASA/JPL-Caltech

CHRISTOPHE BAVIÈRE – IDINVEST


possible to generate growth. And still today this is challenged by a large number of people.”

Bavière does not shy away from the problems facing the European economy and acknowledges that investors cannot rely on macroeconomic growth to generate a return.

“To generate growth, to identify successful growth strategies in Europe today, you need to work harder than ever, this is for sure. But we know that even in the most fragile countries of Europe there is an investment universe of well managed, mid-market companies that have unique niche strategies, that have very interesting business models and that are at the beginning of buy-and-build process. Europe today is still an incredible patchwork of mid-market companies – we are only at the beginning of the big bang.”

So how has the firm managed to grow so quickly? The key is a rigorous focus on supporting SMEs in France and continental Europe.

Idinvest was spun out of Allianz in 2010, when it managed €2.5bn and in 2014 it raised more than €1bn.

Independence was a natural development for the Bavière and his team. “You know how it is – most captive teams have a tendency at some point to become more independent, that is the first reason. The second reason is that as investment professionals we wanted to focus our investment strategy more and more on the very specific area that we perceived as the most interesting area to invest in Europe. And this is the small and new market end of the European market with a strong bias in favour of continental European. Why? Because it is the least well served market in Europe.

Investment focus“The higher end of the market is obviously very well served and is, or can be, very competitive. The UK market, as a whole, is one of the most mature in Europe and is also one of the best served. We wanted to focus our investment process on one of the less covered, one of the most inefficient markets, and I am not sure this was in line with the strategy of our initial sponsor. I don’t think you could ask a large institution to focus its investment strategy only on the less well-served component of the market. So it was clear that it was time for independence.”

When Idinvest embarked on its SME-only strategy in 2010, it was not an easy sell to investors. “When we were explaining to the marketplace that the idea of Idinvest was to concentrate its investment strategy on the lower end of the European market, it was difficult,” recalls Bavière.

“Especially in continental Europe, people were challenging this idea that an investment strategy based on backing, young, innovative companies in Europe could be possible. People were challenging the idea when you invest in mid-market companies in Europe that it is

Idinvest Partners was formally established as a private equity partnership under the Allianz Group in 1997. It became independent through a management buyout in 2010 and is now part of the IDI Group, a listed investment company in France.

The firm has more than €5bn of assets of assets under management and has supported more than 3,500 small and medium-sized enterprises across continental Europe.

Idinvest has a balanced investment strategy focused on the lower end of the mid-market. Its key investment areas are: equity investments in buyout deals focusing on both midsize as well as young innovative European companies; primary investments in European private equity funds focusing primarily on the middle-market segment; secondary investments; mezzanine investments in Europe, including direct investments, secondary and primary; and private equity consulting.

As well as equity investment, Idinvest is a leading player in the European private debt market, with close to €800m under management. The current team has been active in this market since 2007 and has carried out more than 60 investments in European companies with an enterprise value from €30m to €1bn. Idinvest’s second senior debt fund raised €400m in just three months in 2014.

The firm is structured along sectoral lines, with specific expertise in new information technologies, including IT, internet, telecoms, software and networks, healthcare, and the environment. These include managers with very specific knowledge of their target market, often proprietary in nature. Baviere says: “Investing in the European middle-market offers the best means to continue to generate higher returns that private equity offers relative to other asset classes.”

Idinvest – focusing on the European middle-market“Europe today is still an

incredible patchwork of mid-market companies – we are only at the beginning of the big bang”


34 Q1 2015

“There is much talent in France, and our entrepreneurs have no need to envy their American counterparts,” explains managing partner Benoist Grossmann.

“They enjoy a global perspective right from the start and benefit from the support of the French entrepreneurial ecosystem, which is one of the most established in Europe – incubators, associations, foundations, lawyers etc. The potential is there, all they need is financial support.”

Idinvest provides that support across a range of financial products, ranging from venture capital, through growth capital, LBOs, mezzanine and structured private debt. It has a fund-of-funds business, co-investments, and manages dedicated investment programmes – managed accounts – for institutions, family offices and high net worth individuals.

“When you invest in private equity, in equity-type investment, we deliver growth in small caps, growth, venture-like investment, so our investors expect a final return that is north of 25 per cent IRR, and we have been able to deliver it,” says Bavière.

“At the other end of the spectrum, we provide senior secured investment and the expected return is something close to Euribor plus 500 basis points, depending on the conditions of the market, and we have been able to deliver that.”

Independence has allowed the firm to develop its own strategy, which is based around providing all elements of the financing mix to those SMEs. The core of the business is a fund-of-funds operation that has supported more than 160 GPs over the past 10 years.

“We are managing a little bit more than €3bn in the entire fund-of-funds programme. And we are also regularly active in the co-investment side. In terms of the evolution of this market, it’s more and more the case that we are managing tailor-made exposure for large institutional investors.”

However, Bavière is keen to point out that there is life in the fund-

of-funds model if it is targeted on smaller funds. “Pressure on fees is clearly one thing, but I clearly understand the need for tailor-made exposure. We concentrate on the lower end of the markets so we are able to select for institutional investors local players. Nobody is using Idinvest to get access to large LBOs in Europe. If they want to diversify it’s probably because they are already exposed to the higher end of the market, so it’s more and more true that the demand is more and more sophisticated. Institutional investors know which component of the market they want to get exposed to.”

Bargain hunter: Christophe Bavière is looking for opportunities in Europe’s lower middle-market

CHRISTOPHE BAVIÈRE – IDINVEST


Investors concerned about fees should look to develop tailor-made strategies that combine primary funds with secondaries and co-investment, rather than try to negotiate down the standard two and 20 structure that remains appropriate for mid-market funds. “It is not easy to break the 2-20 term,” says Bavière. “When we deploy a tailor-made mandate for an institutional investor we always combine a primary fund-of-funds strategy with an exposure to secondary transactions and with an exposure to direct co-investment.

“The key element in our fund-of-funds strategy is to get access to the most disciplined managers, the most hard-to-get GPs. You can’t, on one side, say my strategy is to get access to the most wanted and to the most hard-to-get GPs, and on the other side I also want to pay the cheapest price. The best strategy is to be very regular, very visible, very stable, to be a trusted partner and to try to leverage your relationship as much as possible to get access to direct co-investment.”

Idinvest is proud of its socially responsible investment (SRI) credentials and is a signatory to the United Nations Principles on Responsible Investment (UNPRI). It is an approach that Bavière says is adopted throughout the investment portfolio. “Responsible investment is a cost. It’s an investment because we have a team and resources dedicated to it. So the starting point is that it is a cost,” says Bavière.

“But let’s look at it the other way. For example, when you invest in healthcare you can have ethical issues. If we don’t implement a

“Size matters. If you increase too much your size you are not any more in the mid-market, you are moving up into the larger end of the market and that is more competitive”

certain level of socially responsible investment process in the target and you want to IPO this company on the NASDAQ, if we don’t structure very early in the process a socially responsible advisory board we will not be credible when we put the company on the market. The earlier you invest in this cost, the more you will benefit.”

Bavière’s passion for lower mid-market funds is apparent throughout our conversations. “Size matters. Size is key, especially if you think about the lower end of the market. If you increase too much your size you are not any more in the mid-market, you are moving up into the larger end of the market, and the larger end of the market is more competitive. This is the first point. The second is that more and more the value added by the underlying GPs is key. In the past it has been possible to invest in Europe, and to be successful in some cases, even if you were not adding that much of value to the underlying companies.”

It is a simple question of supply and demand. “Ask yourself the questions,” concludes Bavière. “Is the investment universe saturated? Is there too much money allocated to small venture innovative companies in Europe?

“The answer is obviously not. If you ask is too much money invested in mid-market companies, in buy-and-build strategies all over Europe, the obvious answer to this question is, again, no. In term of potential, in term of what is needed to help innovation grow in Europe, to help midmarket companies consolidate in Europe, we are still in the early days of the big bang that will take place during the next economic cycle.”

CVChristophe Bavière has been CEO of Idinvest Partners since 2001. He heads all investment activities and chairs all its investment committees.

Before joining Idinvest Partners in 2001, Bavière held senior positions within the AGF-Allianz Group, as CIO of Allianz Private Equity Partners and CIO of Allianz Global Investors. Starting in 1997, he was instrumental in introducing private equity as a separate asset class within the balanced portfolios under his management, and he sponsored the creation of Idinvest Partners (initially called AGF Private Equity).

From 2004 to 2008, Bavière was on the board of AFIC, the French private equity professional association, where he was president of the Legal & Tax Commission. He was elected vice-president of AFIC in 2014 and is also currently president of the Private Equity Commission at AFG, the French asset management professional association. Additionally he is a member of the Advisory Committee of the French regulator (AMF) and advises the General Secretariat of National Defence on business intelligence topics.

Bavière holds a business degree from ESLSCA (Paris) and an MBA from the University of Ottawa. He is a member of the French Institute of Actuaries and in 2007 was elected Private Equity Personality of the Year by Capital Finance and Les Echos.


36 Q1 2015

A llianz Capital Partners’ funds division has €7bn assets under management, split evenly between the US, Europe and Asia. With the vast majority in private equity

vehicles, rather than early-stage venture capital, it looks at first glance as if Allianz is shying away from the high-risk end of the alternative assets spectrum. So it might come as a surprise that the firm is currently examining the possibility of investing in Africa.

Michael Lindauer, global co-head of fund investments at Allianz Capital, explains: “We do not invest in Africa for the time being, but we are currently doing a survey looking at Africa. It has some macro-economic and demographic attractions to it and we might do something in Africa going forward.”

When taking on greater risk, there has to be the potential for greater returns. “The only area we would consider venture capital investing is in Asia,” says Lindauer. “The line between growth capital and venture capital is a little bit blurred, and where people probably take more market risk but less technology risk.”

No invite necessaryLooking at Allianz’s recent hires, it is clear the focus on the US remains unwavering, with the fund of funds having recently bolstered its team there with the appointment of ATP Private Equity Partners’ Susanne Forsingdal.

“It is a strategic move to position our business in the Americas for further growth,” said Lindauer. “North America is the largest and deepest private equity market globally and continues to offer significant opportunities for our fund-investment business.”

When deciding where to invest, Allianz uses a shadow portfolio as a guide for its allocations. The firm does not necessarily wait to be approached by GPs.

Lindauer says: “We try to map out our potential portfolio based on what we know now and what we think over the next four years. Then basically we try to be proactive with the managers with whom we want to commit. We do a lot of due diligence over time

Allianz Capital Partners spices up its private equity portfolio with a smattering of ‘riskier’ funds. Africa has not traditionally been within the fund manager’s remit, but it is now exploring whether the time is right to invest in the continent

Adding a dash of spice

in getting to know the manager rather than waiting for materials to come out once they go fundraising.”

Allianz Capital uses two tiers of risk to compile its investment portfolio, the first of which Lindauer refers to as the “bread and butter” part, or the lower risk allocation, where the LP will invest between €120m and €150m per deal.

The target private equity houses in this category would be predominantly mid and large-cap players, said the LP, often with a “pan-regional reach in their strategies”. Lindauer says: “This should be under the headline of hopefully manageable volatility risk and solid returns – potential solutions capped on the upside given that these are efficient market spaces.”

“As an LP we’re not in a very good position to time the market, so what we are trying to do is invest through cycles.”

MICHAEL LINDAUER – ALLIANZ


On the flip side is Allianz’s “spice” investment strategy, under which it would lay down between €30m and €50m to each fund manager. “These are the managers with sector strategies or otherwise emerging market managers, country managers or very small managers who are delivering a high return, but probably a little bit higher risk, too,” he says.

“The combination of both strategies hopefully gives us something that works for us returns-wise.”

Betting on the jockeyLindauer believes that Allianz cannot necessarily move quickly enough to act on a view on the markets, so the alternative investor is better off finding good managers. “As an LP we’re not in a very good position to time the market, so what we are trying to do is invest through cycles.

“We might like a strategy, but once the fund manager deploys capital into the segment, the opportunity might be gone. So instead we focus on finding the right team.”

Some LPs have expressed a desire to invest in smaller funds, sometimes claiming they see smaller returns the bigger a fund gets, but Lindauer does not agree with this sentiment.

“These larger firms will attract good people, and as long as the fund doesn’t become too large for the strategy or you don’t back somebody who is more in the asset management business and is just out gathering assets rather than doing investments, then it’s still an area where there could be interesting returns.”

Lindauer said that Allianz tends to back established and big names, although has had some success with smaller firms set up by groups of people who have spun out from the bigger players. The fund of funds manager could be put off smaller funds, although it has no specific limit “as long as it is big enough so we can deploy the desired amount, so if we wanted to invest €40m, all the funds below €150m would be difficult.”

Experience mattersIn the current market, with strong competition and highly priced assets, it is even more important to find an experienced manager, says the LP. “We are looking to find teams that can cope with the current uncertainties in the market, which don’t get shell-shocked and refuse to do anything or just go to a mainstream auction and buy whatever is there.

“In this environment we want somebody who’s digging off the beaten track for a deal. We also look for investment experience and a level of creativity in finding deals, which is, I think, a key differentiator in a market that is increasingly becoming very efficient.”

What puts him off a manager most is a lack of transparency. “We expect transparency on the good and the bad side. If we find out somebody has not been honest with us or is not treating us as a partner during due diligence or our relationship building, this would be a show-stopper for us.”

Environmental, social and governance issues are, as with

most LPs, a strong consideration for Lindauer, who sees the commitment to it vary slightly by the region he is investing in.

“To a degree it depends on your investor base and the location of the GP. We think in particular in Europe and the US the topic is higher up on the list, and a little lower in Asia. Our policy is pretty strict – I think it increasingly is for everybody.

“If you think about it, we are entering into a relationship for 10 years; we want to be pretty sure in the beginning that we don’t have partners who are crooks.

“For us ESG is a lot about trust, common sense and doing the right thing. In our selection process we hopefully find teams that do the right thing and therefore automatically follow our ESG policy.”

Hot topicsAnother buzzword of the moment is co-investment, with Allianz’s alternatives portfolio currently having 10 joint venture deals, made alongside GPs whose funds the investor is also committed to. “We’re looking at co-investment as a complementary strategy to our primary strategy, not becoming competition for our GPs. For us it’s an area where we look for co-investing on a no-fee/no-carry basis to bring down our average cost.”

As well as Allianz’s funds business, the investment house also has an infrastructure division, with €1bn under management, which makes investments in areas such as gas pipelines and parking concessions, and a renewables portion, which manages around €2bn and invests in wind and solar parks. These divisions generally focus on opportunities within Europe.

Michael Lindauer: Prefers mid- and large-cap players


38 Q1 2015

A t a fundamental level, the formula for successful private equity investment is a simple one: create growth and you will create value. This presents an obvious difficulty for PE

firms investing in Europe, where there is little prospect of significant macroeconomic growth in the foreseeable future.

But this does not deter Parvilla, a private equity fund manager specialising in lower mid-market MBOs in northern Europe – France, the UK, the Nordic countries, Benelux, Germany and Switzerland – which it invests in through new GP funds, acquisition of secondary positions and through co-investment with select GPs where it has a relationship.

“Our geography is clearly focused on the northern part of Europe,” says CEO and founder Jean-Marie Fabre. “A reason for the north of Europe focus is because it’s the more exporting part of Europe, and that’s a way to remain in Europe and still have access to the groups of emerging countries.”

Where LPs cannot treadAfter leaving his role at French private equity heavyweight PAI Partners in 2006, Fabre set up Parvilla with the initial idea to help investors looking for exposure to the lower mid-market in Europe.

“It is nearly impossible for private investors to invest overseas in small and medium-sized companies, and to identify and select performing funds overseas, considering the number and the size of the funds targeted. As a consequence, access to the lower mid-market is only possible in practice via an intermediate structure managed by professionals,” he says.

Small funds also bring specific challenges. “Small funds rely on a limited numbers of key investment executives,” says Fabre. “Direct investment experience is particularly relevant in this space in assessing the skills of the team, its organisation and risk culture, as well as evaluating the real potential of the key individuals.”

The lower mid-market is a unique challenge and opportunity for investors. According to data from the European Private Equity &

French private equity firm Parvilla looks to limit the risk of emerging market deals by investing in the ‘more exporting’ countries of northern Europe, according to its CEO and founder Jean-Marie Fabre

Small is beautiful

Venture Capital Association (EVCA) and Thomson Reuters, buyout funds with a size between €250m and €500m returned an average IRR of 9.67% in the 10 years to December 31, 2013. Fabre says that lower mid-market funds have among the best recurring risk-return profiles of all private equity classes.

With Europe, and France in particular, currently teeming with entrepreneurial opportunities, it is no surprise that last year the country saw some of its highest valued deals since 2009. French-targeted financial sponsor-related M&A reached its highest value in Q2 at more than $14bn, according to data from Dealogic.

News in the French M&A market was dominated by Chinese

Jean-Marie Fabre: A big fan of the ‘Anglo-Saxon way’

JEAN-MARIE FABRE – PARVILLA


conglomerate Fosun’s relentless pursuit of Club Med. The firm was reportedly upping its $1.1bn bid for the holiday company to rival Italian tycoon Andrea Bonomi’s bid as Limited Partner went to press in December.

French-targeted financial sponsor exits also hit their highest value since 2009 in the second quarter, reaching more than $10bn. The biggest valued exit of the year came in April when European buyout house Cinven made a €1.5bn capital gain from its investment in French cable operator Numericable. In the same month French private equity giant Ardian completed the exit of food ingredients maker Diana Group to Symrise for a marginally smaller €1.3bn.

“One thing that makes us different is we are two senior partners that come from direct investments,” says Lise Nobre, who joined up with Fabre in 2013. “Also our mix of primary, secondary and direct investment and the strong alignment of interests, because we invest important amounts of our own money alongside the investors in the same terms and conditions.”

Targeting new LPsThis enabled Parvilla to over €30m for its second fund in February 2014, more than a year after it was launched in late 2012. Fabre says that the firm targeted new LPs for Fonds Parvilla II, because many of the investors in its debut fund were not in a position to re-commit, either because of liquidity pressures or because they had decided to exit the asset class altogether.

He admits “The fundraising environment was challenging, not for reasons of own but for general reasons, it was difficult. We are raising money in France from private and institutional investors. It’s probably a bit different now but at the time, two to three years ago, private equity was still sluggish. The environment has already improved over the last half; the first half of 2014 in terms of fundraising wasn’t very good, but it has improved.”

It was the experience of himself and Nobre that made the fundraising possible, according to Fabre. “Raising money for primary investments was extremely difficult a few years ago. When you had money to invest, access to funds wasn’t difficult, but it has

“The Nordics is a very interesting area for investing. There are many companies with good management teams”

become more challenging. However, due to the fact that we both come from direct investment and have good relations with the LPs, in our sector we have no problems – but it has definitely become more competitive.”

Fabre says the second vehicle will follow the same strategy as Parvilla’s first fund, which raised €37m and has already returned 30 per cent of the capital to investors because of the high proportion of direct investment.

“100 per cent of the fund will be invested in northern Europe, and out of that around 30 per cent will be spent on the Nordics, including Denmark, Norway, Finland,” says Fabre. “The Nordics is a very interesting area for investing in the lower mid-market. There are a very large number of companies with good management teams. We estimate there are around 7,500 companies that have enterprise values between €20m and €100m, and that’s an absolutely huge opportunity set.

“The second reason is private equity teams and the private equity environment is pretty appropriate. In the UK that is obvious, but it’s also the case in the Nordics. Private equity teams in the Nordics are trained in the Anglo-Saxon way. They have their own style which is very straight forward and direct. Generally speaking, the environment and quality of teams is excellent.”

Fabre said he thinks while the secondaries market is very competitive at the moment, being in the lower mid-market has benefited Parvilla. “The secondaries market has been very bullish, but more in the large portfolios sector rather than ours.

“Generally speaking the lower market is less cyclical than in the large cap area, so at the moment business is normal. The economic environment is not very bullish so it’s rather good for investing as it’s better to invest when the environment is not too hot.”

Parvilla: small cap focusFounded at the end of 2006 by Jean-Marie Fabre, Parvilla focuses on lower mid-market LBOs in northern Europe. Parvilla’s key differentiators are its positioning, specifically an exclusive focus on the lower mid-market, and the direct investment experience of the partners.

Fabre held a number of senior positions at PAI Partners, including 14 years as a senior partner. He was also chief investment officer and head of finance. Fabre was instrumental in the spin-off of PAI from BNP Paribas.

Fabre was joined by Lise Nobre in 2013. Nobre has worked in private equity since 1986, first with PAI Partners and latterly with turnaround fund Butler Capital Partners, where she worked from 2009 and 2012 with a special focus on complex situations.

40 Q1 2015

FUNDS

Service sector-focused Hellman & Friedman has held a $10.9bn final close of its Capital Partners VIII fund, beating its $8.9bn target after just four months of fundraising.

The oversubscribed vehicle saw $10.25bn of the capital coming from LPs, including the Kansas Public Employees Retirement System, which allocated $50m to the fund.

The Teachers Retirement System of Texas also committed $175m to the vehicle, while fellow LP major the Los Angeles City Employees’ Retirement System agreed to part with up to $20m.

A further $500m was put in from the GP, while friends and family investors made up about $150m of commitments.

It brings H&F’s total capital raised since the firm’s launch in 1987 to $35bn.

CEO Philip Hammarskjold said, “We are extremely gratified by the enthusiastic support of our limited partners, many of whom have invested with us throughout our 30-year history.

“We are excited about the opportunities we see for companies at the core of our investment philosophy and look forward to further building on our track record of de-livering superior returns to our investors.”

Last August Hellman & Friedman picked up auto repair business Abra Auto

Body & Glass from fellow private equity firm Palladium Equity Partners.

The firm is also reportedly looking to exit its six-year investment in the UK insur-

ance IT business SSP Holdings. Hellman paid approximately $400m for SSP in 2008, and has seen its EBITDA rise to about £18m since.

Hellman & Friedman in $10.9bn close

Listed US buyout giant Blackstone is reportedly pushing a less risky style of private equity fund to its biggest LP investors in an attempt to raise up to $12bn for the project.

The ‘core’ private equity business would target slower-growing but safer companies according to Bloomberg, which cited people familiar with the matter.

It said the fund would have a longer investment horizon than the standard 10 or 12 years within the buyout industry,

adding that the firm had approached its five or six biggest LPs for up to $2bn each.

Blackstone would charge lower fees on the product, with Bloomberg adding that the firm was looking to boost its stock valuation through further diversi-fication.

The firm is also reportedly looking to raise $16bn for a new flagship buyout fund two years after closing its last main vehicle on a similar amount, and $13bn for its next global real estate fund.

Crescent hits Fund V hard cap in 10 weeksAustralian private equity firm Crescent Capital Partners has reached a final close of its fifth fund, reaching the hard cap of $565m after only 10 weeks in the market.

Crescent Capital V was launched at the firm’s annual investor conference last September.

Founded in 2000, the Sydney-based firm focuses on investments across Australia and New Zealand.

The vehicle will target deals for middle-market companies with enterprise values between A$50m and A$300m. Fund V is sizeably larger than its predecessor, which it closed on A$490m in 2012.

Crescent is active across a range of sectors, with more than 25 platform investments made to date.

Blackstone eyes less risk, longer period with new ‘core’ strategy

Stop the clock: Hellman & Friedman raised its latest fund in record quick time

FUNDS


Veteran European private equity firm Charterhouse Capital Partners is reportedly back in the market for a new buyout fund targeting €3bn.

The fundraise is the firm’s first since a tricky ninth vehicle closed in 2009, pulling in just two-thirds of its original €6bn target.

Financial News said Charterhouse was eyeing a first close for Fund X in the first half of this year, citing a person familiar with the matter.

It added that the new vehicle could collect up to €3.5bn if it reaches its hard cap.

Charterhouse cut management fees for Fund IX last year amid a struggle to spend the capital collected before the end of the five-year investment period.

The firm still had about €1.5bn of

dry powder to put to work in October 2013, and managed to persuade inves-tors to extend the investment period by 12 months to the end of March 2015.

It is believed the firm is now on track to complete its investments within the extended period.

Its initial three exits from Fund IX are understood to have delivered an average realised return of about three-times.

They comprise a 4.2-times return from Card Factory, a 3.1-times return from Wood Mackenzie and a 2.1-times return from Bureau van Dijk.

The firm had a chequered 2014, having been forced to hand over PHS Group to lenders in October and taken to court by former partner Geoffrey Arbuthnott earlier in the year.

Charterhouse targets €3bn with tenth buyout fund

Energy-focused EnCap Investments is said to be in the market with its $5bn-targeting 10th oil and gas vehicle just 18 months after closing Fund IX.

EnCap sent an email to its LPs saying it expects to hold the first close of Energy Capital X in the first quarter of 2015, accord-ing to sources cited by peHub.

It follows the firm’s oversubscribed ninth flagship fund, which speedily beat its $4.25bn target by closing on $5bn in February 2013.

EnCap launches $5bn oil and gas Fund IX

Brentwood sails past $500m Fund V target

Great Hill nears $1bn mark for Fund VUS private equity firm Great Hill Partners has registered more than $950m for its fifth growth fund.

Great Hill Equity Partners V has attracted $954.8m of commitments from 90 LPs, ac-cording to a filing with the US regulator.

LPs committing to the fund include the Texas Teachers’ Retirement System, which has committed $150m to the vehicle. The fund is nearing the size of the firm’s previous vehicle, which closed on $1.1bn in 2009.

Consumer-focused Brentwood Associates has held a $688m final close of its latest private equity fund.

The firm beat its original $500m target and also topped the $439m it raised for Brent-wood Associates Private Equity IV.

Commitments from the fifth fund so far include backing Lazy Dog Restaurants, Marshall Retail Group and Z Gallerie. The firm said it would continue to be managed by Brentwood partners William Barnum, Anthony Choe, Roger Goddu, Steve Moore, Eric Reiter and Rahul Aggarwal.

US private equity firm Long Point Capital has almost doubled its existing capital under management by pulling in about $238m for its third fund.

The firm has tapped five LPs for Fund III to date, according to a new filing with the US securities regulator.

Credit Suisse Securities is acting as a placement agent for the vehicle in New York, Connecticut and outside of the US.

Long Point previously gathered $315m of capital across its first two funds.

Its leading investor is the Masco Corporation, a publicly-traded Fortune 300 company.

Long Point targets North American businesses with revenues of between $30m and $200m, and a minimum EBITDA of $5m.

Long Point Capital doubles its money

Taking the plunge: Charterhouse is back in the market after a tricky ninth vehicle

FUNDS

42 Q1 2015

Global private equity firm River-wood Capital has closed its second fund on its $1.25bn hard cap.

Riverwood Capital Partners II may have even collected a little over the cap according to Reuters, which cited two sources.

AltAssets reported last May that Riverwood had gathered $1bn towards the fund, which comprises a number of parallel vehicles. The firm is also believed to be seeking $35m for a dedicated VC fund.

Riverwood closed its debut fund on $780m in 2011 after cutting back its original target of $1.5bn in 2009 due to the slump of the economy.

Riverwood targets mid-market technology companies, with $100m to $500m in revenue for product businesses, and approximately $25m to $150m in revenue for soft-ware and services.

The firm recently led a $45m Series E funding round in Liquid Robotics, a provider of autono-mous ocean robots and ocean data services.

Riverwood closes Fund II on $1.25bn hard cap

Wynnchuch closes Fund IV on $1.2bn in just three months

Catalyst to launch largest fund to date

Private equity firm Wynnchurch Capital has closed its oversubscribed fourth fund on $1.2bn, far more quickly than the firm had anticipated, Limited Partner can reveal.

Wynnchurch Capital Partners IV had a target of $900m and began fundraising in September 2014.

Partner Frank Hayes said, “The fundrais-ing was much quicker than expected, with the final closing around two months after the PPM was issued.

“LPs have become increasingly more sophisticated in their analysis of investment models, repeatability of returns and team dynamics.

“Our track record of consistency in generating upper quartile returns, our middle market focus and value orientation all contributed to a well-oversubscribed fundraise.”

Investors include state pension funds, sovereign wealth funds, endowments, insur-ance companies, corporate pension plans, investment advisors and family offices.

Texas County and District Retirement System committed $30m to the fourth fund in October.

Wynnchurch closed its previous fund on $603m back in 2011, six years after closing Fund II on $350m.

Canadian private equity firm Catalyst Capi-tal Group is looking to raise $1.25bn for its fifth and largest fund to date.

The fund is set to start raising early this year and will seek a net IRR of 20 to 25 per cent, according to Bloomberg.

Due to strong investor demand, its previ-ous vehicle, Catalyst Fund IV, exceeded its initial target of $500m to $750m, closing on $812m in 2013.

The Toronto-based firm plans to focus the new fund on control and influence investing in Canada, providing operational, turna-round, financial and strategic expertise.

Existing investments include TV devel-oper Sonar Entertainment and biopharma-ceutical company Therapure Biopharma.

Riverwood Capital may have exceeded the $1.25bn hard cap on its latest fund

FUNDS


The vast majority of pension funds are eyeing increased risk through extra ex-posure to private equity as they look to meet long-term liabilities, new research suggests.

About 77 per cent of pension funds expect their appe-tite for investment risk to increase over the next three years, according to a report by State Street. It said some 60 per cent of respondents intend to increase their exposure to private equity, 45 per cent to infrastructure and 39 per cent to hedge funds.

Private equity is of most interest to pension funds in the Americas, ac-cording to the research, with 68 per cent planning to increase their allocation, compared with 60 per cent in Europe, the Middle East and Africa and just 45 per cent in the Asia Pacific region.

The latter is ripe for growth in real-

estate allocations, however, with 57 per cent of respondents in the region plan-ning to increase their allocations, com-pared with 45 per cent in the Americas and 40 per cent in EMEA.

State Street EMEA senior vice-president Oliver Berger said, “Pension funds are under huge pressure at the moment.

“With increased market volatility, they are faced with challeng-ing and complex liabilities. To achieve the returns they need, they have to take on more risk.

“However, they are better equipped than

ever before to do this. “With improvements in data mining

and management and reporting, fund managers and asset owners have a better understanding of the risk-reward profile of investments.”

LA’s OpenGate sounds out potential LPs over $250m-$350m debut fund

Pension funds set to pounce on riskier PE investments

LA-based buyout firm OpenGate Capital has reportedly been talking to LPs about raising a debut fund targeting $250m to $350m.

OpenGate has been sounding out investors, but it is not clear whether a fund has been launched or if the firm has a launch date in mind according to Reuters, which cited two sources.

OpenGate was founded by former Platinum Equity exec Andrew Nikou in

2005. The firm made a name for itself in 2008 with the purchase of TV Guide for $1.

In 2014 Nikou’s firm bought market-ing company Harte-Hanks’ Shoppers unit for around $22.5m.

The same year OpenGate sued labora-tory equipment maker Thermo Fisher for failing to inform it that a drug cartel was operating at a Mexican plant it sold to the firm in 2012.

New York-based TZP Group has launched its first flagship private equity vehicle targeting $160m.

The firm is focused on US-based consumer and business service companies, including businesses that do franchising, outsourced business and IT services, marketing and media services and speciality finance.

TZP, which stands for ‘trust, zeal and partnership’, has also launched a parallel TZP Growth Partners I-A fund, both of which have filings with the US securities regulator.

TPG’s investment portfolio so far includes BQ Resorts, Total Military Management and Water Cooler Group.

Managing partner Sam Katz was previ-ously vice-president at the Blackstone Group, where he worked on private equity transactions.

TZP launches first fund and sets $160m target

Northstar nets new capital for sixth mezzanine raiseUS generalist investor Northstar Capital has pulled in another swathe of capital for its sixth mezzanine fundraise.

Northstar has collected more than $275m for the fund’s main vehicle, according to an updated filing with the US Securities and Exchange Commission.

A separate filing for a feeder vehicle shows it has collected $110m, although it is unclear whether this is in addition to the amount registered for the main vehicle.

The firm closed its previous vehicle on $488m in 2008 and was around 80 per cent invested as of early July last year.

The Minneapolis-based firm invests junior capital to mid-market companies across the US and Canada.

The firm says it specialises in value-added distribution, light manufacturing, business services, financial services, education, and speciality healthcare.

Pension funds are looking to increase risk in the hunt for higher returns

FUNDS

44 Q1 2015

Veteran consumer and distribution-focused buyout house Freeman Spogli & Co has closed its seventh fund on a hard cap of $1.3bn after 70 per cent of LPs from the previous fund came back for more.

The close put FS Equity Partners VII way above its initial $850m target, with former investors accounting for 55 per cent of the total capital raised.

In total the vehicle attracted commitments from 80 LPs, and also included a GP com-mitment of $104m. Fund VII is significantly bigger than its predecessor, which the firm closed on $735m in April 2011.

The firm began fundraising for Fund VI

in 2008 and had pulled in about $250m six months later, but in view of the economic climate, lowered its sights to $1bn.

CEO Ron Spogli said of the Fund VII raise, “We were able to accomplish these results due to the strong support of our existing partners, as well as the welcome addition of a significant number of new participants.”

Los Angeles-based Freeman Spogli fo-cuses on consumer-related and distribution businesses across North America.

The firm targets companies with EBITDA of between $10m and $50m, and makes investments of up to $125m.

Bain Capital in€3.5bn close

Novacap seals $300m first close for Fund IVCanadian private equity firm Novacap has held a $300m first close for its latest fund thanks to strong backing from a string of the country’s LPs.

Caisse de dépôt et placement du Québec has committed $80m to the vehicle ac-cording to Novacap, which said Fonds de solidarité, Investissement-Québec, Export Development Canada and Fondaction CSN were also backers.

The Montreal-based firm hopes to pull in up to $425m for Novacap Industries IV, and has already made its first deal by investing in Québec beauty and personal care product maker KDC.

Novacap said the new fund would be used to invest mostly in medium-sized companies in the industrial and manu-facturing sectors, as well as in services, distribution and retail sales platforms.

Last year Novacap acquired US-based Host.net, a provider of network infrastruc-ture services focusing on co-location, cloud computing, virtualisation and storage.

Novacap president Pascal Tremblay said at the time, “It is part of a plan to increase our presence in the US, and this agreement shows that we are a serious player in the market.”

Global buyout house Bain Capital has confirmed it has closed its latest European buyout fund on its €3.5bn hard cap.

The firm pulled in the capital for Bain Capital Europe Fund IV from more than 170 LPs, according to a filing registered with the US securities regulator.

AltAssets revealed last July that the firm had hit €2bn for the vehicle, its fourth to target the European buyout sector. It was initially eyeing €2.5bn for the fund.

Earlier last year Bain closed its latest flag-ship vehicle, Fund XI, on $7.3bn, beating its $6bn target after just over 18 months in the market.

Freeman Spogli hits $1.3bn hard cap as 70% of LPs re-up

Montreal-based Novacap has held a $300m first close for its latest fund

FUNDS


The “huge scope” offered by northern Eu-rope’s mid-market will see French private equity firm Parvilla stick to its strategy with its latest fund, CEO and founder Jean-Marie Fabre told Limited Partner.

Parvilla had to source a swathe of new LPs for its second fund after many of the investors in its debut decided not to re-up, with Fabre citing a need for liquidity and withdrawal from private equity altogether.

The firm closed Fund II on about €37m in February 2014 after launching in late 2012. Fabre said that while the fund won’t focus solely on the Nordics, a large per-centage will be spent on the region as the firm is drawn to its ‘old style’ approach.

He said, “100 per cent of the fund will be invested in northern Europe; out of that around 30 per cent will be spent on the Nordics.

“It’s a very interesting area for investing in the lower mid-market – there are a very large number of companies with good management teams.

“In the region we estimate about 75,000 companies in our scope with an enterprise value of €20m to €100m, which is abso-lutely huge.”

He added, “We like Nordics because private equity teams are trained in the Anglo-Saxon way – they are old style, which is very straightforward and direct.”

Parvilla to stick to strategy with Fund II amid LP influx

EIF and Fondo Italiano team upThe EIF and Fondo Italiano d’Investimento have agreed to co-invest up to €600m in private equity and private debt funds as part of a push to support Italian SMEs.

Under the agreement the pair will also back venture capital funds that invest in start-ups and innovative companies at both seed and later-stage financing rounds.

EIF and FII said they also envisage

setting up a specific fund of about €30m to co-invest alongside selected business angels.

EIF’s chief executive Pier Luigi Gilibert said, “Joining forces with Fon-do Italiano d’Investimento allows us to further increase the financial resources dedicated to Italian SMEs, supporting them through their life-cycle and their expansion and helping them to become international players.”

Diversified private equity firm The Carlyle Group has closed its fifth European collateral-ised loan obligation fund on €450m.

The firm has now raised €1.9bn for the fund type since starting the programme in 2013, with €1.2bn of that coming last year.

The firm also raised about $2.73bn in CLO funds in the US in 2014.

Carlyle’s CLO activity is part of its global market strategies platform, which had about $38.9bn of assets under management at the end of September.

The platform includes mezzanine and energy mezzanine loans, high-yield and structured credit, distressed equity and debt and hedge fund strategies.

Carlyle closes fifth CLO on €450m

MML lands €172m for sixth fund

Cressey holds rapid close

Private equity investor MML Capital Partners has reeled in €172m towards its sixth fund, Limited Partner can reveal.

MML Capital Partners Fund VI has landed commitments from seven LPs, according to a filing with the US Securities and Exchange commission. The fund’s target is unclear, but its previous vehicle closed on around €250m back in May 2011.

Like MML Capital Partners V, the fund will provide investments valued between €10m to €50m. MML’s portfolio includes luxury household linen company Carre Blanc, and outsourcing company GlobeOp.

Healthcare-focused private equity firm Cressey & Company has closed its fifth fund on its $615m hard cap after just five months.

Cressey initially hoped to raise $400m for Fund V but saw the fund become quickly over-subscribed, finishing almost twice the size of the firm’s $385m predecessor fund from 2010.

The firm plans to use Fund V to target con-trol investments in healthcare companies with enterprise values of between $50m and $300m.

Parvilla is sticking to its strategy and will target northern Europe for its latest fund

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46 Q1 2015

US firm Versa Capital Management has been on the road with its third special situ-ations fund for more than two years but has yet to reach its lowered target of $400m.

Versa Capital Fund III has registered $200m worth of commitments for a new target of $400m, according to a filing with the US securities regulator.

AltAssets previously reported that the firm was looking for $750m for the vehicle, with a $850m hard cap, in August 2012, but it has since lowered its expectations.

The fund has so far attracted 24 LPs and will incur estimated sales commissions of $5m with Sixpoint Partners, Atlantic Bridge and CV Brokerage, named as placement agents.

Versa has also registered a parallel filing ‘A’ for the fund, which has accrued $73m worth of commitments for a target of $100m.

The firm raised $650m for its last vehicle, Versa Capital Fund II, closing to LPs in May last 2009, while its predecessor closed on $300m in 2006.

The fund will make investments of between $10m and $100m in companies undergoing or requiring financial restructur-ing, operational or organisational turna-round, reorganisation or other unique situa-

tions, according to documents filed with US pension fund PSERS.

Versa recently completed a dividend recap for portfolio company Avenue Stores,

which provides plus-size women’s clothing.Earlier in 2014 it expanded its operating team by adding a fourth managing director, Lior Yahalomi.

Versa creeps halfway to target after two years

Versa has only just reached the halfway point after two years on the road

KSL Capital back in the market with fourth fund after just three years

Centerbridge closes largest fund on $6bn

Denver-based KSL Capital Partners is back in the fundraising market just three years after closing its sizeable third fund on $2bn, Limited Partner can reveal.

KSL Capital Partners IV had registered just over $33m in November last year, ac-cording to a filing with the US Securities and Exchange Commission.

The firm looks to be raising part of the fund through two parallel vehicles, KSL Capital Partners IV TE and KSL Capital Partners IV TE-A.

Back In 2011, KSL smashed its initial tar-get of $1.5bn by closing Fund III on $2bn.

The firm closed its second fund on $1bn in 2006, again beating its initial target of $750m.

Investors in the funds include public and private pensions, foundations, endowments, institutions and high net worth individuals and families, although it is unclear if Fund IV has the same make-up.

KSL was founded in 2005 by Michael Shannon and Eric Resnick. It targets companies in the travel and leisure industry, with previous investments including The James Royal Palm, The Belfry, Miraval Resort & Spa and the Grove Inn.

Centerbridge Partners has reportedly closed its third flagship fund on a $6bn hard cap after six months of fundraising.

The fund was heavily oversubscribed, with reports last August stating it received $11bn of demand – nearly twice the origi-nal $5.75bn target.

Target investments for Centerbridge Capital Partners III include traditional cor-porate takeovers, as well as discounted debt that can be converted into equity, according to Dow Jones. LPs originally included the Pennsylvania Public Employees Retirement System, but the giant US pension fund has reportedly cancelled its $100m investment.

FUNDS


Career satisfaction in the private equity industry surged in the 12 months to October as the industry continues the process of righting itself following the financial crisis.

More than half of senior private equity professionals surveyed by Investec said they were more satisfied with their career than a year ear-lier, with a total of 82 per cent saying they were as least as satisfied.

That com-pares with 2013 figures which showed just 38 per cent were more satisfied than a year previously.

Confidence seems to have gone hand in hand with that of the firms themselves, with almost four out of five firms saying they expected to be fundraising in the next 12-24 months – and more than 60 per cent eyeing larger vehicles.

Three-quarters of GPs revealed that they expect to receive future income from carried interest in the funds they manage, and this ‘carry’ would either meet or exceed their expectations.

Despite improved confidence, the

survey highlighted the importance of maintaining staff morale in a period of significant generational change.

A total of 18 per cent expect to leave their firm in the 12 months following the report, with a further 15 per cent unsure whether they will remain at their firm in

this period.Detailed

questioning of leading players in the private eq-uity market focused on the impor-tance of nur-turing talent, planning for succession and correctly structuring

compensation so that more junior mem-bers felt incentivised through carried interest payments.

Investec said more than 20 per cent of respondents expected their teams to have to commit more than three per cent to their firm’s next fund, compared with the traditional one or two per cent, as inves-tors demand increased GP alignment.

It added that this would be a challenge, with three-quarters of GPs anticipating they would need resources beyond their carry to fund their personal commitment.

PE career satisfaction surges ahead of fundraising activity

Kelso in $1.3bn Fund IX first closeUS mid-market focused Kelso & Co has reportedly pulled in $1.3bn for the first close of its Investment Associates IX, putting it just over halfway to its $2.5bn target.

The firm is hoping to complete the fundraising by the second quarter of this year according to sources cited by peHub.

Kelso focuses on middle-market buy-outs in energy, transportation, logistics, financial services and healthcare.

Fund IX is expected to include an unusually large GP commitment of 20 per cent.

Kelso also plans on making about $500m in co-investment opportunities available to LPs.

Smile: Job satisfaction is on the up in the industry

UK private equity house Endless has nailed a first and final close for its fourth flagship fund on £525m after finding itself oversubscribed.

Educational endowments, family offices and charitable foundations represented more than 50 per cent of the investor base.

The Fund IV raise brings Endless’s total funds under management to about £1bn.

A statement from the firm said, “We look forward to continuing to support businesses right across the mid-market, with turnover typically between £10m and £500m.

“Whilst we anticipate the majority of in-vestments will be in the UK, we also expect to complete a small number of investments across Europe.”

Endless beats Fund IV target with $525m close

Caltius targets $500m for fifth mezzanine fundMid-market private equity firm Caltius Capital Management has launched its fifth mezzanine fund with a target of $500m, Limited Partner can reveal.

Its previous mezzanine vehicle, Caltius Partners IV, smashed its target of $400m by closing in May 2008 on $500m.

Fund IV received commitments from institutional investors including Adams Street Partners, AlpInvest Partners, New York State Teachers’ Retirement System, Pathway Capi-tal Management, Portfolio Advisors and the State of Wisconsin Investment Board.

Headquartered in Los Angeles, its previous mezzanine fund invested between $10m and $75m in companies with a revenue size of between $15m and $250m.

Caltius targets investments in education services, specialised consumer services, com-mercial services and professional services.

The firm is also in the process of fundrais-ing for its third equity vehicle, Caltius Equity Partners III.

So far it has landed $67m towards a slightly increased target of just over $207m.

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48 Q1 2015

Global private equity firm Warburg Pin-cus has blown past its target for a massive new energy fund by closing the vehicle on $4bn of commitments.

The firm said it plans to tap Warburg Pincus Energy to invest alongside the $11.2bn flagship private equity fund it closed in May last year.

Warburg launched the energy fundraise in late 2013, and held a first close in May last year.

The firm said it would primarily target energy exploration and production in North America as well as Africa, Asia, Europe and Latin American deals.

It will also target opportunities in the

midstream, oil services, mining and power sectors.

The firm’s energy investments include Antero Resources, which represented the largest IPO of an independent E&P com-pany, Targa Resources, Kosmos Energy, Laredo Petroleum, MEG Energy and Venari Resources.

Warburg Pincus closes first energy fund on $4bn

Warburg Pincus flew past the target for its huge new energy fund

SVP closes on $1.3bn for debt Fund IIIAccess nears €400m for European FoF

US alternative investment group Strategic Value Partners has closed its third special situations fund on $1.3bn, above its initial target of $1bn. Strategic Value Special Situations (SVSS) Fund III is bigger than its predecessor which closed with $918m in commitments.

The investor base for SVSS III includes investment from the US, Europe, Australia, the Middle East and Japan.

Investors representing nearly 90 per cent of the capital in the predecessor fund, SVSS II, have re-upped into SVSS III.

SVSS III’s focus will be the same as that of its predecessors, Special Situations Funds I and II, investing primarily in the distressed debt of middle-market compa-nies and assets. Fund III’s investments are expected to be more focused on Europe according to the company.

SVP founder and chief investment officer Victor Khosla said, “With more than 10 years of experience in Europe, we are well positioned to seize the opportunities being generated by increasing European bank disposals.”

European fund manager Access Capital Partners is closing in on the €400m target for its sixth European fund of funds.

Access Capital Fund VI Growth Buyout Europe (ACF VI) has already reached €350m according to the firm, which said it expected to exceed its target. Its predeces-sor vehicle closed on €500m in 2012.

According to Access, ACF VI will make primary and secondary investments in European small and mid-market buyout and special situations funds.

FUNDS


Private equity firm Cyprium Investment Partners has landed more than $400m of commitments for its first independent fund, Limited Partner can reveal.

Cyprium Investors IV has raised a total of $413m in commitments from 45 LPs, according to a filing with the US securities regulator.

In 2011 the firm spun out of Key Principal Partners, the private equity arm of KeyCorp.

It raised $500m for its last fund in 2006, with half of Fund III’s capital coming from former parent company Keycorp, although it is unclear whether the company has re-upped for Fund IV.

Limited Partner revealed in June that

Cyprium was nearing the $400m mark for the fund after pulling in more than $80m in the preceding six months.

CSP Securities is acting as a place-ment agent for the fund, which regis-tered its first commitment in October 2012.

Cyprium targets investments in manufacturing, distribution and service businesses with annual sales of between $30m and $250m and an EBITDA of $10m.

The firm focuses on non-control, minority ownership investments and uses a combination of subordinated debt, preferred stock and/or common stock in its deals.

Cyprium notches up $400m for first independent fund

Financial services-focused private equity firm Aquiline Capital Partners is believed to be back in the market target-ing $1bn for its third fund.

Aquiline closed its maiden vehicle on $1.1bn in 2007, but reined in its follow-up fundraise through a $740m final close in 2011.

The Fund III target was reported by peHub, which cited three people with knowledge of the matter.

A regulatory filing with the US Securities and Exchange Commission revealed the firm had hired Stanwich Advisors and Conning Investment Prod-ucts as placement agents.

Aquiline was founded by chairman and chief executive Jeff Greenberg in 2005.

He was previously CEO of MMC Capital, and worked at AIG and Marsh & McLennan Companies.

Aquiline eyes $1bn for financials fund

Private equity firm Gauge Capital has smashed its debut fund target by hauling in $250m.

The oversubscribed fund started raising in April 2014 with a target of $175m.

Gauge partner Whitney Bowman said, “We are pleased with the reception we received from the institutional investment community, and we are especially thankful for the numer-ous operating executives in our targeted sectors who have invested in the fund.”

The vehicle intends to make equity investments of $10m to $40m in eight to ten companies over the next several years.

Gauge primarily targets businesses in healthcare services, business and consumer services and food services.

The Texas-based firm was founded in 2013 by managing partners Drew Jonson and Tom McKelvey.

Gauge smashes$175m debut fund target

Spire Capital passes halfway point in raiseUS private equity firm Spire Capital has passed the halfway point for its third fund after pulling in about $212m.

AltAssets reported last May that the firm had begun “actively investing” Fund III after closing $100m of commitments towards a $375m target.

The fund secured a $15m commitment from the Teacher Retirement System of Texas in the first quarter of 2013.

Spire will use the fund to focus on busi-ness and information services, media, educa-tion and communication sectors.

New York-headquartered Spire Capital’s second vehicle closed on $320m in 2008 – eight years after its debut fundraise.

Spire provides buyout and investment capital to companies with ample cash flow and scale, typically greater than $5m in EBITDA, eliminating risk factors associated with an earlier-stage focus.

Cyprium has raised more than $400m for its first fund since spinning out of KeyCorp

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50 Q1 2015

New York-based private equity firm SK Capital Partners has stormed to a $1bn hard cap final close for its second institutional fund after just five months on the road.

SK doubled the $500m raised for its Fund III vehicle in 2011 through the latest vehicle, which will continue to target niche market leaders through corporate carve-outs and entrepreneurial transitions.

AltAssets revealed in November that SK was back in the fundraising market, with UBS acting as a placement agent.

SK’s Fund III – its first with institutional capital – easily exceeded its target of $400m, with fundraising completed in months.

Managing director James Marden said, “With enthusiastic support from our existing Fund III investors and strong interest from a number of new limited partners, demand exceeded both our original target as well as our hard cap.”

Fellow managing director Barry Siadat added, “With a portfolio of companies that generate over $7bn of annual revenues, SK Capital has established itself as a significant player in the speciality materials, chemicals and healthcare sectors.”

SK Capital storms to $1bn hard close for Fund IV

New York-based SK Capital Partners has hit a $1bn final close after just five months on the road

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

Francisco launches $2bn fourth fundBridgepoint bags €2bn for Fund V Global buyout house Francisco Partners has

launched its fourth fund with a $2bn target, Limited Partner understands.

Francisco Partners IV has yet to receive any commitments, according to a filing with the US regulator.

The vehicle follows its third fund which closed in 2011, hitting the target and hard cap of $2bn.

Part of the fund is being raised through a parallel vehicle, Francisco Partners IV-A, according to a separate filing.

Californian-based Francisco focuses ex-

clusively on investments in technology and technology-enabled services businesses.

The firm has raised nearly $7bn in capital to date and targets transaction ranging from $25m to $500m.

Current investments include software company Acone, foreign exchange platform City Index and IT solutions provider Healthland.

Last year Francisco was reported to be readying a strong exit from alternative as-sets financial software company eFront in a $500m deal.

European private equity firm Bridgepoint has reportedly pulled in more than €2bn for a first close of its hefty latest buyout fund.

The firm is eyeing up to €4bn for Fund V, and is already more than halfway there according to Financial News, which cited a person familiar with the situation.

It added that the firm had about €2.8bn in total commitments, and was hoping to close the fund by the end of the year. Bridgepoint brought in €4.8bn of commitments for its previous flagship vehicle in 2008.

The firm has made a string of successful exits in the past few months as it attempts to draw LPs into the new fund. They include a two-times return from Hallmark Hotels and 2.1-times return from Energy Solutions.

FUNDS


Institutional investors are missing out on outperformance if they allocate more capital to larger managers with less focus on private equity, new research shows.

Pension funds in particular tend to fo-cus on larger managers which have typi-cally diversified away from private equity assets, according to data collected by Adveq and the London Business School’s Coller Institute.

For private equity advisors with more than $5bn in assets under management, the average proportion of assets in private equity is just 36 per cent, while for advi-

sors with assets of between $500m and $1bn the proportion stands significantly higher at 63 per cent.

That has a substantial impact on the performance of US pension funds accord-ing to the report.

It says those managers that hold a greater percentage of their AUM in private equity generate better absolute returns and superior IRR performance relative to their peers.

The research also demonstrates the correlation between reported regulatory violations and underperformance.

Tailwind nears $1bn Fund II target

LP preference for bigger asset managers damaging returns

New York-based Tailwind Capital is edging close to the $1bn target for its second fund.

Tailwind Capital Partners II has landed commitments totalling almost $780m, according to filings with the US Securities and Exchange Commission.

The firm spun out from San Fran-cisco-based investment bank Thomas Weisel Partners in 2006, and collected

$775m with its inaugural fund in 2008.Mid-market focused Tailwind looks to invest in healthcare and business and communications services, targeting in-vestments of between $25m and $100m.

Previous investments include antenna distribution system Transit Wireless and Hamilton State bank. Last year Tailwind agreed to exit drug maker VersaPharm to Akorn in a $440m all-cash deal.

Investment management group Invesco’s private equity unit WL Ross is said to be back in the market to raise up to $2bn for a new fund.

The firm, led by US billionaire Wilbur Ross, is eyeing between $1bn and $2bn for the vehicle, according to Bloomberg, which cited two people familiar with the matter.

In 2013 it emerged WL Ross was targeting up to $500m for a Transportation Recovery Fund, which had pulled in $258m by March that year.

Invesco’s WL Ross eyes $2bn for new fund

Novacap seals $300m Fund IV and backs KDC

M/C strikes $200m markEarly-stage private equity firm M/C Partners has moved to the $200m mark for its first fund since rebranding from a venture capital investor.

The firm has gathered the capital from 24 LPs, according to an updated filing with the US Securities and Exchange Commission.

No target is given for the vehicle, which is a successor to a $550m Fund VI from 2006.

Canadian private equity firm Novacap has held a $300m first close for its latest fund thanks to strong backing from a string of the country’s LPs.

Caisse de dépôt et placement du Québec has committed $80m to the vehicle, ac-cording to Novacap, which said Fonds de solidarité, Investissement-Québec, Export Development Canada and Fondaction CSN were also backers.

The firm hopes to pull in up to $425m for Novacap Industries IV, and has already made its first deal by investing in Québec beauty and personal care product maker KDC.

Novacap said the new fund would be used to invest mostly in medium-sized companies in the industrial and manufacturing sectors.

Going for the kill – institutional investors tend to go for big funds, but are missing out on returns

FUNDS

52 Q1 2015

A new European private equity firm staffed by a trio of former Hutton Collins invest-ment execs has held a €100m final close for its debut fund.

Three Hills Capital Partners reached the high-end of its initial target through the close, and said it would use the capital to make investments of €15m to €50m.

Mauro Moretti, a former Hutton Collins

partner who also worked at BC Partners, launched Three Hills in November in 2013, with offices in London and Luxembourg.

His team includes former Hutton Collins execs Leks de Boer and Michele Prencipe.

The new fund has already committed about €30m of capital across two companies – healthcare software business Dedalus and UK burger restaurant chain Byron.

Moretti said, “I’m pleased to announce, after less than a year from the founding of THCP, the closing of the fund at the top range of our fundraising target.

“The innovative model, the unique invest-ment approach and the enthusiasm of the team helped us to accelerate the process. Now we are more and more committed to looking at new deals for our investors.”

Ex-Hutton Collins execs seal €100m final close

Thomas H Lee pulls in $940mNovaQuest back with $750m-target fund US buyout house Thomas H Lee Partners

is officially back on the fundraising trail eight years after closing its last flagship fund.

The buyout house has pulled in at least $940m for Fund VII across four vehicles, according to a series of filings with the US Securities and Exchange Commission.

No target is given for the fund, although reports over the past couple of years have suggested THL is targeting about half of the $8.1bn it gathered for Fund VI in 2006.

THL also raised a $2bn co-investment fund to invest alongside that vehicle,

although there is currently no sign of a similar setup this time around.

Forbes reported earlier last year that the firm had already picked up investment commitments from sovereign wealth funds GIC and ADIA to anchor the fundraise.

Trinity Group is acting as a placement agent for the fundraise in the UK, the fil-ings reveal.

Last July it emerged that private equity major the Carlyle Group was nearing a deal to buy consumer goods marketing agency Acosta Sales and Marketing from THL for nearly $5bn.

Pharmaceutical development-focused private equity firm NovaQuest Capital Management is believed to be back in the market with a $750m fourth fund.

The total, reported by peHub, is well above the $460m it gathered for its last fund, which closed about 12 months ago.

The firm’s strategy involves earning returns from pharmaceutical products by backing them directly rather than providing general capital to companies. NovaQuest began the strategy in 2000 when it was part of Quintiles Transnational Holdings.

New European private equity firm Three Hills Capital Partners has held a €100m final close for its debut fund

FUNDS


Software and technology-focused buyout house Vista Equity Partners has closed its biggest-ever fund on almost $5.8bn.

The firm pulled in $5.775bn for Vista Equity Partners Fund V, just above its hard cap, following heavy oversubscrip-tion from LPs.

Smith said, “This is the world’s largest private equity fund focused on software, data, and technology-enabled organisations.

“With the same management and investment teams in place over the last 14 years, we have built Vista for this type of scale.

“We are grateful to our longtime limited partners for continuing to sup-port our investment strategy, and, we are delighted to welcome a number of new institutional investors into the Vista family.”

Vista held $3.8bn first close for the fund in April 2014 thanks to backers including the New Jersey Division of Investment, which committed $200m, and the Texas County and District

Retirement System, which put up $75m. The firm closed its previous fund on $3.5bn in 2012, four years after it raised $1.8bn for its third fund.

Vista president and co-founder Brian Sheth said, “We will continue our ap-proach targeting product innovation and market coverage in the enterprise software space.

“We see the market capitalisation of the software industry growing expo-nentially over the next five to 10 years, and with Fund V we will be well-placed to recognise, seize, and grow market opportunities.”

In November 2014 Vista agreed a £725m deal for UK-based health and business software maker Advanced Computer Software Group.

The all-cash deal represented a 17 per cent premium to the ACS share closing price of 119.8 pence on November 24, the day before the deal was announced.

Vista said the acquisition implied an enterprise value of about 15.8-times ACS’ adjusted EBITDA for the 12 months ending August 31.

Vista holds final close on $5.8bn for monster Fund V

Norwegian private equity firm Herkules has closed its fourth fund on a lower than expected NOK2.5bn ($336.5m).

It is less than half the size of the previous vehicle, which closed on NOK6bn in 2008.

The original target of Fund IV is unclear, but Herkules was said to have lowered the limit in June last year.

LPs in the vehicle included Pantheon, DB Private Equity, AlpInvest and Argentum.

Herkules closes Fund IV at reduced size

Exponent holds £500m first close for Fund III

Levine Leichtman in $350m launchUS private equity firm Levine Leichtman Capital Partners is eyeing $250m for a co-investment vehicle in the wake of closing its fifth fund on $1.65bn.

The firm has yet to register any commit-ments for LLCP Co-Investment Fund, ac-cording to a filing with the US regulator.

Fund V outstripped the $1.1bn the firm gathered for Fund IV in 2008.

London-headquartered Exponent Private Equity has reportedly hit a £500m first close for its latest fund.

The firm is eyeing up to £800m for Fund III, and is already more than halfway there, according to PEI.

Exponent is thought to have only begun raising the vehicle in the third quarter of 2014. Campbell Lutyens is acting as a place-ment agent for the fund.

Exponent recently appointed Oliver Bower, Mark Taylor and Craig Vickery as partners, while two partners, Richard Campin and Richard Tudor, left the firm.

Last October the firm revealed it had agreed to sell media intelligence business Gorkana to Cision.

Software-focused Vista Equity Partners has closed its biggest-ever fund

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54 Q1 2015

The AltAssets LP-GP Network has launched its first three Investor Groups targeting Africa, Infrastructure and the Secondaries market amid increasing demand for direct connections between members.

Connecting with other investors in your investment space…

FUNDS


According to one LP, “the vast majority of our industry is on Linked-In, but I can’t use the groups to connect with the people I want to because there are so many time-wasters and nutters in the way”.

Yet the demand for LPs to connect with other LPs and GPs has never been higher. As the levels of due diligence in the industry increase, the exchange of knowledge and ideas between professional investors becomes ever more valuable.

AltAssets is addressing this need by setting up exclusive sector and industry specific ‘Investor Groups’ on the AltAssets LP-GP Network, which is available only to verified, active institutional investors or fund managers. Members of each investor group can connect and engage with each other using the wide range of communication tools available on the platform, knowing they won’t be inundated by approaches from intermediaries or non-professionals.

In addition, members can access and share targeted news and research from a vast array of material produced by AltAssets’ team of reporters and researchers, as well as review updates from other members.

The Investor Groups were launched in response to requests from users who want an efficient way to enhance their professional networks by engaging with other LPs and GPs targeting the same investment space. AltAssets plans to set up further Investor Groups over the next year covering the areas that experience the greatest demand from LPs. Each new investor group will be launched in consultation with LPs and will usually require 100 or more LPs to express an interest in joining a particular group on launch.

Activity in the first three investor groups has grown rapidly with interest in the secondaries investor group being, unsurprisingly, the highest.

More information about AltAssets Investor Groups is available on the website: www.lpgp.net

Connecting investors with peers who share a common interest and relevant expertise in an investment space has so far proven to be a major challenge for many online networks.

For example, whilst LinkedIn offers plenty of interest groups related to the private equity industry, most of them seem to be over-run by non-professional users looking to peddle unrealistic investment ideas.

LP-GPNetworkwww.lpgp.net

56 Q1 2015

PEOPLE

Advent hires Evonik’s Yu to boost deals

Sterling picks up former American Securities director David Kahn

CVC picks Ekman to bolster Nordic team

JP Morgan re-hires Skattum after seven years

Experienced American Securities director David Kahn has apparently switched to Sterling Investment Partners as its new managing director of business development.

Kahn joined Sterling in October ac-cording to his LinkedIn profile, which also suggests he left American in Janu-ary last year.

He had spent close to 10 years as director of investment development at the firm, working on investment sourc-ing, creating firm-wide infrastructure

and pioneering direct institutional lend-ing relationships at portfolio manager level.

Kahn previously held roles at GE Global Sponsor Finance, Deutsche Bank and JP Morgan Chase.

Sterling is thought to have closed off its third fund in 2013 at around its $700m target.

Last summer it emerged that Ameri-can Securities was eyeing about $4bn for its next fund, two years after closing the previous vehicle on $3.64bn.

Dahai Yu has joined Advent International

Former TPG executive Dag Skattum was reportedly set for a return to JP Morgan this January, seven years after leaving his position as its global M&A co-head.

Skattum was due to become vice-chairman of EMEA according to IFR, which said it had seen a memo detailing the move. He left JP Morgan for US-based TPG in 2007, but stepped down from the private equity firm in 2013.

JP Morgan’s Daniel Pinto said in the memo, “In addition to his advisory remit, I look forward to the benefit of his advice and experience in setting the strategic direction of our EMEA franchise, and I am very pleased to welcome him back to JP Morgan.”

Global private equity major Advent International has taken on former Evonik Industries’ greater China president Dahai Yu as an operating partner.

Yu will work with Advent’s chemicals team to source new invest-ments and support its portfolio companies post-acquisition.

The firm said Yu would immediately take an advisory role at coating resins and additives supplier Allnex, which Advent formed through its acquisition of Cytec Industries’ coating resins business in 2013.

Advent managing director and chemicals practice head Ron Ayles said, “We are pleased to welcome Dahai Yu to our international operat-ing partner programme.

“Advent continues to be an active investor in the chemicals sector and Dahai’s considerable experience will further enhance our capabili-ties in this market.

“His expertise and broad, global insight into the industry will provide great support to the firm and our portfolio companies.

“Advent has been involved in an interesting and diversified portfolio of chemical investments and is well regarded in the sector.”

UK-headquartered private equity firm CVC has hired Tomas Ekman as partner to work from its Stockholm office.

Ekman joins from 3i, where he was partner and managing director in the Nordic region. His recent suc-cesses include investments in insulation

company Paroc, and the IPO of Danish beauty retailer Matas.

Ekman’s Nordic region chairman Pe-ter Törnquist said, “With his extensive investment experience, Tomas will play a significant role in helping to further develop our leading position.”

Magotti joins HIG CapitalGlobal private equity firm HIG Capital has hired Gabriele Magotti as director of real estate investments in the firm’s Milan office.

The new hire comes after the firm announced the opening of the office, when HIG hired former Atlantis Partners’ Raffaele Legnani to lead efforts in Italy as a managing director.

PEOPLE


Private equity major Warburg Pincus has hired Piero Minardi as managing director in the São Paulo office.

Minardi will be working with the existing Brazil team to identify, evaluate and manage investments in Brazil and across Latin America.

The new recruit has 30 years’ experi-ence of private markets across the re-gion, including most recently as partner at Brazilian investment firm Gávea Investimentos.

Before that Minardi held roles at Darby Overseas Investments, Baring Private Equity Partners and AIG Capital Partners.

He has also served as a board mem-

ber for the Emerging Market Private Equity Association. São Paulo-based managing director Alain Belda said, “We are very pleased to welcome Piero to the Warburg Pincus team.

“His deep knowledge of the local market and breadth of experience will be invaluable to our growing team as we continue to seek compelling investment opportunities in Brazil and throughout Latin America.”

Warburg Pincus recently closed its new energy fund on $4bn after less than a year of fundraising. The vehicle will be used for energy exploration and production investments primarily in North America.

Warburg Pincus hires Minardi to head up Sao Paulo office

German-headquartered private equity firm Auda International has announced the appointment of Lucian Wu as managing director.

Based in Hong Kong, Wu will become part of Auda’s secondaries team as the firm continues its regional expansion

Last year the firm opened an office in Shanghai and appointed former Flag Squadron Asia partner Jacob Chiu to head its Asian business.

Wu is a chartered accountant with 20 years’ experience in primary, secondary

and direct investments. Prior to joining Auda he was head of Asia at global sec-ondaries firm Paul Capital for six years.

Founded in 1989 as an investment com-pany of the Harald Quandt family, the firm manages in excess of $5.3bn of private equity commitments.

“Lucian Wu is an exceptionally experi-enced private equity investor,” said Ernest Boles, Auda’s chief executive officer. “We are fortunate to have been able to bring him onto our team to help us grow Auda’s private equity investment practice in Asia.”

Healthcare investment firm Spindletop Capital has hired Riverside Company healthcare head Joseph Ibrahim as a managing director.

Ibrahim spent six and a half years at Riverside working on more than 30 private equity deals, leading diligence and negotiations for over half.

Prior to that he held executive roles at MBF Healthcare Partners and in the

healthcare financial services section of GE Capital. Ibrahim is currently presi-dent of the Healthcare Private Equity Association, which represents members with more than $500bn of capital under management.

Last September mid-market focused Riverside invested in healthcare com-pany reimbursement manager Medical Payment Exchange.

Consumer products-focused private equity firm Castanea Partners has hired Glenbrook Consumer Partners co-founder Tim Burke (pictured) as its latest partner.

Prior to founding Glenbrook Burke was a partner at mid-market consumer-focused Rosewood Capital, where he covered areas including products and services, retail and restaurants.

Castanea managing partner Rob Smith said, “Tim is an experienced private equity professional and consumer investor and we’re very excited to have him on our team.

“As a senior investor, Tim has extensive experience in all aspects of middle market investment sourcing, execution, and post-acquisition management.”

Castanea appoints Glenbrook’s Burke as new partner

Auda hires Wu for Hong Kong

Riverside loses Ibrahim to Spindletop

Welsh Carson hires three to boost teamUS private equity firm Welsh Carson Anderson & Stowe has hired a trio of senior industry executives for its resources group.

The firm has brought on board former Qatalyst Partners head of global software and service Ian MacLeod, ex-Headstrong president and CEO Sandeep Sahai, and former Ascend Learning president and CEO Rick Willett. Its resources group currently comprises about 25 operating and industry professionals who help with deal sourcing.

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58 Q1 2015

Davison picked to lead IR team at Permira

SL Capital beefs up investor relations

NEA promotes Jon Sakoda to partner

Balderton hires Debock to target French market

Private equity firm SL Capital Partners has bolstered its distribution team with two senior hires.

SL Capital has added Robert Keller-man and Alan Coffey to its team. The pair will be responsible for investor solutions across the UK and continental Europe.

In his new role Kellermann will lead SL Capital’s efforts in the German, Austrian and Swiss regions as head of DACH. Prior to SL he was at Feri Trust

Germany, where he was head of institu-tional clients.

He also previously worked at Pioneer Investments KAG Munich and spent seven years in several roles at Allianz Global Investors in Germany.

Coffey will focus on SL Capital’s ef-forts in the UK and continental Europe, including the Nordic market.

He joins after almost a decade at Goldman Sachs’ AIMS Group in London.

Chris Davison joined Permira’s IR team in 2005

European venture firm Balderton Capital has hired Nicolas Debock as a dedicated principal to target investments in France.

Prior to joining Balderton, Debock spent three years working at Paris-based Venture firm XAnge.

He also spent five years as head of startup relation-ships at French postal service La Poste.

Balderton said his 13 years’ experience gives him the knowledge of the European tech and web ecosys-tem, with a particular focus on fintech, consumer to consumer marketplaces and software-as-a-service.

Venture capital major New Enterprise Associates has promoted Jon Sakoda to general partner after eight years at the firm.

Sakoda focuses on software-as-a-service, infrastructure software, and big data applications, and is based in NEA’s Menlo Park office.

He is a director of a number of com-

panies including Blue Jeans Network, Desire2Learn and WibiData, and is also co-manager of NEA’s seed invest-ment programme.

Before joining NEA Sakoda was an entrepreneur and co-founder of IT security company IMlogic, where he was chief technology officer and vice-president of products.

Lightyear hires SullivanFinancial services-focused private equity firm Lightyear Capital has hired former AIG president and CEO Martin Sullivan in the newly-created role of operating partner.

Sullivan currently works at Lightyear portfolio companies Paradigm Outcomes, where he is a director, and Cooper Gay Swett & Crawford, where he is non-executive chairman. He spent 37 years with AIG before leaving in 2008.

European private equity firm Permira has chosen Chris Davison to replace veteran head of investor relations Phillip Basset.

Basset is leaving Permira after a 20-year career to pursue new op-portunities. He joined what was then called Schroder Ventures in 1995 before becoming partner in 2004. During the last two decades he has led four successful fundraises.

Davison joined Permira’s investor relations team in a senior role in 2005 before becoming principal in 2008.

He played a key role in raising Permira IV in 2006 before taking on the role of director of communications from 2007.Davison recently co-led the fundraising of the firm’s €5.3bn Permira V vehicle.

Co-managing partner Tom Lister said, “We are delighted that Chris has accepted to take on the leadership of the IR team.

“Chris has worked closely with Phillip on Permira’s last two fund-raisings and has been instrumental in expanding the team’s international capability. We wish him the best of luck in his new role.”

As head of investor relations, Davison will lead a team of 10 across London, New York and Dubai. Prior to joining Permira, Davison was head of research at AltAssets.

PEOPLE


CVC’s Mirani returns to HarbourVest

Partner at Danish fund-of-funds ATP Private Equity Partners Susanne Forsingdal is set to join Allianz Capital Partners after 11 years at the firm.

Allianz said Forsingdal (pictured) was due to join as managing director at the firm’s fund investment team and focus on fund commitments and co-investments as head of the New York office.

The new recruit was set to begin at Allianz in January and will be replaced at ATP by director Jesper Voss Hansen.

Forsingdal joined ATP in 2003 and has been head of the New York branch for the past five years.

Before that she worked in equity research at Nordea Bank, Codan Bank and Danske Bank. Forsingdal also sits on the advisory boards of funds including Apollo, Atlas Capital and Bridgepoint.

CVC Capital’s head of Asia investor relations Hemal Mirani is reportedly set for a surprise return to HarbourVest as a managing director.

Mirani spent more than 11 years at HarbourVest’s Hong Kong subsidiary before leaving to join CVC in 2009.

But she has now reversed that move according to AVCJ, which said she would

be involved in fundraising at Harbour-Vest. HarbourVest raised more than $3.5bn for a secondaries vehicle in 2013, and streaked past the target for its latest co-investment vehicle with a $1bn final close last April.

CVC completed fundraising for a €10.5bn mega fund in 2013, and is cur-rently marketing a $750m growth vehicle.

Global venture capital firm Norwest Venture Partners has hired tech pro Sean Jacobsohn (pictured) as principal.

Jacobsohn was previously venture partner at Emergence Capital Partners, where he focused on cloud investments.

Before that the new recruit was vice-president of cloud collaboration company Worldwide Alliances at Hightail.

Jacobsohn will be based at Norwest’s Palo Alto and San Francisco offices, and focus on early to late-stage investment opportunities in business cloud, industry cloud, healthcare IT and B2B marketplaces.

Norwest has also opened a new office in San Francisco’s South of Market district.

Norwest appoints Sean Jacobsohn as principal

Praesidian hires two for London officeGrowth capital and debt provider Praesidian Capital Europe has named a pair of former bankers as investment directors in its London office.

Serkan Dede has joined Praesidian after more than nine years in corporate banking and leveraged finance, most recently as an associ-ate director in acquisition finance at Lloyds Bank.

Sarah Pierce has spent the past five years working for RBS’ structured finance team and was previously part of its financial sponsors set up working on off-market private equity transactions.

Alternative investment firm Pamplona Capital Management has hired experienced healthcare executive Michael O’Boyle as an operating partner.

O’Boyle has more than 25 years’ ex-perience in the industry, most recently as CEO of hospital operator HCA subsidi-ary Parallon Business Solutions.

He previously held senior operating and financial roles at United HealthCare, a large health insurer with 25 million members, and healthcare systems Cleveland Clinic and Medstar Health.

Pamplona said O’Boyle would focus on the firm’s existing and future invest-ments in the sector, supporting portfolio

company management teams on strategic and operating initiatives and helping to identify and evaluate potential new investment opportunities.

Pamplona intends to establish a company with O’Boyle as CEO focused on providing tech-enabled services to help health systems and physician groups drive revenue, improve quality and ser-vice, and increase care integration.

Pamplona’s healthcare investment portfolio currently includes Alvogen, a fast-growing multinational pharmaceu-ticals company focused on complex ge-neric products, and Magnacare, a leading healthcare administrative company.

O’Boyle joins Pamplona to run healthcare operations

Allianz hires ATP’s Susanne Forsingdal

60 Q1 2015

SECTOR PERSPECTIVESBUYOUT 75REAL ESTATE 69 CLEANTECH 86INFRASTRUCTURE 64SECONDARIES 60 VENTURE 82

Strategic Partners, Blackstone Group’s dedicated private equity secondaries division, has closed its first fund under the Blackstone banner on $4.4bn.

Strategic Partners Fund VI sourced commitments from almost 300 investors, including public, corporate and foreign pen-sion funds, financial institutions, sovereign wealth funds, endowments, foundations and family offices.

The vehicle expects to make investments ranging from $100,000 for a single fund holding to $500m or more for a portfolio of funds.

Strategic Partners, which Blackstone ac-quired from Credit Suisse in 2013, focuses on buying secondary interests in buyout, mezzanine and distressed, real estate, ven-ture capital and fund-of-funds vehicles.

Strategic Partners co-head Stephen Can said, “We could not be more pleased with the reception we received from investors globally in raising SP VI.

“We look forward to leveraging our expertise in the secondary space and to building on our track record as the ‘second-ary buyer of choice’ by transacting on a fair, timely and confidential basis.”

The firm has raised more than $12bn of

capital and bought over 1,500 LP interests since its launch in 2000. Fund V, a $2.9bn 2011 vintage pool, was generating a net 1.4-times multiple and a 47 per cent IRR.

Last year the firm hired Mark Burton to lead its real estate secondaries practice. Burton serves as a principal and oversees investment activities.

Strategic Partners closes Fund VI on $4.4bn

Strategic Partners Fund VI is the first fund raised under the Blackstone banner

Lexington to pick up $1bn PE portfolio from Mizuho Financial

Deutsche Bank closes third fund on $1.65bn

Global secondaries player Lexington Partners has reportedly agreed to pick up a $1bn private equity portfolio from Japanese bank Mizuho Financial Corp.

The portfolio consists of about 50 primarily North American and European buyout fund stakes according to the Wall Street Journal, which cited two sources with knowledge of the deal.

The transaction comes three years after Mizuho parted with close to $500m of private equity fund stakes to Ardian.

Last week it emerged that Lexington Partners had received commitments of $6bn towards its eighth fund as it closes

on its $8bn target. Lexington is looking to beat the vast

$7bn vehicle it closed in 2011.That fund was the biggest secondar-

ies fund on the market until June 2013, when it was just trumped by AXA Private Equity’s $7.1bn secondaries vehicle.

Commitments for Fund VIII include $50m from the New Hampshire Re-tirement System and $40m from New Mexico Educational Retirement Board.

Since 1990 Lexington has launched 18 secondary funds and 8 co-investment pools, with total capital under manage-ment of $28bn.

Deutsche Bank has held a first and final close on its third secondaries fund at the $1.65bn hard cap – more than 50 per cent over target.

Secondary Opportunities Fund III was seek-ing to raise $1bn, more than twice that of its predecessor vehicle SOF II, which closed on $614m in 2003.

Head of DB Private Equity and co-head of DB PE secondary funds Carlo Pirzio-Biroli said, “We expect to deploy capital consistently across the investment cycle in transactions rang-ing from $1m to $500m globally. We have a strong pipeline of potential deals in place.”

The new vehicle is dedicated to acquiring a diversified set of private equity fund interests and assets in the global secondary market.

SECTOR PERSPECTIVES: SECONDARIES


DFJ picks up 1999 TTP portfolio

Lower mid-market buyout firm Seligman Private Equity Select has landed $29m towards its second European secondaries fund, Limited Partner can reveal.

European Secondary Opportunities II, which launched last year, has a target of $155m according to a filing with the US Securities and Exchange Commission.

The vehicle has so far raised investments from six LPs.

Fund II’s target is nearly three times that of its first secondaries fund, which closed in 2010.

The firm targets investments in European funds of between €100m and €500m, focus-ing exclusively on primary and secondary vehicles.

Founded by former SG Warburg execu-tive David Seligman in 2003, the firm also manages two additional funds – European Buy-Out I and European Buy-Out Opportu-nities Fund II.

Seligman Private Equity Select spun out from European financial house Edmond de Rothschild Group in October 2011.

Seligman lands $29m towards second fund

Akina to avoid investments in Spanish consumer companies

DFJ Esprit has agreed to buy the entire portfolio of fellow early-stage investor TTP Ventures, as the latter saw time ticking away on its investments.

The deal marks DFJ’s tenth direct secondary portfolio acquisition. It now has a stake in 140 companies and in-cludes portfolios from 31, Top Technol-ogy and Viventures.

TTP Ventures is the investment arm of technology consultancy TTP Group.The portfolio includes electronic

shelf-label business Displaydata and respiratory-disease drug developer Pulmagen Therapeutics.

DFJ Esprit partner David Tate said, “The TTP Ventures portfolio has had some notable successes, but as a 1999 vintage fund it had limited time or ca-pacity left to see its remaining portfolio companies through to maturity.

“With a new time horizon and further investment we can take Displaydata, Pulmagen and others on to exit.”

Akina-managed Euro Choice Secondary will try to avoid investments in Spain and Italy’s consumer industries after closing its latest fund on €122.5m.

Principal Christian Bohler told AltAssets the firm was “currently heav-ily exposed” to the regions and would steer clear of new investments amid recovering prices.

Bohler said, “We would avoid those deals because if Spain is not performing well in the next two to three years we lose a lot.”

Its focus will be on smaller deal sizes ranging from €5m to €30m, which Akina

said would allow the fund to benefit from the attractive characteristics of the market – in particular, the limited competition.

Bohler said “We favour industries like healthcare and education, and prefer things with certain substance value – maybe even infrastructure.

“We prefer businesses that are head-quartered in particular countries but with an export component, so you’re not exposed to that local cycle.

“We would not expose ourselves too much to the local cycle, local consumer, local retail, local construction.”

New York-based Auldbrass Partners has reeled in $15m in commitments towards its secondaries fund, AltAssets can reveal.

No target is given for Auldbrass Partners Secondary Opportunity, but it landed its first commitment in 2011.

The firm currently manages four portfolios of secondary interests invested primarily in US and European-based funds. Auldbrass Partners specialises in private investments in buyouts, mezzanine, energy, growth equity and real estate.

Prior to founding Auldbrass MD Howard Sanders was responsible for managing Citi Holdings’ proprietary investments in private equity directs and funds.

Auldbrass reels in $15m for secondaries

Akina is already ‘heavily exposed’ to Spain and Italy and fears it could lose money


62 Q1 2015

Niche Swiss secondaries player Montana Capital Partners has held a €100m hard cap close for its second vehicle after just three months of fundraising.

The firm said it invested €3m of its own capital in the vehicle, which will continue its strategy of targeting smaller, more complex transactions in the secondaries market.

It said backers included some of Europe’s largest and most reputable family offices, as well as other sophisticated investors such as UK and Swiss pension funds.

Montana co-founder and partner Marco Wulff said, “We are delighted that we could justify the trust given to us by our valued investors and repay this trust by generating very attractive returns for them in our last programme.

“We are honoured that all of the existing investors came into our second fund.

“In addition, we have broadened our investor base by adding four high-quality investors from the pension fund and family-office world with the aim of building close and long-term relationships with them.”

Fellow co-founder and partner Christian Deller added, “With the success of our fund we were able to demonstrate that our niche

of the secondary market is very attractive, and offers also new customised solutions for sellers.

“These comprise the acquisition of single private equity funds, small fund portfolios, fund of funds, direct and co-investments, as well as more complex transactions.

“The key remains our extensive sourc-

ing activities, which keep our deal flow of privately-sourced transactions at a record high, and enable us to identify these transac-tions and work on solutions.”

In its last programme Montana worked with sellers including banks, insurance companies, pension funds, family offices and private banks.

Montana Capital hits hard cap in three months

Some of Europe’s largest family offices backed Montana’s rapid fundraise

ICG hires NewGlobe team to focus on fund restructuring business

Coller sets $5.5bn target for next fund

Intermediate Capital Group has hired secondary investment firm NewGlobe Capital’s team for its new secondaries platform.

The NewGlobe team comprises CEO and founder Andrew Hawkins, founding partner Christophe Browne and principal Ricardo Lombardi.

It will join ICG to launch a global secondaries investing business based in London and New York, which will focus on leading the restructuring of older private equity funds.

NewGlobe’s team has been co-leading the restructuring of Diamond Castle IV along with Goldman Sachs.

Under the restructuring, NewGlobe and Goldman have financed the creation of a new $860m vehicle to house remaining Diamond Castle IV portfolio companies.

ICG managing director Benoit Durteste said, “Secondary investing is an area that ICG has been working towards developing for some time. It fits well with our corpo-rate strategy of adding new complementary businesses and strategies.

“We have been looking for the right assets and the right team to get this off the ground and we are very excited to be hiring the NewGlobe team, whose experience will significantly enhance our investment strength.”

London-based firm Coller Capital is looking to raise $5.5bn for its new secondaries vehicle.

Fund VII is expected to be similar in size to the $5.5bn pool raised in 2012, according to a fund document seen by Bloomberg.

As with the prior fund, the firm is report-edly offering investors the option of paying a lower management fee.

Coller is giving investors the choice of paying a 1.5 per cent management fee and 10 per cent carried interest, or a 0.85 per cent management fee and 20 per cent share of profits, according to the document.

Its previous fund purchased stakes includ-ing a $1.9bn private equity portfolio from Lloyds Banking Group.



Willowridge prepares for ‘inevitable’ downturn

Secondaries private equity player Willowridge Partners is already preparing itself for the inevitable next economic cycle when making deals, Limited Partner has learned.

Willowridge partner Michael Bego said, “You can’t time it really, but the economy typically runs in cycles, so at some point a correction should happen.

“We are always aware of it but more recently we have taken it into account. So at the moment we focus on slightly more book-proof transactions.”

While Bego said the inevitable crisis wouldn’t necessary put him off a deal, he does admit it plays a role in evaluat-ing potential purchases.

He said, “What I do is look at compa-nies and say, ‘If there is a correction in the next few years, how better or worse off would this company be relative to similar assets I could purchase?’

“For example, an exclusive spa that most customers flew from London to Iceland for wouldn’t do as well as a tyre manufacturer in a crisis.”

Willowridge currently manages

approximately $900m of committed capital focused solely on private equity secondaries. Since 1995 it has com-pleted more than 300 transactions and acquired stakes in over 550 funds.

Bego added that even with the fear of another crisis the global secondar-ies market has gone from strength to strength over the past 10 years.

“Every year it seems to get more and more competitive and 2014 was set to be a record year for secondaries.

“The fourth quarter tends to be busi-est, so we have just been in the middle of the busiest quarter of the busiest year ever.”

He said the reason for the rise in competition was not just as a result of new entries and funds, but because traditional players were expanding their mandates.

“There is tons of capital in the dedi-cated secondaries market and also many of the investors like family offices and funds of funds have taken an interest.” he added.

Willowridge is playing it safe with new transactions in case of a market correction

Secondaries private equity specialist Landmark Partners has bought a portfolio of limited partner stakes valued between $500m and $600m from the bankruptcy estate of Lehman Brothers.

It is not known whether the deal has of-ficially closed according to Reuters, which cited three people with knowledge of the deal. The portfolio includes mid-market private equity funds, the sources said.

They added that the deal is structured with a deferred payment, meaning Landmark would not pay the full amount at the close of the deal.

Lehman is said to be sitting on a pool of private equity fund commitments since fil-ing the largest bankruptcy in US history in September 2008.

According to a bankruptcy court filing Lehman still had $2.2bn in total private equity and principal investments as of March 31, 2014.

Landmark buys $600m Lehman LP portfolio

Carlyle’s Metropolitan has pulled in $70m for its first dedicated secondaries and co-investments fund.

The private real estate fund investment manager is targeting $450m for the vehicle according to Secondaries Investor.

Since its launch in 2002, Metropolitan has raised 16 funds of funds and committed to vehicles managed by more than 80 GPs.

Its fund investments include new partner-ships, secondary interests and co-investments in the US, Europe, Asia and Latin America.

Carlyle completed the acquisition of Metropolitan Real Estate Equity Manage-ment in 2013.

The firm was added to Carlyle’s Solu-tions unit, which also includes AlpInvest, the $48bn private equity fund of funds operation.

Metropolitan pulls in $70m for first fund

SECTOR PERSPECTIVES: INFRASTRUCTURE

64 Q1 2015

Global private equity firm Ares Management has agreed to buy energy infrastructure asset manager Energy Investors Funds, which has around $4bn of assets under management.

The deal is being mostly financed with cash, part of which was raised from a senior notes offering by one of Ares’ subsidiaries, said the firm.

Energy Investors’ investment team will join Ares, with full responsibility for maintaining the day-to-day running of EIF’s current and future investments.

Ares president Michael Arougheti said, “The energy sector is an area of increasing importance across our business, given the

large, growing and contractual nature of the asset class and the differentiated risk-adjusted returns that can be generated by experienced managers.

“The team brings an established track re-cord of excellence in an investment strategy that merits greater exposure for our collec-tive fund investors, a strong cultural fit and a deep expertise that we believe will benefit Ares’ existing strategies.”

EIF was founded in 1987 with the aim of creating diversified portfolios of energy infrastructure-related assets across the power generation, transmission, and mid-stream sectors.

Global follows mega fund with new raise

Newcomers seeking easy ride ‘will end in tears’Inexperienced investors who falsely believe that infrastructure is an asset class with no risks should get ready to see their deals end in tears, AltAssets’ latest LP-GP Forum heard.

Skandia Mutual Life Insurance in-frastructure head Roger Johanson told delegates, “There are certainly a lot of new players coming in. Sadly they think infra-structure is an asset class with no risks, easy to run and easy to own.

“I think a lot of those new entrances we have seen in the market will end with tears. They are disrupting the market, they are running up prices with some deals.”

Ken Manget, vice-president at the $140bn Ontario Teachers’ Pension Plan, echoed his words.

He said, “We’re certainly seeing new investors into the market, in some cases with small teams and under pressure to deploy capital… and for those it’s going to end in tears.”

Manget said the number of key infra-structure investors globally numbered about 15 in the early 2000s, but has since risen to more than 200.

He said OTPP had traditionally focused on large-scale brownfield OECD develop-

ments, but had begun to examine other areas in a style he described as ‘khaki’.

That involves doing greenfields deals from some of its existing platform compa-nies, citing the firm’s Chilean companies, including water utilities and energy trans-mission businesses, as prime examples.

Panel moderator Mathias Burghardt, head of infrastructure at Ardian, said, “I think it’s a genuine trend that investors want more and more to do direct investments, not only because they want low fees but because they want the opportunity to shape their own portfolios.”

Global Infrastructure Partners has launched a Capital Solutions Fund two years after closing its flagship Fund II on $8.25bn.

At the time it was the largest infrastruc-ture vehicle ever raised by a private equity firm. GIP has not revealed the target for the latest fund.

It estimates that it will pay sales commis-sions of $1.75m to Mitsubishi Corporation Asset Management, which is acting as a placement agent.

The US-headquartered firm has also registered two side vehicles with the US securities regulator – a friends and family fund and a feeder fund.

Ares Management agrees to buy Energy Investors Funds

Anyone thinking infra was easy would see their deals ‘end in tears’, said delegates



Pru’s M&G Infracapital beats Fund II target with £1bn close

I Squared Capital, the infrastructure specialist created by former executives at Morgan Stanley’s infra arm, has reportedly passed the $2bn target for its debut fund.

The private equity firm is now eye-ing a March or April final close on its $3bn hard cap according to Dow Jones,

which cited two people familiar with the situation. ISQ Global Infrastructure Fund will be used to invest in energy, utilities and transportation.

Partners at I Squared include Sadek Wahba, Gautam Bhandari and Adil Rah-mathulla, who were all previously with Morgan Stanley.

The private investment arm of Prudential, M&G Infracapital, has held the final close of its second fund on £1bn, beating its initial target by £100m.

Additional co-investment pledges brought the London-based firm’s total capital for Infracapital Partners II to £1.3bn.

Infracapital co-founder Martin Lennon said LPs were “dominated by insurance companies, public and private pension plans… perhaps this is unsurprising.

“Institutionals with long-term liabili-ties should be looking at infrastructure, and certainly that’s what we’ve seen.”

Insurance companies made up the biggest proportion of investors to the fund, at 39 per cent, while pension funds made up 32 per cent of investors – two-thirds of which were public funds and the remainder private.

Funds of funds accounted for a fifth of LPs committing cash.

The infrastructure vehicle is already around 35 per cent invested in three companies. They are UK utilities company Affinity Water, Sweden-based Falbygdens Energi and UK-metering business Calvin Capital.

Infracapital’s predecessor vehicle closed on £908m and is fully invested in seven core infrastructure assets.

I Squared soars past $2bn fund target

M&G Infracapital’s latest fund is already 35 per cent committed

Private equity giant Kohlberg Kravis Roberts & Co appears to have held a $1.24bn first close for its second Global Infrastructure Investors fund.

The firm has so far attracted commitments from 31 LPs for the vehicle,according to a filing with the US securities regulator, mean-ing it is more than halfway to its previously reported target of $2bn.

A separate regulatory filing for the vehicle shows $22.3m worth of commitments from 81 investors.

KKR pulls in more than $1.2bn

Macquarie collects $1.1bn for Asia Infrastructure Fund

Arclight pulls in $1.4bnUS private equity house Arclight Capital Partners has registered just under $1.47bn of commitments for its $4bn-targeting Energy Partners Fund VI. The total was reached thanks to 53 LPs, according to two filings with the US securities regulator, including one for the AEP Feeder Fund VI. Arclight said it has raised the capital in just 90 days of fundraising.

Macquarie Infrastructure and Real Assets (MIRA) has held a first close of $1.1bn for its first pan-Asian Infrastructure fund, Limited Partner understands.

Macquarie Asia Infrastructure Fund launched last year and was halfway towards its $2.5bn target in the final quarter according to Dow Jones, which cited a source familiar with the situation.

The news came shortly after the firm re-vealed plans to form the Macquarie Develop-ment Corporation to invest in pre-construc-tion infrastructure projects in Latin America.

Last October MIRA pulled in just over $3bn for what appeared to be the hard cap of Infrastructure Partners III.


66 Q1 2015

Exclusive deals ‘don’t always beat auctions’Deals sourced exclusively by GPs do not always provide the best value and can hide hidden pitfalls according to Cressida Hogg, head of infrastructure at the Canada Pension Plan Investment Board.

Hogg told the AltAssets LP-GP Forum: Infrastructure, “I would encourage all LPs to look at the record of people who say they’ve got things at an advantage, because they’re sourcing them direct, in five years’ time.

“In my experience there are very smart houses who source things on a preferential basis, and there are many people who think they’ve sourced things on a smart basis, but actually the assets have been around for a while and they’ve been thoroughly market-tested by their owners.

“The person who eventually buys it thinks they’ve got a good deal, but they probably haven’t.” Hogg added that CPPIB used to avoid auctions, but she thinks this is a mistake.

She said, “There are some auctions where the playing field is undervalued or some-times the investor has certain strengths, and when you get to the end of the road, those strengths will play out.”

Fellow speaker Andreas Huber from EQT

said exclusive deals could be more expen-sive, but had their perks.

The firm’s head of infrastructure in continental Europe said, “It’s a common misconception that a bilateral or exclusive transaction is necessarily cheaper, I don’t think that’s always the case. What it does is

save you time and resources.” Huber said that in an exclusive deal the buyer may have the option to go back to the seller six weeks after the deal and re-negotiate if they think they have paid the wrong price.

“To pay honest prices, they are not always the cheapest ones,” he said.

Exclusive deals can be more expensive, but do have their perks

Star America pulls in $77.2m for first private equity vehicleUS investment house Star America Infrastructure Partners has launched what appears to be its first private equity fund, and has registered at least $77.2m of commitments.

Star America Infrastructure Fund raised the figure thanks to 34 investors, according to its filing with the US securities regulator.

An affiliate vehicle of the fund registered commitments of $18m from seven LPs, although it is unclear whether this is on top of the $77.2m.

Star America invests in and manages greenfield infrastructure assets in North America, focusing on public-private partnerships across the transportation,

social and environmental sectors. Over the past 15 years the firm says it has financed, underwritten and managed more than 45 infrastructure projects valued at over $60bn.

Among its current projects is the South Fraser Perimeter Road near Vancouver, Brit-ish Columbia.

Star America was founded by managing partner William Marino, who previously set up Allied North America as a ‘construction only’ brokerage in 1979. It was ranked as the fifth largest private insurance brokerage in the US in 2009 by Insurance Journal.

Star America and its partners recently won a $429m bid to build the 16-mile, four-lane Portsmouth Bypass in Ohio.

Hermes beats £800m target for infra fundLondon-based Hermes Investment Management has beaten its £800m target for its GPE Infrastructure Fund and is expecting to raise more, a source has revealed to Limited Partner.

Hermes previously announced it had held an interim close for the fund and its related accounts, having raised more than £700m from UK local government pension funds and other investors.

LPs invested in the vehicle include the Santander (UK) Common Investment Fund, which committed £160m in July 2014.

The fund was tapped to buy a 50 per cent stake in the 72MW Braes of Doune wind farm in Stirlingshire, Scotland, for £59m in cash in May 2013.



Changing energy landscape is opportunity for Macquarie

French private equity firm Ardian is believed to be in talks with LPs about launching its fourth infrastructure fund, as the previous vehicle is now 60 per cent invested.

It will be the firm’s first infra fund since its spin-out from French insurance group AXA in September 2013.

Ardian is currently investing its third infrastructure fund, which closed on €1.5bn, plus €500m worth of co-invest-ment rights.

Recent deals include buying a 20 per cent stake in French construction business Spie batignolles from fellow private equity firm Equistone Partners.

While Macquarie’s latest North America-focused infrastructure fund will be used for the traditional utility, road and bridge projects, CEO Chris Leslie reckons there are also opportunities in energy.

He said, “We do invest directly in the energy space. However, we’re seeing the secondary effects of the changing energy landscape, for example, in that gas is displacing coal in the US, and there are opportunities around that.

“There are also opportunities in pipe-lines and gas-fired generation and so forth, but areas such as drilling produc-tion are not our game at all.”

The Macquarie Infrastructure Part-

ners fund closed on just over $3bn last year, beating its initial target of $2bn.

It is Macquarie’s biggest fund in the family since Infrastructure Partners I, which closed on roughly $4bn just before the financial crisis.

Leslie put the success of the fundraise down to an increased appetite for the asset class. He said, “Particularly here in the US, institutions are increasing their portfolio allocation to real assets, as it seems to have captured people’s imagination in a world where everyone is printing money.”

Deals signed off from the latest fund include an agreement to buy utility company Cleco worth around $4.7bn.

Ardian eyes first post-AXA infra fund

Macquarie closed its Infrastructure Partners fund on just over $3bn last year

Mumbai-based asset manager IDFC Alternatives has closed its India Infrastructure Fund II on its INR55bn ($900m) hard cap.

The total includes a 10 per cent stake by parent firm IDFC, with the remaining $810m committed by institutional investors from North America, Europe and the Middle East.

In addition to the fund commitments, investors have also pledged significant addi-tional capital to co-investment opportunities.

IDFC closes second India fund on $900m

Molital looks for part-exit through Power Mech IPO

Apollo eyes $3bn for natural resources fundPrivate equity major Apollo Global Management is reportedly planning to go to market with a second natural resources fund.

Apollo Natural Resources Partners II will have a target of between $2bn and $3bn ac-cording to Reuters, and represents the firm’s efforts to cash in on the US fracking boom.

The firm’s first natural resources fund closed on $1.3bn in 2012.

Motilal Oswal Private Equity plans to partially exit power infrastructure service provider Power Mech Projects through an IPO.

The company is looking to raise roughly $235m though a public offering.

Motilal plans to sell around 2.4 million shares of the 4.27 million on offer.

It represents four-fifths of its holding and will own 2.55 per cent stake after issue. Motilal originally invested $6.5m in the company in 2009 and currently holds a 19.89 per cent stake.

India-based Power Mech Projects provides erection, testing and commissioning of boil-ers, turbines and generators and operation and maintenance services.


68 Q1 2015

AMP Capital closed-ended fund targets $2bnAustralia-headquartered investment manager AMP Capital is using assets from its open-ended European vehicle to launch a Global Infrastructure Fund targeting $2bn.

Investors in the pool include UK-based private equity firm Pantheon. AMP has cre-ated the investment platform by converting its Strategic Infrastructure Trust of Europe (SITE) from an open-ended to a closed-ended fund.

The $750m worth of assets in SITE will be shared with the firm’s Global Infrastructure Fund and topped up with a targeted $1.25bn of new commitments.

The fund will allow new investors the chance to have access to an existing portfolio which includes Newcastle Airport, Alpha Trains, Thames Water and wind farm com-pany Greater Gabbard OFTO.

Boe Pahari, AMP head of Infrastructure for Europe and the Americas Fund, said: “AMP Capital’s Global Infrastructure Fund gives a broader range of investors around the world a new and unique opportunity to tap into an asset class that is going from strength to strength.”

Recent deals from AMP include investing $100m in Capistrano Wind Partners, which

was established to develop a portfolio of US wind farms.

The firm has also recently closed its sec-ond infrastructure debt fund on $1.1bn.

AMP Capital Infrastructure Debt Fund II (IDF II) has attracted more than 50 inves-tors from eight countries, with a significant

number of new investors, according to the firm. They include China Life, which backed the vehicle through its Hong Kong-based subsidiary.

IDF received investment form the US, the UK, Germany, Switzerland, Korea, Japan, Hong Kong, China and Bahrain.

Australia’s AMP Capital has launched its Global Infrastructure Fund using capital from its European vehicle

Denham backs Australian mining firm Auctus Minerals with $130mResources and energy-focused Denham Capital has partnered with startup Australian mine operator Auctus Minerals and committed $130m.

The Perth-based company said the joint venture had “resulted in the formation of a powerful mining endeavour in Australia.”

Auctus focuses on helping projects to reach the production stage and improving the economics of operational mining assets throughout Australia.

The company will target opportunistic projects that are either near or development-ready, which will be headed up by metallur-gical engineer Stephen Murdoch.

Denham Capital managing director Bert

Koth said, “Stephen and his team have a long and successful track record of imple-menting savings to operating and develop-ment costs in both base metals as well as bulk minerals. During the mining boom, Australia has become a high-cost environ-ment, with productivity decline.

“Thus, the key to value creation in Aus-tralian mining projects today is the ability to achieve cash flow fast and reduce cost rigor-ously. Partnering with Stephen and his team will allow us to realise that opportunity.”

Denham has more than $7.9bn of invested and committed capital across seven funds and operates offices in Perth, London, Bos-ton, Houston and São Paulo.

JP Morgan registers $285m for Asian fundThe investment management division of US bank JP Morgan has raised $285m for its Asian Infrastructure & Related Resources Opportunity Fund II.

This puts it bang on the target stated in the vehicle’s filing with the US securities regulator – although the total is significantly less than the $1.5bn the bank was initially rumoured to be seeking.

The fund attracted investments from 13 LPs, according to the filing, with JP Morgan Institutional Investments and JP Morgan Securities listed as placement agents.

The firm said it would target a broad range of infrastructure assets including toll roads, power generation, and electricity transmission and distribution facilities.

SECTOR PERSPECTIVES: REAL ESTATE


LP stampede to co-invest in real estate is a ‘concern’

LPs may be rushing into co-investment opportunities without considering the work and risks involved, panellists at the recent AltAssets LP-GP Forum: Real Estate said.

Aviva Investors global real estate multi-manager John Gellatly said, “What concerns me is this enormous gathering rush towards co-investments.

“Do [LPs] understand the liability? Have they considered how much time can they commit to this?”

“If you want control, which is fine, you need to consider how many deals you can really be on top of.

“Unless you’re a very big institution that builds your own internal team, there must be constraints to the number of deals you can do, or otherwise you will compromise the investment.”

A number of studies have also high-lighted the risks of co-investment. A report last April found that joint venture programmes have a substantial risk of

generating poor returns, even with a rea-sonably sized co-investment portfolio.

Paul Schneider from QIC European Investment Services said his firm often explores co-investment opportunities but will mostly decline them.

Schneider told the conference, “You need to make a commitment that is a sufficient size to get co-investment rights. In all our cases we have pretty much said straight away, ‘I don’t think we’ll take it. We’re looking at so many different things, we don’t have [the] resources to do it’.”

Schneider agreed that investors do appear to jump in too quickly without thinking it through.

“Managers have said to us, ‘you’re be-ing refreshingly honest’. Other investors will come on side, they talk a really big game and then in Q1 or when the first co-investment option comes around they suddenly realise what the challenge is, and that does nobody any favours.”

LPs may not be considering the risks when rushing into real estate, it is claimed

Local team ‘vital’ for investing in EM property

Raith lands $75m for Real Estate Fund IRaith Capital Partners has registered $75m for its $225m-targeting real estate private equity fund.

The New York-based firm’s Real Estate Fund I has attracted commitments from two LPs according to a filing with the US securi-ties regulator. Park Madison Partners has been named as placement agent.

Raith says it uses a bottom-up approach in all its investing activities and aims to buy commercial real estate assets at a discount to their intrinsic value.

The firm invests across all levels of the capital structure on behalf of its clients and manages platforms buying distressed real es-tate assets and commercial mortgage-backed securities.

When tapping up the “immense” real estate opportunities in emerging markets it is vital to have a local team, according to Infrared’s Robin Hubbard.

He said, “When we moved into China we found people we liked. We found a developer called Nan Fung who knew the Chinese mar-ket really well and what we did together was form a JV – the GP is a JV between the two groups, staffed with its own investment team.

“So you had 30 people with the sole pur-pose to look at the Chinese mainland market, supported by Nan Fung, who have seven offices in mainland China.

“It gives a distinct advantage of local knowledge in terms of knowing what you can and can’t do there, because a bit like Africa and a bit like India – there aren’t thousands of standing investments of institutional grade quality that you want to invest in.”

Hubbard said that emerging markets require investors to “build from scratch” and stressed the importance of knowing how to negotiate their way around and know “what they doing”.


70 Q1 2015

RockBridge powers to $438m closeDune closes third fundHotel-focused private equity firm RockBridge Capital has soared past the original target for its sixth fund by holding a $438m final close for the vehicle.

RockBridge initially hoped to win $350m for Fund VI, already well above the $225m it gathered for its fifth fund in 2011.

AltAssets revealed the firm had effec-tively equalled Fund V in May last year, and has since gone on to roughly double that capital thanks to LPs including pension funds, insurance companies, endowments,

foundations and family offices. RockBridge said it had already tapped the vehicle for $131m across 11 investments targeting hotels in the US.

The firm collected $161m in its fourth fundraise in 2007, $150m for Fund III in 2005 and $92m for its 2000 debut and 2003 follow-up vehicles.

It has backed more than 333 debt and eq-uity hotel investments over the past 20-plus years according to its website, with total transactions of more than $5bn.

New York-based Dune Real Estate Partners has smashed its $850m target and closed its third fund on $960m.

The firm said it raised the capital from a broad mix of institutional investors, includ-ing public and corporate pension funds, endowments and foundations, and high net worth families.

As with its predecessor vehicles, Fund III will be used for opportunistic deals in distressed, deep value-add and contrarian investments, primarily in the US.

US fracking boom pulls in real estate investorsThe surge of activity in North American oil and gas caused by the fracking boom has caused private equity houses to flock to the region, creating major real estate opportunities.

David Puchi, director of business de-velopment at property-focused Baceline Investments, said the firm targets stable but growing Midwestern cities such as Nash-ville, Kansas City and Denver.

“The energy business is creating a lot of growth in the middle of the United States, and our focus is to try and find retail real estate opportunities in those markets,” he said. “Texas, in particular, is a really good market right now.”

As such the firm recently appointed for-mer National Hockey League goalie Marty Turco to head up the opening of a new office in Dallas.

While Texas is the biggest market ac-cording to Puchi, Colorado is also seeing growth through oil and gas, as are North and South Dakota.

“We have not invested in the Dakotas at all, but there is quite a lot going on up there, though it may be a little too ‘boom and bust’ oriented – Texas is a little more stable,” he said.

Puchi said that growth in the healthcare and insurance industries is also increasing opportunities for real estate investment in some of the big Midwest cities.

He said, “The middle of the country is overlooked, especially by international investors – and in most cases by investors in New York or California – but there are a lot of really great vibrant and growing cities in the middle of the country and people like to live there.

Another good thing about Baceline’s geo-graphical focus is that there is significantly less competition for deals.

He said, “We have some competition, but it’s nothing like bidding on retail centres on the coast where you’re against 30 or 40 bidders for a property.”

Oil and gas is booming in the US – and it’s having a knock-on effect on the property market



Alternative investment house Angelo Gordon & Co has registered $314m for its Core Plus Realty Fund IV.

The vehicle has a target of $1bn and so far 25 LPs have committed capital, according to the firm’s filing with the US securities regulator. Park Hill Group has been named as placement agent.

New York-headquartered Angelo Gor-don has been investing in commercial real estate since 1993.

The firm focuses on a value-added approach by buying sub-performing real estate properties across a broad range of geographies and product types, with a strong emphasis on the US and Asia.

Angelo Gordon heads for $1bn

Secondary RE still a niche market: Partners Group

Global private equity investor Partners Group puts the success of its real estate secondaries programme down to its focus on the assets class being an under-served section of the market.

Partners recently closed its second real estate secondaries fund on a $1.95bn hard cap, a significant increasing on the size of the predecessor vehicle which closed on $1.5bn in 2010.

The firm’s real estate secondaries team’s vice-president Fabian Neuen-schwander said it was an area where LPs were keen to get exposure.

He said, “There are still not many dedicated players in the space, especially

on the real estate side – we have a niche market here. There is more and more deal-flow happening and not that many buyers in secondary interests.”

It means competition for such deals is not currently that high, Neuenschwander added.

“It will change over time, that’s for sure, but for the time being we’re posi-tioned very well,” he said.

While the firm is fairly agnostic in terms of types of real estate asset, as well as the geography, Switzerland-based Neuenschwander said Partners Group prefers to invest in established and mature real estate assets.

Partners Group says its success is due to its focus on the niche real estate secondaries marketGlobal private equity firm Blackstone has agreed the $8.1bn sale of industrial real estate business IndCor Properties to Singapore sov-ereign wealth investor GIC.

The exit comes from Blackstone Real Estate Partners VI and VII, and calls a halt to a potential IPO which was also being consid-ered by the firm. Blackstone created industrial landlord IndCor, which operates about 117 million sq ft of US warehouses, in 2010.

Last year it emerged that Blackstone was eyeing $13bn for its next flagship global real estate fund, which would put it on par with the firm’s predecessor Real Estate Partners VII vehicle.

Blackstone seals $8.1bn sale to GIC

Garrison targets $800m with fourth opportunity fund

Century Bridge eyes $400m for China Fund II

Real estate investor Century Bridge Capital is reportedly in the market with its second China real estate fund, looking to raise $400m.

This would make it double the size of Cen-tury Bridge’s first China Real Estate Fund which closed on $170m in 2012, PERE said.

LPs committing to Fund I included Quil-vest and Deutsche Finance Group.

Mid-market private equity investor Garrison Investment Group has launched its $800m-targeting Opportunity Fund IV.

The vehicle has pulled in at least $169m via ‘parallel entities’ according to Garrison’s filing with the US regulator.

The New York-headquartered firm invests in mid-market credit and asset-based op-portunities and has approximately $3.2bn of assets under management.

Its uses strategies across corporate finance, financial assets, private equity and real estate.


72 Q1 2015

InfraRed closes Fund III £75m over target

InfraRed has easily beaten the £400m target for its third real estate fund

Global private equity investor InfraRed has closed its third real estate fund on £475m after easily pulling in more than its initial target of £400m, Limited Partner has learned.

The final close came just weeks after the firm registered the first $80m for the vehicle in the US.

Infrared Active Fund III will continue to pursue a similar value-add strategy to its predecessors, focusing on shopping centre, industrial and office markets in the UK, Germany and France, the firm said.

The third fund is around 40 per cent invested according to a source close to the firm.

LPs investing included “high quality institutions” and family offices from regions including Europe, the US, Canada, Malaysia, Qatar and the UAE.

Head of European real estate Chris Huxta-ble said, “Our investors drew considerable confidence from the quality and embedded value of our investments to date, its balance between income and capital gain, and the consistency of the acquired assets with the strategy we communicated to investors at the outset of the fund raising.

“We have already committed equity to six projects – all of which are performing in line with, or ahead of, their business plans.”

InfraRed’s real estate division targets value-add opportunities across Europe, Asia and US.

In Europe the firm focuses on well-located, multi-let properties in the shopping centre, industrial and office sectors.

The firm has also had a market presence in Asia since 2007, where InfraRed co-spon-sors a Chinese investment platform.

Carlyle bags nearly $2.3bn for seventh real estate fund

SC Capital beats $750m target

Private equity major Carlyle Group has registered commitments of just under $2.3bn for its Realty Partners VII fund.

The figure puts it nearly bang on the $2.34bn total that Carlyle raised for its 2011-vintage sixth fund in the series, which has targeted opportunistic real estate invest-ments in North America.

The sizable Fund VII has attracted 78 LPs according to the firm’s filing with the US securities regulator.

TCG Securities and Morgan Stanley are named as placement agents, with Carlyle stating it is set to pay sales commission of $3.3m and finders’ fees of $116,200.

LPs investing in the firm’s previous Re-alty Partners fund included Texas County & District Retirement System and San Diego City Employees, which made commitments of $50m each.

Last autumn AltAssets reported that Carlyle had beaten its target for its fourth Asia fund by holding a $3.9bn final close.

Around the same time the firm was said to be in advanced talks to acquire stakes in nine shopping malls from China Vanke.

The stakes can be valued at RMB6bn to RMB7bn (£776m to £900m), said one Reuters source, while another said Carlyle could pay up to RMB10bn.

Singapore’s SC Capital Partners is said to have beaten the $750m target for its oversubscribed Real Estate Capital Asia Partners IV.

It means the firm could be approaching the final close, as it was previously reported to be limiting the vehicle to an $800m hard cap. Fund IV is significantly bigger than its predecessor, which closed on $530m in 2012, $130m above its original target.

It has been a relatively speedy fundraise for SC Capital, having registered $365.5m worth of commitments in September 2014. Investments from Fund III include the Golza block in Shanghai and Double Play in Tokyo.



Spain no longer a place for ‘opportunistic’ RE deals

Private equity major Blackstone appears to have closed its biggest ever European real estate fund on just over $9bn (€7.2).

Blackstone Real Estate Partners Europe IV has landed $7.6bn from 115 LPs according to a filing with the US Securities and Exchange Commission.

It has also raised a further $1.4bn from a parallel vehicle, BREP Europe IV (Alberta), from 33 LPs.

The fund will focus primarily on picking up distressed real estate assets in the UK and continental Europe. The vehicle is nearly double the size of its predecessor, which closed in 2009.

Spanish real estate it is still a market ripe with opportunity but do not expect the huge margins of the last few years, one industry insider says.Jose Caireta, founder of Spanish real estate private equity firm Squircle Capital, said, “People may think you can get 30 or 40 per cent. That is over, unless you’re very lucky and fall into a specific transaction. It’s difficult to find opportunistic investments now, but it’s a great place to find core value assets.”Caireta added that PE investors could still make returns of 15 or 20 per cent net. “This is why you see people coming to the market, not only for private equity deals, but also public deals,” he said, “because they believe

there is a distortion, and that things are mispriced.”One LP from a major pension fund said he believed the right time to invest in Spanish real estate was 12 months ago. He said, “We’re very cautious on Spain and have no plans to invest there for the time being.”CBRE head of investor services Mike Clarke said that while the firm is positive in its economic outlook for Spain, the problem is the small size of the market. “This is where some people got it wrong in the past, there was a rush of capital. Private equity guys were filling the seats on the plane to Madrid every Monday morning, looking for deals,” he said.

Blackstone closes Fund IV on €7.2bn

The days of scoring 30 or 40 per cent returns in Spanish PE real estate are reportedly over

A rise in US capital targeting European real estate investments is beginning to drive up prices in the asset class, the AltAssets LP-GP Forum: Real Estate heard in December.

GI Partners managing partner Mark Tag-liaferre, who heads the firm’s London office, told delegates that it remains bullish on the ‘beer-drinking’ countries of northern Europe, but believed the real opportunities lie within specialist areas of investment.

He said, “Certain sections of healthcare still have growth… and that gives opportuni-ty. We also like tech real estate, where there’s growing data traffic and growing demand.

“Certainly there’s more money chasing opportunities at the minute.

“A lot of US capital is starting to look at Europe, particularly on a relative capital basis.”

European property prices rising

Fudo Capital nears two-thirds of Fund III targetReal estate-focused investment firm Fudo Capital is almost two-thirds of the way to the $1bn target for its third fund, Limited Partner can reveal.

The firm, which is the Asia-Pacific real estate investment unit of CLSA Capital Part-ners, has pulled in $622m for Fudo Capital III, according to the latest filing with the US securities regulator.

It shows that 14 LPs have committed capital to the vehicle to date.

AltAssets reported in March that the firm had gathered about $385m for the fund, which follows an $815m second vehicle closed in 2009. That fund came in easily above its $750m target.

Fudo invests between $25m and $75m in assets with sizes of $50m to $200m.

Fund II’s current portfolio assets include the Hongjia Tower in Shanghai and the Laguna Plaza shopping centre in Hong Kong.

Greenhill & Co is acting as a placement agent for the latest fund, the filing showed.

74 Q1 2015

GP PROFILE: FEDERICO CELLINA – IDEA CAPITAL

IDEA – in the vanguard of Italy’s PE industry

W ith a lack of appetite from pensions funds and the effects of the 2008 crisis still taking its

toll, private equity fundraising in Italy is still challenging according to IDEA Capital head of marketing and institutional sales Federico Cellina.

“Pension funds tend to be the biggest investors in private equity worldwide, and the big public pension funds in Italy do not invest in private equity at the moment. Which is a shame, given the interest rates situation and the volatility of the stock exchange – it makes sense nowadays for them to have private equity in their assets allocation.”

Cellina says that one of the main reasons is that local pension funds lack experience in private equity, as it is relatively new in Italy, having been around for just 20 years com-pared with more than 50 in the US and UK.

“They don’t have the skills or the people to look after the investments so they would need to make further internal investments in terms of knowledge and people.

“There is a lack of appetite for private equity for historical reasons, and a lack of knowledge rather than ‘real reasons’.

“Pension funds in Italy tend to nowadays invest in treasuries, but given the yield of treasuries is somewhere between one per cent and three per cent, it obviously seems to make sense to invest in the real economy.

“Because of that a lot have started to look at private equity, but don’t know how to do so, so we are trying our best to educate them.”

IDEA Capital Funds is part of the IDEA project launched in December 2006 by the De Agostini Group, with the aim of establish-ing the largest Italian independent private equity investment group.

Being based in Italy means, IDEA has faced a tough few years, with the effects of the 2008 crisis still taking their toll.

“The recent crisis, the one we had from 2008 onwards, is still running in this country, and Italy is still one of the most depressed countries in the eurozone these days.

“Since our first co-investment fund [Idea Opportunity I] our strategy has switched to the-matic funds – vehicles dedicated to a sector in which Italy has some kind of excellence.”

Idea Opportunity Fund I closed in 2009 on €217m, and its diversified portfolio includes the likes of pharmaceutical chemistry company Euticals, ICT firm Telit communications and aircraft interior manufacturer Iacobucci HF.

“In Italy most of the funds tend to be ‘gen-eralistic’, which invest in small to medium businesses across all sectors. You can end up with a very diverse portfolio.

“Instead we have chosen to have small but more focused funds in sectors in which Italy has some kind of recognised excellence.”

Its first ‘thematic’ fund launched in 2011 to target companies with products and services for energy efficiency and sustainable growth.

“The first is the IDEA Energy Efficiency and Sustainable Growth Fund, for a very simple reason. Depending on which country you com-pare it to, Italy has a price of energy which is at least triple that of comparable ones.

“Energy is a big thing for us, and we look at sectors where Italy has some recognised

excellence, and energy efficiency is one because Italy has the highest energy costs in the world, so it obviously makes a lot of sense to invest in these countries.”

The fund closed on €100m and has already made five investments, according to Cellina.

Around 70 per cent of the fund will be put back into Italy, but the remaining 30 per cent will focus on investments in Germany, Swit-zerland and Israel – “countries where there is the same kind of sensibility to the issues of energy efficiency”.

IDEA also sees potential opportunities in the country’s food sector, which has weath-ered the economic storm better than most.

“One of the sectors that is still growing is food, and the reason for that is that even during a recession the very last thing you give up is food. Exports in the Italian food and beverage industry has increased by 5.8 per cent from 2012 to 2013, despite economic pressures.”

IDEA Capital is leading the way in encouraging Italy to follow the private equity route

SECTOR PERSPECTIVES: BUYOUT


US private equity house Blackstone has sealed a A$750m deal for the chemicals business of Australia’s Orica. Bain Capital was also thought to be in the final bidding for the business, which was previously reported as having attracted offers of up to A$1bn by Bloomberg.

Carlyle and Pa-cific Equity Partners were also believed to be interested in the unit, but declined making final bids.

Orica is a global provider of commercial explosives and blasting systems for the mining and infrastructure markets, and also provides ground support for mining and tunnelling.

It also supplies chemicals across markets including agriculture, building and construction, food and beverage, pharmaceutical and personal care, plas-tics, pulp and paper and water treatment industries.

Blackstone senior managing director and head of private equity for Australia, James Carnegie, said “Orica is a world

class company and we are excited about investing in its market leading chemi-cals business.

“Orica Chemicals is strongly positioned and we look forward to continuing its best-in-class standards of

safety and service.”

Last year global private eq-uity major Advent In-ternational boosted its chemicals dealmaking power by hiring for-mer Evonik Industries

greater China president Dahai Yu as an operat-ing partner.

Yu will work with Advent’s chemi-cals team to source new investments and support its portfolio companies post-acquisition.

Last September Carlyle-backed chemicals business PQ Holdings scrapped plans for a $450m IPO as the company was steered towards a likely strategic sale by its owners.

The US buyout giant bought PQ in a $1.5bn deal in 2007, and had reportedly been hoping to exit through an auction.

Blackstone in A$750m deal for Orica Chemicals

Canadian buyout firm Onex has agreed to buy Swiss packaging group SIG Combibloc Group for $4.66bn.

The private equity firm said that $4.44bn will be paid at the closing of the transaction, with an additional amount of up to $217m payable based on the financial performance of SIG in 2015 and 2016. The deal is ex-pected to close in the first quarter of 2015, subject to regulatory approvals, Onex said.

Last May the firm beat the $4.5bn target for its fourth fund in a speedy fundraise.

US buyout house Thoma Bravo has agreed the $710m sale of online security business Tripwire to strategic buyer Belden Inc.

Tripwire previously received backing from Bessemer, IVP, Advanced Technol-ogy Ventures and BA Ventures. Belden and Tripwire announced a joint initiative last September to improve critical infrastructure cyber-security in manufacturing companies.

Onex snaps up Swiss packaging group SIG

Thoma Bravo exits Tripwire

Idinvest seals 7.6x return through $680m buyoutIdinvest Partners has made a 7.6-times return by exiting its stake in Dutch biotechnology business Prosensa in a deal which values the business at $680m.

American biotech company BioMarin Pharmaceutical agreed to pay $17.75 per share for all of Prosensa’s outstanding shares, plus two potential milestone payments of $80m each.

Prosensa’s primary focus is on rare neuro-muscular and neurodegenerative disorders such as Duchenne muscular dystrophy and Huntingdon’s disease.

Idinvest bought into the business by leading a Series B financing round in 2008, when the former was still known as AGF Private Equity.

Bain Capital, Hellman & Friedman and Thoma Bravo are said to be among the private equity firms eyeing network equipment maker Riverbed Technology.

The three buyout firms made their interest known to Riverbed in Novem-ber according to people familiar with the matter cited by Reuters.

The San Francisco-based business is said to have a market capitalisation of around $3.1bn, the sources added.

Riverbed announced a month earlier that it planned to explore strategic alternatives following a $21 per share takeover offer from activist investor Elliott Management Corp.

Bain eyes Riverbed Technology

Orica Chemicals is ‘strongly positioned’


76 Q1 2015

More than two years after private equity firms Blackstone and PAI Partners first started looking to offload snack giant United Biscuits, the backers have finally agreed on a deal.

The UK business has been picked up by Turkish biscuit, food and food packaging conglomerate Yildiz Holding for £2bn, a source said.

United Biscuits is the biggest manufac-turer and marketer of biscuits in the UK and the second largest in the Netherlands, France, Belgium and Ireland. Its brands include McVitie’s, Penguin, Jaffa Cakes and Mini Cheddars.

Blackstone and PAI bought United Biscuits in 2006 for £1.6bn. They have since exited part of its investment by selling KP Snacks, the savoury snacks arm of the com-pany, to German trade buyer Intersnack for a reported £504m in 2012.

The firms received a number of suitors for the business including Lion, which showed interest before backing out in 2012, and more recently China’s Hony Capital and Philippines conglomerate San Miguel Corp.

Blackstone European head of private equity Lionel Assant said, “United Biscuits is a great business and has been an excellent

investment for us. Yildiz is the best home for the company and will allow UB to fulfil its international growth ambitions.”

Goldman Sachs and JP Morgan acted as advisors on the deal.

PAI partner Frédéric Stévenin said, “Unit-ed Biscuits is an iconic business. We are very proud to have been part of its development and wish everyone at the company continued successes over the years ahead.”

Blackstone, PAI exit United Biscuits for £2bn

Tech-focused buyout house Vista Equity Partners has agreed a £725m deal for UK-based health and business software maker Advanced Computer Software Group.

The all-cash deal represented a 17 per cent premium to the ACS share closing price of 119.8 pence as of November 24, the last day prior to the deal being announced.

Vista said the acquisition implied an enterprise value of about 15.8-times ACS’s adjusted EBITDA for the 12 months ending August 31.

Rothschild acted as an advisor to ACS for the sale.

The ACS directors said they intended to

unanimously recommend company share-holders vote in favour of the deal.

Vista president Brian Sheth said, “[ACS CEO] Vin Murria and her dedicated leader-ship team are stand-outs in the field. They have built a company with exceptional employees, high-quality solutions, and long-standing client relationships.

“We at Vista especially like investing in the vision and commitment that a leader like Vin and the management team inspires.

“They are best positioned to expand the ACS platform and meet the needs of a growing customer base. We look forward to welcoming ACS into the Vista family.”

Terra Firma eyes Four Seasons salePrivate equity firm Terra Firm has reportedly hired Blackstone to advise on the sale of Four Seasons Health Care.

Blackstone’s advisory arm will look at a number of financial and strategic options for UK-based care home operator, the FT said.

Terra Firma bought Four Seasons from RBS in 2012 in a deal that valued the busi-ness at £825m, including debt. The firm saw off competition from CVC Capital Partners and a consortium of investors to buy the care home, which became the UK’s largest after the collapse of Southern Cross in 2011.

Terra Firma used £300m of its own cash to fund the deal, and loans financed the rest.

Vista agrees £725m take-private deal for software company ACS

Brands include McVitie’s, Penguin, Jaffa Cakes and Mini Cheddars



UK private equity firm 3i increased its year-on-year total return for the six months to September 30 by £59m, but says it remains cautious about the price of buyout deals in Europe.

The firm saw a total return of £234m for the six months, up from £175m for the same period in 2013. That was despite a foreign exchange loss of £73m due to the appreciation of sterling verses the euro.

The group also reported a value growth and income figure of £360m, which was backed up a value-weighted earnings growth of 17 per cent in the 12 months before September 30.

Chief executive Simon Borrows said “We continue to seek new investment opportunities, but we recognise the increasing political uncertainty and stagnating growth in Europe and are mindful of the risks of over-paying for new investments in this environment.”

The firm reckons the eurozone is moving back towards recession and

deflation, with the macro-economic and geopolitical landscape showing no sign of stabilising in the near term.

Chairman Adrian Montague said “In this environment we are taking a cautious approach to costs, gearing and investment, and retaining a strong focus on cash returns for shareholders and our fund investors, supported by a resilient investment portfolio.”

3i said its private equity business took advantage of “positive markets for realisations, refinancings and IPOs”, generating £316m of proceeds in the first half of the fiscal year.

The private equity portfolio generated a gross investment return of £282m, equating to a 10 per cent return on the opening portfolio.

The firm said 3i’s infrastructure divi-sion proved popular for investors hunt-ing for yield, which is reflected in its recent transactions. The infrastructure portfolio rose by seven per cent in value in the six months to September 30.

UK’s 3i ‘mindful of risks of over-paying’ in Europe

Private equity firms including Hellman & Friedman and KKR have reportedly made initial bids for German online travel group Unister Travel several months after a tax fraud case stalled a potential sale.

Group founder Thomas Wagner and several other managers were charged with tax fraud, the unauthorised sale of financial products and violation of competition rules, with Wagner stepping down last January fol-lowing raids on the business.

The company could sell for up to €1bn according to Reuters, which cited people familiar with the matter.

Buyout firms line up for €1bn buyout of Unister Travel

Silver Lake revivesVirtu Financial IPO

LDC makes 2X return on sale of Vysionics

Buyout-backed electronic trading business Virtu Financial is reportedly eyeing this spring for an IPO, almost a year after it initially hoped to list on the public markets.

Silver Lake Partners-owned Virtu filed to raise $100m by listing on the Nasdaq stock exchange in March 2013, but postponed that plan a month later amid a debate on the fairness and integrity of the industry.

According to Reuters, Virtu is now eye-ing a listing in April or May.

Silver Lake bought into Virtu by backing a merger of the company with Madison Tyler in 2011.

LDC said it more than doubled its money sell-ing number-plate recognition business Vysion-ics in a “multi-million pound deal”.

The Lloyds Banking Group-backed private equity firm exited the UK-based company, which also provides traffic enforcement systems, to German optoelectronics business Jenoptik, four years after its first investment.

3i is wary of increasing political uncertainty in Europe

GP PROFILE: VIVINA BERLA – SARONA

78 Q1 2015

Tapping into emerging market potential

Making use of local knowledge to dig out the best private equity deals in emerging markets has become

almost standard practice in the industry.However, a local base is also essential for

truly understanding the businesses and adding value, according to Sarona Asset Management senior partner Vivina Berla.

Fund-of-funds investor Sarona traces its his-tory in emerging market investing all the way back to 1953, when it was part of international economic development organisation MEDA.

Sarona Asset Management spun out of MEDA through a management buyout in 2010 to become an independent investment firm, but is still bullish about forging a close bond in the regions it has been entwined with for so long.

Berla said, “If you are not local you are not going to be able to help a company grow in the right way, which is what we believe needs to happen in countries where private equity is still very young and an immature industry.

“If the managers we select are based locally, we believe they are going to better able to first of all identify very interesting deals and companies to invest in.

“But secondly they are in a better position to help those countries, because as you can im-agine, investing in a company in Ivory Coast, Nigeria, Colombia, or Vietnam is very different to investing in a country in either Europe or North America.

She added, “It is very difficult to help a com-pany grow if you don’t know the local realities and the way to navigate the local economies and local challenges and opportunities.

“Our underlying fund managers see a lot of companies, and we select funds that focus on growth-stage SMEs – we don’t invest in venture capital or early-stage companies, we don’t invest in large infrastructure projects, we don’t invest in real estate.”

While Sarona is dedicated to frontier and emerging markets across Africa, parts of Asia and Latin America, the firm stays clear of investments in countries such as China and Russia, which have more mature markets.

“We believe Sarona can add more value to these smaller companies rather than those in China and Russia who have markets that are more mature, more complex, and where the

governance is much more difficult to manage and understand,” she said.

“Sarona is trying to add value by arbitrating the difference between perceived risk and real risk in countries that most investors know very little about. That is why we do not offer our limited partners exposure to Russia and China, because we feel they can do it themselves and don’t need us as much.

HSBC’s latest The World in 2050 report suggested that 19 of the 30 largest economies in 2050 will come from what are considered emerging markets today.

It also predicts the rise of the middle class fuelling consumer spending by as much as 103 per cent in Latin America and a whopping 145 per cent in North Africa.

Berla said the main reason behind the growth these countries is that some of smartest people have left to be educated and/or work aboard, but are now returning home because the opportunities are now available.

“However, for them to be successful they need money, and that’s the other side of the equation with development financial institu-tions, so the likes of IFC and CDC.

“All of these development financial institu-tions have been creating, backing and feeding the private equity in these countries, so you’re seeing a private equity environment emerging, learning, growing and being successful.”

With these countries growing at a signifi-cantly faster rate than the developed markets, and despite the challenges and risks differing significantly, there is a renewed optimism, Berla added.

“We just came back from a trip to Nigeria and the sense of enthusiasm about the opportu-nities there is so great.

“If we find the right private equity manager who can identify the right local entrepreneurial team to actually manufacture and produce goods which are currently imported, it is a winning situation for everyone.”

There are huge opportunities in emerging and frontier markets, according to Sarona’s Vivina Berla



Omega Pharma, the Belgian pharma-ceutical group backed by Dutch buy-out firm Waterland, has been bought by Ireland’s Perrigo in a €3.6bn deal.

Waterland only bought into the business in 2012, and expanded the business soon after by clinching a €470m portfolio of over-the counter drugs owned by British pharma giant GlaxoSmithKline.

Perrigo has agreed to pay €2.48bn for the business and assume €1.1bn of debt.

Omega generated about €1.6bn of revenue during the 12 months ending September 30, making it the fifth largest player within the European OTC market and the largest or second largest player in four individual European markets.

Omega owns many cough and cold,

skincare, pain relief, weight manage-ment, and gastrointestinal treatment brands among its portfolio of roughly 2,000 products.

The deal is expected to close in the first quarter of 2015.

Waterland agreed the buyout a month after exiting its investment in Germa-ny’s Median Kliniken to Dutch buyout house Waterland.

Pan-European investor Marcol also exited the company through the sale, which came five years after the pair bought Median from its founders.

The company specialises in clinical care for people needing neurological, cardiological, psychosomatic and or-thopaedic rehabilitation, and has about 9,000 beds across 43 facilities.

Waterland seals €3.6bn deal for Omega Pharma

Platform Specialty Products has reached an agreement with private equity firm Permira to acquire Arysta LifeScience for $3.5bn. Arysta was acquired by Permira in a €1.95bn deal in 2008.

The company filed for a $100m IPO in October 2014, but Permira has chosen to sell the business instead. The deal is expected to close in the first quarter of 2015.

Permira set to sell Arysta for $3.5bn

Warburg invests $100m in Avalara

Carlyle agrees to buy data providerDealogic for $700m

US private equity major Warburg Pincus has invested $100m in venture capital-backed cloud-based tax software company Avalara.

The latest funding means Avalara has raised more than $200m in outside capital since 2004 from investors including Sa-geview Capital and Battery Ventures.

Avalara says it pioneered a cloud-based platform for sales tax automation a decade ago, and has grown to deliver a broad array of compliance offerings related to sales tax and other transactional taxes such as VAT.

Private equity giant the Carlyle Group has agreed to buy global data and analytics pro-vider Dealogic in a transaction worth $700m.

Capital IQ co-founder Randall Winn and global publisher Euromoney Institutional are laying down strategic investments in Dealogic alongside Carlyle.

The private equity major is tapping its $13bn buyout fund Carlyle Partners VI for the acquisition.

Dealogic provides market intelligence and capital markets software solutions for financial institutions. The company is being sold by its management and founders, who will re-invest equity as part of the deal.

Omega Pharma has been bought by Ireland’s Perrigo in a €3.6bn deal

Advent, Avista to snap up Kremers Private equity firms Advent Internation-al and Avista Capital Partners are set to purchase drug-making business Krem-ers Urban Pharmaceuticals for $1.5bn.

The deal is expected to close in first quarter of 2015 and will provide the company with funds to invest and reduce its debt.

Kremers is owned by Belgian

pharmaceutical group UCB. AltAssets reported Advent and Avista were closing in on the deal last October after they moved ahead of unnamed private equity firms and drug-maker Akorn.

The Belgian drug company is the latest in a string of pharmaceuticals groups to put businesses that it deems non-essential up for sale.


80 Q1 2015

Nordic private equity firm Altor has sold its stake in Swedish pharmaceutical company Apotek Hjartat to ICA Gruppen for SEK5.7bn ($769m).

Apotek was established after the de-regulation of the pharmacy market in Sweden in 2009, when Altor’s third fund acquired more than 200 pharmacies from the Swedish government.

Since then Apotek has acquired Apotek1 and Vårdapoteket and has also invested heavily in several different areas, such as its own distribution set-up and e-commerce.

Altor partner and Apotek board member Fredrik Stromholm said, “We are very proud of the strong development Apotek Hjärtat has had during these five years.

“Apotek Hjärtat has strengthened its position as the number one private pharmacy chain by opening more than 100 new pharmacies since 2010. We have established a very strong brand with an improved product offer and improved productivity.”

To date Altor has raised €5.8bn in total commitments and has invested in excess of €3bn in more than 40 companies.

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

The firm also sealed the exit of its investment in hearing technology firm Sonion, which was sold to Danish investment firm Novo after five years of ownership.

Mid-market US private equity sees good dealflow

$7.5bn PetSmart take-private bidBuyout majors KKR and Clayton, Dubilier & Rice have partnered up in an attempt to take animal supplies retailer PetSmart private in a deal worth at least $7.5bn.

The two firms were planning to submit a joint bid for the pet-lovers company as Limited Partner went to press, while rivals Apollo Global Management and BC Partners are also said to be interested, said people familiar with the matter cited by Reuters.

If the deal reaches the rumoured $7.5bn it would represent the biggest leveraged buyout of the year.

Activist investor Jana Partners, with a 9.8 per cent stake in PetSmart, was said to be considering nominating its own directors to the company’s board if it was not satisfied with the outcome of the auction, the sources added.

Optimism in mid-market US private equity has led to decent dealflow despite the median purchase multiple creeping up to 10.7-times EBITDA according to recent research.

Pitchbook’s second-half report for 2014 on the US mid-market said valuations could be seen as more justified in the investment space given that growth-oriented assets may appear less expensive relative to their purchase price multiples.

It said that the mid-market was also considered something of a “safe haven” for GPs, given that it is less impacted by fluc-tuations in the wider economy compared to the upper end of the market.

The report said, “Whatever the case, deal flow continues to strengthen. $201.5bn was invested through 918 deals in the first half.

“If 2013 and 2012 were reliable indica-tors, the second half of 2014 will likely be robust by both measures. If so, this year may end up being one of the strongest, if not the strongest, year on record for mid-market activity.”

It continued, “Between 2011 and 2013 the middle market accounted for about 70 per cent of overall PE deal activity, with very little year-to-year variance. In H1 2014, though, that percentage shot up to 83 per cent, again, despite the increasing multiples for the same segment.

One variable to keep in mind is that buy-

out activity at the highest end ($5bn and up) virtually ceased in the first half.

“Historically, at least a few large public companies are taken private each year worth at least $5bn to $10bn. Once those transactions start taking place again, we’ll likely see the middle market’s share of activity come down somewhat.”

Altor sells stake in Swedish pharma firm Apotek Hjartat for $769m

The mid-market is being seen as a ‘safe haven’ by many GPs



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

Private equity-backed Hostess Brands is eyeing a hearty return through the rapid turnaround of the maker of Twinkies and Ding Dongs.

Apollo Global Management, along with US investor Dean Metropou-lous, bought Texas-based Hostess out of bankruptcy for $410m in 2013.

The pair are now looking to offload the business for up to $1.7bn in early 2015 according to Reuters, which cited people familiar with the matter. The company is holding talks with investment banks Rothschild, Credit Suisse Group AG and Perella Weinberg Partners about advisory role in a potential sale.

Hostess Brands currently has annual EBITDA of around $170m, one of the sources said.

The company is one of the largest wholesale bakers and distributors of breads and snack cakes in the US.

Hostess took the step of winding down the company at the start of last year, blaming nationwide strike action

from bakers’ union BCT-GM, which it said “crippled its operations at a time when the company lacked the financial resources to survive”.

Hostess creditor Silver Point Capital and hedge fund Hurst

Capital were also interested in buying the company’s cake business.

Apollo closed its latest flagship fund on $17.5bn at the beginning of 2014, making it the biggest vehicle raised since the financial crisis. Fund VIII will focus on distressed investments and op-portunistic buyouts.

Apollo’s Hostess looking to sell Twinkies for $1.7bn

Private equity firms Bain Capital and Apax Partners have launched a bid of just over €7bn ($8.8 billion) to buy the Portuguese operating business of Portugal Telecom from Brazilian telecoms company Oi.

The offer rivals a bid of €7.02bn made in November by trade partner Altice, a European telecoms group.

Oi is eyeing the sale of its Portugal Telecom assets to reduce its $18bn debt.

If sold, it which would effectively unwind a protracted merger of the two companies.

UK private equity investor LDC has made a cool 2.8-return selling mobility equipment company NRS Healthcare to H2 Equity Partners.

The exit comes less than two years after Lloyds Bank affiliate LDC backed a £24m management buyout of the healthcare firm from multi-channel retailer Findel.

LDC will keep a minority stake in the business as part of the deal.

Bain, Apax in bid for Portugal Telecom

LDC rakes in 2.8x return

EQT agrees €2.1bn deal for Siemen’s hearing aid divisionPrivate equity firm EQT has agreed a deal to buy German engineering firm Siemen’s hearing aid business for €2.15bn.

Santo Holding, the investment vehicle of the German Strungmann family, will be a minority co-investor in the transaction.

Deutsche Bank, Goldman Sachs and UBS are providing the financing for the deal.

Siemens previously announced plans to list its audiology unit, but declining equity markets have made such a move less attractive.

The business has annual sales of about €700m and core earnings of €160m to €170m, according to Reuters which cited two people familiar with the matter.

US buyout house TPG Capital is re-portedly looking to sell Australian gas and electric supplier Alinta Energy in a deal which could reach A$4bn.

The firm bought Alinta for A$2.1bn three years ago, and has hired Lazard to work on exit options according to Reuters, which cited three sources.

They said the sale process is expected to start early this year, though TPG may still list the company instead.

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

TPG eyes A$4bn for Alinta sale

Apollo bought Hostess Brands out of bankruptcy

SECTOR PERSPECTIVES: VENTURE

82 Q1 2015

European venture capital firms should look to their US counterparts and cut ties with bad invest-ments early, rather than desperately trying to make the company succeed, according to Skype co-creator Jonas Kjellberg.

Speaking at last year’s EVCA venture capital forum, Kjellberg said, “US firms want the money, but they’re also very fast in killing ideas that aren’t going to make it. [In Europe], we help the entrepreneurs go around together… we go around to friends trying to sell a bad idea,” he said.

Kjellberg said, “We continuously want to make companies a success, but instead we should be saying, ‘we spent €50m early-stage, the investment is still such a small part of the early fund, it’s not going to make it or break it’.”

Speaking after the conference, EVCA chairman Anne Glover said that in the case of European funds, which are often smaller, firms are likely to treat a losing company differently because it has a greater bearing on overall returns.

Nevertheless, she does believe venture capitalists on the continent are getting better, and accepting the ‘several losses, one big winner’, model.

Glover said, “The skewed curve where you can have 50 per cent losses and one big winner started to emerge in Europe in the 90s, and I think it’s much more prevalent now.

“Entrepreneurs are often as willing to throw in the towel as the investors are – it’s better to say ‘OK this isn’t working, let’s wind it down’, so they can go on to the next thing.”

VCs should dump bad investments – Kjellberg

VC firms should be more ready to bin ideas that show no signs of working, says Kjellberg

Bessemer launches ninth fundEIF, Fondo Italiano agree SME funding

Global Investment firm Bessemer Venture Partners is back in the market with its ninth venture capital fund.

Bessemer Venture Partners IX Institu-tional has yet to receive any commitments according to documents filed with the US Securities and Exchange Commission.

The new fund comes just over four years after the closing of Bessemer Venture Partners VIII.

That fund closed on $1.6bn in 2011 and maintained the firm’s focus on investing in high-growth companies across multiple industries and geographies.

Three years earlier the firm closed Bessemer Venture Partners VII on about $1bn, with $350m dedicated to investment in India.

In the past Bessemer has invested in professional networking site Linkedin, video calling site Skype, online dating company Zoosk and office superstore Staples.

Biopharmaceutical company Flex Pharma, which is focused on developing treatments for neuromuscular disorders, raised $40m from a number of investors including Bessemer in September last year.

The EIF and Fondo Italiano d’Investimento have agreed to co-invest up to €600m in private equity and private debt funds as part of a push to support Italian SMEs.

Under the agreement the pair will also back venture capital funds which invest in startups and innovative companies at both seed and later-stage financing rounds.

EIF and FII also said they envisaged set-ting up a specific fund of about €30m to co-invest alongside selected business angels.

In three years, EIF and FII have jointly invested about €500m in 10 funds.



Canadian fund-of-funds manager Teralys Capital has held a $279m first close of its latest vehicle created under the government’s Venture Capital Action Plan.

The Teralys Capital Innovation Fund is the country’s only investor dedi-cated to all sectors of the knowledge

economy – IT, life sciences and clean or industrial innovations.

It plans to cover investment stages from startup to expansion and growth.

Partners include the Caisse de dépôt et placement du Québec, the Fonds de solidarité FTQ and Investissement Québec.

Canada’s Teralys pulls in $279m

Ex-Nokia VC arm Blue Run closes US fund on $150m

BlueRun Ventures, the former VC arm of mobile phone giant Nokia, has held a $150m final close for a new US-focused fund, Limited Partner can reveal.

The firm, which spun out of Nokia almost a decade ago, has spent much of its lifespan working with global funds. It switched tactics two years ago to focus on smaller vehicles targeted at specific geographies and subjects.

BRV V is the second fund the firm has raised under the new strategy, and will be used to help US-based busi-nesses working in mobile and payments technology and services.

The firm’s first foray into more niche vehicles saw it close a Korea-headquar-

tered fund, BRV Lotus, on $170m in 2012. That figure is the firm’s sweet spot according to an LP investor with knowl-edge of the matter, who revealed the firm was planning to launch a China-based vehicle towards the end of 2014.

They added that BlueRun had already tapped the vehicle for several invest-ments, although the only one made public to date has been the $4m backing of Irish-based sports science software company Kitman Labs last August. BlueRun revealed that it planned to help expand the company into the US.

The firm also took part in a $40m Series F financing round for cloud-based financial software business Coupa.

Blue Run Ventures has held a final close for Fund V

Chicago-based Valor Equity Partners is edging closer to its third fund target of $350m. The new vehicle is marginally larger than Valor Equity Partners II, which raised a total of $300m in 2008.

Past investors have reportedly included the California State Teachers’ Retirement System, Invesco Private Capital and the Houston Mu-nicipal Employees’ Retirement System.

The firm’s portfolio includes electric car manufacturer Tesla Motors, restaurant operating company Sizzling Platter and space transport firm SpaceX.

Tesla backer Valor closes in on target

Riverwood closes growth fund near $1.2bn hard cap

Mercury edges towards $125m Fund III closeDraper Fisher Jurvetson’s rebranded seed and early-stage franchise Mercury Fund is nearing the $125m target for its third fund.

Mercury Fund III has so far landed com-mitments of just over $97m according to a filing with made with regulators in the United States.

The venture capital firm was known as DFJ Mercury until it changed name in No-vember 2012.

Globally-focused private equity firm Riverwood Capital is thought to have closed its second growth fund within a whisker of the $1.25bn hard cap.

The firm pulled in close to $1bn for the main fund according to an updated filing with the US securities regulator.

Riverwood has also registered $250m for a parallel vehicle, although it is unclear whether this is in addition to the $955m from the main fund.

Park Hill Capital has been acting as a placement agent for the fund, which follows the firm’s $780m debut growth vehicle.


84 Q1 2015

VCs backs 1,000 firms in Q3 but cash drops

More than 1,000 US companies raised VC investment in Q3, although dollar investment dropped

More than 1,000 US companies raised venture capital investment for the sixth quarter in a row in Q3 2014, despite dollar investment dropping 27 per cent to $9.9bn, recent research suggests.

Total VC investment in the first three quarters of 2014 eclipsed the $30bn spent in the whole of 2013, mirroring the situation in fundraising according to the MoneyTree report from PwC, the NVCA and Thomson Reuters.

BVCA president Bobby Franklin said, “Driven by a strong IPO market for venture-backed companies and the rise of startups in every region across the country, we continue to see a greater number of new players join-ing the venture game.

“The emergence of non-traditional inves-tors, including hedge funds and mutual funds, is contributing to the increase in venture investing this year.

“Another factor that can’t be ignored is the changing nature of our economy, where startup companies are disrupting entrenched industries and, in some cases, creating new industries altogether.”

The software sector continued to receive the highest level of funding of all industries,

despite being down for the quarter. Venture capitalists invested $3.7bn in the sector dur-ing the third quarter of 2014, down 39 per cent compared with the second quarter, when total venture investment reached $6.1bn.

Software also counted the most deals in Q3 at 418, down eight per cent on Q2.

The sharp decline in total dollars invested into the software industry can be attributed in part to a $1.2bn investment in a transpor-tation software company in Q2, the single largest quarterly investment recorded since MoneyTree began reporting venture invest-ing in 1995.

Australia’s OneVentures more than halfway to A$60m target

Advent beats target for life science fund

Australian venture capital firm OneVentures has held a A$60m first close for its second innovation and growth fund thanks to strong backing from HNWIs and family offices.

The firm is targeting up to A$100m for a final close for the fund, which OneVentures said it intends to invest across diverse areas including healthcare, education, mobile, media, cloud computing, robotics and food security.

Managing director and CEO Michelle Deaker said, “The rapid rate at which the fund has attracted investment from HNWIs and family offices reflects the strong ap-petite for opportunities in high growth

technology-based companies in Australia. These ventures will increasingly fill the void left by manufacturing and mining as traditional drivers of economic growth and job creation.

“OneVentures is intent on supporting innovation beyond the startup stage, where there is a significant structural gap in the market caused by a lack of capital, meaning value investing is still possible.

“Capital raised by Fund II will be fo-cused on investing in Series B and C stage funding where businesses are generally approaching profitability but need capital to build scale and fuel growth.”

Advent Venture Partners has beaten the target for its life-science team’s second fundraise by holding a £145.5m final close after just weeks in the market.

The firm was hoping to gather £120m for Advent Life Sciences Fund II. AltAs-sets revealed late last year that the firm had quickly registered about £90m with the US securities regulator.

AVP collected £75m for its debut vehicle in 2010, which was also managed by Fund II general partners Shahzad Malik and Raj Parekh.

Fund I was used to predominantly target early and mid-stage life science companies in the UK, Europe and the US.



Number of female partners halvesWomen are being increasingly marginalised at the upper echelons of the venture capital industry despite an increase in female entrepreneurs picking up early-stage capital.

A recent report by Babson College showed the total number of women partners in venture capital has declined from 10 per cent in 1999 to just six per cent today. The report says VC firms with women partners are twice as likely

to invest in companies with a woman on the management team, and three times more likely to back businesses with female CEOs.

Venture capital firms investing in businesses with women on the execu-tive team are also more active in terms of total investments – an average of 60 versus 17 investments for those firms who invested only in businesses with all-male teams during 2011-2013.

Veteran venture capital firm Canaan Partners has held a $675m final close for its tenth flagship fund.

Canaan said the fundraise followed a “banner year” in which it completed a dozen liquidity events, including recent exits of Ebates to Rakuten for $1bn and Labrys Biologics to Teva Pharmaceuti-cal for up to $825m.

General partner Maha Ibrahim said, “We’ve had a very exciting year with portfolio exits at Canaan, and we raised Fund X in record time.

“Our strategy for Canaan X will be

similar to the proven diversified sector strategy we’ve used for almost three decades, with two-thirds of Fund X dedicated to information technology and one-third to healthcare.

“Also, we will continue to invest primarily in early-stage and seed-stage startups, the latter of which represents 25 per cent of our portfolio.”

The firm also announced the promo-tions of Tim Shannon to general partner, Hrach Simonian to venture partner, and Brendan Dickinson, Julie Papanek and Roseanne Wincek to principal.

Canaan ends ‘banner’ year

Zetta Venture Partners, the early-stage firm founded by industry veteran Mark Gorenberg, has pulled in more than $56m for what looks to be a final close for its debut fund.

Gorenberg launched Zetta last year to target seed and early-stage enterprise invest-ments in the analytics sub-sector, and plans to pick up 12 companies with its first fund, according to the company’s website.

The firm has tapped 48 investors for the capital, a regulatory filing made in the US showed.

Zetta believes analytics is the latest cataclysmic shift in the technology market – worth $35bn at the moment and expected to pass $100bn by the end of the decade.

Gorenberg, who was previously a manag-ing director at Hummer Winblad, claims to have generated a 149 per cent IRR from his analytics investments throughout his 20-year career in venture capital.

His most publicised successes in analyt-ics included Omniture, which listed and was later acquired by Adobe, AdForce (IPO and acquired by CMGI), and Scopus Technolo-gies (IPO and acquired by Seibel Systems).

Gorenberg’s Zetta picks up $56m for debut fund

Formation 8 nails $500m Fund II closeUS venture capital firm Formation 8 has topped its debut fund by more than $50m by closing its second investment vehicle on $500m.

Formation 8 began fundraising just 18 months after the close of its first vehicle, which pulled in $448m.

The second fundraise is likely to have been helped by the firm’s early $12.5m punt on virtual-reality company Oculus VR, which Facebook bought for around $2bn.

Since launching in 2011, Formation 8 has expanded to create business teams in Seoul, Singapore, Shanghai and Beijing.

MORE SECTOR PERSPECTIVES For daily updates on the latest industry developments, visit: www.AltAssets.net

Canaan Partners finished 2014 with a $675m final close for its latest fund

SECTOR PERSPECTIVES: CLEANTECH

86 Q1 2015

Cleantech ‘showing green shoots of recovery’

Cleantech is moving into a growth phase after its post-banking crisis slump according to McKinsey

Cleantech is moving out of its recent slump and into a new growth phase, according to management consulting firm McKinsey.

The firm explained the new mood of enthu-siasm in its ‘Myths and realities of cleantech’ report, which suggested the much-maligned sector of recent years was, in fact, following a well-trodden path of emerging technologies.

McKinsey said that rather than failing, the industry was moving out of the “disillusion-ment phase”.

The report said, “In the initial ‘excitement phase’ around 2002, investment in cleantech was high, continuing to grow steadily up until 2008.

“With the ensuing financial crises coupled with losses and slow earnings from early investment in capital-intensive technologies like renewable energy, what followed was a clear shake-out.

“This is something which has been seen before in the internet boom.

“The ensuing consolidation has been seen both in companies that have fallen by the wayside as well as investors who have been burned by early investments.”

McKinsey’s report added that despite the gloom of recent years there continues to be a steady growth and maturity of both cleantech business models and technologies.

Noteworthy transactions include Lyft’s $250m Series D round and Cool Planet Energy closing $100m of fuel cells for biofuel development.

It said, “The signs that cleantech is a maturing industry are obvious in renewable energies, where cost reductions and increased efficiencies in the two main renewable energy sources, solar and off-shore wind have made these industries more competitive.”

Capital Dynamics sells $250m solar fundGlobal private asset manager Capital Dynamics has agreed to sell its US Solar Energy Fund assets to TerraForm Power for around $250m.

The US Solar Energy Fund reached a final close in June 2012 and was named the largest renewa-bles infrastructure fund raised glob-ally that year.

Its portfolio consists of 39 solar energy productions assets across five US states, which in total generate more than 75MW of power.

The portfolio’s power purchase agreements have a weighted average remaining contract life of 19 years.

SECTOR PERSPECTIVES: CLEANTECH


Italian private equity firm Ambienta has beaten the $300m target for its second clean services-focused fund and closed ahead of schedule on €323.5m ($403m).

LPs investing in Ambienta II include the European Investment Fund, Hermes, Pantheon, and Zurich Insurance Group.

Italian investors include Fondo Italiano d’Investimento and Poste Vita. The fund also drew LPs from the US.

Ambienta targets companies within “resource efficiency and pollution con-trol” and has a policy of avoiding those which rely on subsidies.

It backs companies with growth capi-tal or executes low-leverage buyouts investing between €10m and €50m per company.

Previous investments from the firm include UK offshore energy services company Found Ocean, water cleaning company Amplio Filtration Group and wood-pellet stove business Ravelli.

Managing partner Nino Tronchetti Provera said, “We believe the success of our fundraising… reflects investors’ appreciation of both the huge opportu-nity for long-term environmental trends, and the effectiveness of our industrial strategy to address it.

“We are now focused on continu-ing to identify attractive opportunities across Europe and delivering strong returns for our investors.”

Milan-headquartered Ambienta closed its first fund on €217.5m in 2009.

Blackstone and Solops create OnyxPrivate equity giant Blackstone has partnered with solar financial solutions firm Solops to create Onyx Renewable Partners.

Onyx will be owned by Blackstone funds as an affiliate of the private equity giant’s portfolio company Fisterra Energy. The team will be led by Solops CEO Matthew Rosenblum.

Onyx’s primary focus will be to develop, finance, construct and operate

utility-scale wind and solar renewable power projects in North America.

Blackstone senior managing direc-tor Sean Klimczak said, “We are very pleased to have this opportunity to partner with Matt and the entire Onyx management team to identify and to develop North American renewable power projects.

“Onyx will expand Blackstone’s and Fisterra’s existing global footprint.”

Ambienta beats $300m goal as cleantech fund closes early

Buyout majors including Bain Capital, KKR and CVC Capital Partners are reportedly among bidders for Dutch electronics group Philips’ lighting components business, which could value it at up to €3bn.

CD&R and Onex have also handed in indicative offers according to Reuters, which cited several unnamed sources.

It said the unit’s EBITDA was about €290m, while banks were working on debt packages of between €870m and €1bn.

Last year Pantheon’s Jerome Duthu-Beng-tzon told the AltAssets LP-GP Forum: Clean Energy & Sustainability that renewables-focused GPs were buzzing about the LED lighting market in 2014.

Private equity majors queue to buy Philips’ lighting business

KKR partners UK’s Green Investment Bank in loans dealPrivate equity major KKR has teamed up with the Green Investment Bank (GIB) and investment manager Temporis Capital to create a £200m UK lending programme for community-scale renewable energy projects.

KKR is set to inject up to £100m to the scheme, primarily from its own balance sheet. It will represent the firm’s first invest-ment into UK renewables.

GIB will provide up to the same amount, while the pool will be managed by Temporis Capital.

KKR co-head of credit Nat Zilkha said, “The investment builds on KKR’s view that renewable power is a critical part of the energy mix and that non-bank lending can provide capital to projects with clear tangible benefits for local communities.

“We look forward to providing more financing to companies and infrastructure projects in the UK.”

KKR has made other renewables invest-ments in US, Mexico, Australia, France, Italy, Spain, Portugal, and South Africa.

Italian private equity firm Ambienta has closed ahead of schedule and ahead of target

88 Q1 2015

REGIONAL PERSPECTIVESAFRICA 94MIDDLE EAST 92ASIA 88 LATIN AMERICA 98

Baring snaps up Japanese drug giant Bushu

Gaja Capital holds $130m first close

Global VC activity boosted by Indian and Chinese deals

Indian private equity firm Gaja Capital has held a first close of $130m for its new vehicle.

The fund launched in late 2013 with a $250m hard cap, which the firm expects to hit by the first half of 2015. IFC said it had already committed $25m to Gaja fund II.

Last year it was reported that the firm raised nearly $80m for the fund from 10 LPs.

The firm has said it plans to commit 40 per cent of the fund to education companies, according to the Economic Times.

Gaja’s previous vehicle closed on $180m and invested in pre-school chain EuroKids and automo-tive services company Carnation Auto.

Other investments include Ratnakar Bank, Haldia Coke & Chemicals and Career Launcher Education Infrastructure.

Venture capital investment almost doubled year-on-year in the first nine months of 2014, as India and China saw big increases in deal-making.

The $59bn invested across the first three quarters of the year is far above the $37bn figure for the same period in 2013, despite the number of deals drop-ping from 5,940 to 5,272, according to data from Preqin.

A total of 1,664 financings took place in Q3 2014, valued at an aggregate $19bn. That represented an eight per cent drop in the number of deals com-pared with the previous quarter, with a 16 per cent decrease in aggregate value.

The number of deals in North America was six per cent lower in Q3 2014 compared with Q2 2014, with a 26 per cent fall in aggregate value.

India saw a 16 per cent increase in deal-flow, with 111 financings com-pared with 96 in the previous quarter.

The two largest venture capital financing rounds in Q3 2014 were both in Asia – the $1bn investment in India-based Flipkart and the NZD615m PIPE deal in China-based Beingmate Group.

The average deal value for Series D stage and later deals in Q1-Q3 2014 was $59m, 75 per cent larger than the average in 2013 of $34m.

Baring Private Equity Asia has agreed to buy Bushu Pharmaceuticals for $670m

Buyout house Baring Private Equity Asia has agreed to buy drug-maker Bushu Pharmaceuti-cals from Tokio Marine Capital in a deal worth $670m.

The move represents the largest M&A deal or investment by a private equity fund announced in 2012 in Japan’s healthcare sector.

Bushu is a pharmaceutical con-tract manufacturing organisation (CMO). The company operates two manufacturing facilities in Kagoe and Misato.

Baring CEO Jean Salata said, “Bushu has made impressive strides in recent years to become Japan’s CMO Market leader and is well positioned to expand through production increase and expansion into new market segments.

Originally part of Baring’s, the London merchant bank, Baring began its pan-Asian private equity programme in 1997 after being acquired by ING, followed by a management buyout in 2000.

REGIONAL PERSPECTIVES: ASIA


Early-stage venture capital firm Arbor Ventures has launched its first fund to focus on investments in Asia, Limited Partner can reveal.

Arbor Venture Fund I has a target of $125m and has yet to receive any com-mitments according to a filing with the US regulators.

The firm invests in disruptive Asian technology companies, with a focus on the intersection of ‘big data’, financial services and digital commerce.

Founded in 2012, Arbor has offices in Hong Kong, Shanghai, Tokyo and Jakarta. According to the filing, the fund

will be run by Arbor managing partners Melissa Guzy and Wei Hopeman.

Prior to Arbor Guzy was the manag-ing partner and head of VantagePoint Asia. During her time at VantagePoint she established offices in Hong Kong, Beijing and Shanghai and invested in early-stage technology companies in both Asia and Silicon Valley.

Hopeman previously worked as managing partner and head of Asia for Citi Ventures. During her time there she established the group in Asia to invest in financial services, payments, digital commerce, big data and analytics.

ICICI launches $500m Fund IVICICI Venture is reportedly in the market with its fourth sector-agnostic private equity fund, targeting $500m.

The private equity arm of the India-based bank is currently investing the previous vehicle, India Advantage Fund Series 3 – a buyout and late-stage growth capital fund which closed on $400m.

News of the fourth vehicle was first

reported at VCCircle.com. The firm’s second fund in the series raised $583m against an initial target of $810m, ac-cording to local news reports.

AltAssets reported in 2013 that ICICI was rumoured to be planning to raise a total of $1bn across a pair of funds targeting infrastructure and special situ-ations.

Arbor launches debut Asia fund with $125m target

Arbor has launched its first fund to focus on investments in Asia

The International Finance Corporation is said to have led a $45m round of financing for Indian broadband provider Tikona Digital.

IFC put down $25m of the total raised, while Goldman Sachs Asset Management, Oak Investment partners, Everstone Capital and L&T Infrastructure Finance stumped up the remaining $20m. News of the financing was first reported in local media sources, in-cluding the Economic Times. Tikona provides internet services across 25 cities in India.

IFC, Goldman Sachs lead Tikona round

MBK Partners to sell accounting software firm Yayoi for $691m

Delta invests $10m in CipherCloudDubai-based investment firm Delta Partners Capital has backed cloud information protection business CipherCloud with $10m.

Delta is tapping its Emerging Markets TMT Growth Fund II for the investment.

India-based CipherCloud provides cloud risk assessment, data protection, and user activity and anomaly monitoring services.

Private equity firm MBK Partners is reportedly set to sell accounting software maker Yayoi for $691m, Limited Partner understands.

Japanese financial services provider Orix is set to buy a 99.9 per cent stake in the company according to Reuters, which cited a source with direct knowledge of the situation.

MBK Partners bought Yayoi for around $600m in 2007.

Orix will reportedly borrow more than $250m to finance the deal, as the company tries to expand its customer base into smaller companies.

Yayoi makes software for calculating salaries, making price estimations and filing taxes.


90 Q1 2015

Private equity firms Hillhouse Capital and CITIC Capital Partners have co-led a $75m financing round for Chinese oncology company BeiGene.

The round also included initial angel and strategic investors, as well as an un-disclosed blue-chip US public investment fund specialising in life sciences.

Hillhouse partner said Michael Yi said, “With its significant geographical advan-tages, novel translational research plat-form and first-class biology, BeiGene is a truly unique and unparalleled investment opportunity within the rapidly-growing life sciences sector.

“We are extremely excited to join this standout group of investors in the compa-ny’s first significant financing round, and look forward to helping them progress.”

Beijing-based BeiGene focuses on devel-oping immune-oncology therapeutics.

Founded in 2005 by Lei Zhang, Hill-house is an Asia-based investment firm targeting companies in the consumer, healthcare, internet and industrial sectors.

CITIC Capital Partners operates in China, the United States and Japan, and manages about $2.6bn of committed capital.

Hillhouse, CITIC lead financing round for BeiGene

Chinese oncology firm BeiGene has sealed a $75m financing round

NPS and Carlyle buy Beijing’s EC Mall from InfraRed for $390m

Abraaj buys into Wine Connection

South Korean pension fund NPS and its private equity partner The Carlyle Group are said to have bought renowned Beijing shopping centre EC Mall for RMB2.4bn ($390m).

The pair saw off several firms com-peting for the deal, including bids from US pension manager California Public Employees Retirement System (CalPERS), ARA Asset Management and Macquarie.

The 600,000 sq ft mall (pictured) was bought by private equity firm InfraRed in 2007 and completed in 2009. The firm bought a further stake in the mall in 2013.

EC Mall is said to be one of Beijing’s most reputable retail centres in Zhong-guancun and is sometimes referred to as China’s Silicon Valley. While holding the asset, Infrared executed a programme of refurbishment and enhancements, includ-ing a strategic repositioning of the mall.

Emerging markets-focused private equity firm Abraaj has bought a majority stake in South-East Asian food and drink chain Wine Connection. The financial terms of the deal remain undisclosed.

The Middle Eastern firm is looking to capitalise on the growing interest in wine and Western food among the region’s middle class. Wine Connection runs 55 restaurants and wine shops in Singapore and Thailand.

The deal is Abraaj’s fourth investment into South-East Asia’s food and beverage indus-try. Other investments include Kool Food, Mountain Fresh Farms, Qingdao Lamoka Food and TF Wholesale and Distribution.



South Korean private equity firm Hahn & Company has reportedly made a first close for its second fund after hitting its $900m target.

The vehicle only launched in August with a $1.2bn hard cap according to a source who spoke to AVCJ.

The fund has received strong demand from new and existing investors, and a final close at the hard cap was expected by the end of the year, the source added.

Hahn & Co was founded in 2010 by former Morgan Stanley Private Equity

Asia CIO Scott Hahn. Its debut fund closed at $750m in 2011 with commit-ments from 30 LPs, including Temasek Holdings and Asia Alternatives.

Fund I is believed to be about 80 per cent invested, with portfolio compa-nies Ssangyong Cement and Cowell e-Holdings nearing exits.

Last June Morgan Stanley’s Asian private equity arm reportedly picked up a South Korean construction materials business from parent company Hanwha Group in a KRW300bn ($293m) deal.

Neuberger Berman lands $1bn from East Asian LPs

Hahn makes $900m first close

Neuberger Berman Private Equity has announced it has raised more than $1bn in commitments from Japanese and Korean LPs across all of its funds.

The US firm is currently in the market with its 20th fund of funds, and closed its third dedicated secondaries fund in November 2013. NB Secondary Opportunities Fund III closed at $2bn, surpassing its target of $1.6bn.

Its predecessor, NB Secondary Op-portunities Fund II, had commitments of $1.7bn.

NB head of East Asia and manag-ing director Ryo Ohira said, “We are

excited to have such a remarkable milestone and we would like to express our gratitude to our high-quality group of institutional investors.

“We also continue to be committed to introduce a more diverse range of private equity strategies to the most sophisticated investors in the region, while seeking superior long-term returns and the highest level of localised and customised investor services.”

SOF III’s investor base includes corporate and public pension plans, en-dowments, insurance companies, family offices and high net worth individuals.

Hahn has made a first close on its second fund, hitting its $900m target

Private equity giant Warburg Pincus has reportedly agreed to lay down around $200m for a significant minority stake in India’s Kalyan Jewellers.

The jewellery maker and distributor said it would use the capital for expansion purposes according to sources cited by Reuters.

Warburg has come out top of the competi-tion after a number of private equity firms were said to have been in separate talks with Kalyan to invest between $200m and $250m.

Warburg Pincus invests $200m in jewellery

Dragon lands 7x return from Vinamilk exit

Bain buys into Chinese financial services firmUS buyout major Bain Capital has reportedly made its first investment in China’s financial services sector by picking up an 80 per cent stake in Lionbridge Financial Leasing for about $164m.

Lionbridge leases medical, agricultural and manufacturing equipment to SMEs in China. Bain Capital closed its second pan-Asian private equity fund at $2.3bn in 2012.

Vietnam-focused fund manager Dragon Capital Group has landed a seven-times return through its partial exit of dairy company Vinamilk.

Dragon was involved very early in the privatisation process and was the first foreign investor in the company.

The initial investment in the company was made through its Vietnam Growth Fund (VGF) and Vietnam Enterprise Investments limited (VEIL).

VEIL portfolio manager Vu Huu Dien said, “Vinamilk has performed exceptionally for both VEIL and VGF.

“From an initial position of 10 per cent in both funds, Vinamilk has grown to over 33 per cent of VEIL and 40 per cent of VGF.”

REGIONAL PERSPECTIVES: MIDDLE EAST

92 Q1 2015

Middle East-focused asset manager Gulf Capital has held a $750m final close for its third flagship private equity fund thanks to a swell of US, European and Asian backers.

The firm easily beat the initial $550m target for GC Equity Partners Fund III, which it said would continue its strategy of control-oriented growth buyouts, primarily focused on the GCC countries.

Gulf said the fund was the largest private equity vehicle raised in the Middle East in the past three years.

About 60 per cent of its external investors came from the US, Europe and the Far East, helping the vehicle to its final close above its hard cap in under a year.

The final close brings Fund III’s total as-sets under management to more than $3.3bn across private equity, credit and mezzanine, real estate development and its principal investments unit.

CEO and managing partner Karim El Solh said, “Our continued focus on control-oriented growth buyout transactions, our local presence, our unique regional reach and proprietary relationships with local business groups and expatriate-owned busi-nesses, as well as our hands-on operational value-addition, have allowed us historically to source attractive proprietary investments

and to successfully grow them ahead of a profitable exit.”

Gulf’s deal activity over the past 12 months has include the partial trade sale of a strategic stake in Metito Holdings to Mitsubishi Corporation and Mitsubishi Heavy Industries, and the partial exit of

Gulf Marine Services through a strongly oversubscribed IPO on the London Stock Exchange.

The latter investment returned more than 10-times the original invested capital, in-cluding remaining listed shares, to investors in GC Equity Partners Fund II.

Gulf Capital closes Fund III above hard cap

MEVP’s early-stage VC fund marks a ‘major milestone’ for Lebanon

Greylock launches Israel-based fund

Middle East Venture Partners (MEVP) has launched Lebanon’s largest dedicated early-stage investment fund in what it calls a “major milestone” for the asset class in the country.

The $50m-plus IMPACT Fund is the first to comply with a Banque di Liban circu-lar encouraging Lebanese banks to invest early-stage equity capital in the country’s knowledge economy.

IMPACT is co-sponsored by BLOM Invest Bank and MedSecurities Investment, and has already received first-close invest-ment commitments from most of Lebanon’s

leading banks, including BankMed, Bank Audi, Fransabank, Credit Libanais Invest-ment Bank and Al-Mawarid Bank.

MEVP said it expects several other banks to join the second closing of IMPACT, including Banque Libano-Française, Bank of Beirut, BBAC, LGB Bank and BML.

The fund will invest $500,000 to $5m in next-generation, knowledge-based Leba-nese companies that focus on IT and other intellectual property-driven sectors.

MEVP has offices in Beirut, Dubai and Silicon Valley and more than $75m in assets under management.

A partner at venture capital firm Greylock Partners, Yoram Snir, has registered a $200m-targeting vehicle just months after the firm’s Israel and UK investment affiliate Greylock IL was said to be looking to rebrand and operate as a standalone firm.

Cayman island-domiciled GLI Partners III has yet to pull in any commitments accord-ing to the firm’s US regulatory filing.

Last July AltAssets reported that Greylock IL was set to change its name amid loosen-ing ties with Greylock Partners, and raise a new fund independently.

Greylock IL was founded in 2006 and has more than $360m under management.

Gulf Capital has held a final close of its third fund at $750m, almost 50 per cent over target

REGIONAL PERSPECTIVES: MIDDLE EAST


An influx of Asian investors tempted by Israel’s growing economy have helped local early-stage investment firm Carmel Ventures hit a $194m final close for its fourth fund.

General partner Ori Bendori told AltAssets the firm picked up new capital from Asian strategics including Baidu, Ping-An and Qihoo360, as well as a “significant number” of return in-vestors keen to continue their exposure to the Israeli market.

Despite the new LP blood, Carmel’s latest vehicle is smaller than the $235m the firm closed at the height of the financial crisis in 2008, and is more comparable in size to its $200m second fund from 2005.

Bendori said, “We are seeing in-creased interest in the Israeli market.

“The environment was quite difficult when we began fundraising in 2013. After the first close, and in particular 2014, we saw more interest from global investors, in particular from Asia – mainly China and Japan.”

That surge of interest in the country’s renowned hi-tech industry is down to global tech giants picking up a foothold in the market, Bendori added.

He said, “The Israeli economy has seen big players like Google, Facebook and Apple, in some form or another, who have entered the Israeli market, acquiring companies and establishing R&D centres here.”

Abraaj in $118m offer for BiscoMisr

Carmel closes $194m Fund IV

Emerging markets private equity power Abraaj Group has offered EGP850m ($118.8m) for Egyptian cake maker BiscoMisr, it is understood.

The deal for 100 per cent of the business was revealed by regulator the Egyptian Financial Supervisory Author-ity, Reuters revealed.

It said Abraaj had made an approach

to buy at least 51 per cent of BiscoMisr in the summer, which has now passed the due-diligence process.

BiscoMisr was established in 1957 to supply the army and national schools with a quick energy snack.

It has since grown to become one of the country’s main providers of baked goods and confectionery.

Asian investors helped tech-focused Carmel Ventures hit its final close

Dubai-based private equity house TVM Capital Healthcare Partners is reportedly eyeing a second fund aimed at expanding companies throughout the Middle East and India.

TVM is nearing completion of its fifth investment from its $120m Fund I accord-ing to Reuters, which spoke to chairman Helmut Schuhsler. He said the firm would need another $200m over the next three or four years, which could see it raise a second vehicle alongside co-investors or through stockmarket listings.

TVM Capital MENA rebranded as TVM Capital Healthcare Partners earlier this year to reflect the firm’s sectorial focus and the expansion of its investment geography be-yond the MENA region.

The announcement came after TVM con-firmed its intention to invest up to $100m in India over the next three to five years through its IVF chain Bourn Hall International.

TVM was established in Dubai in 2009 to target the growing investment opportunity in private sector healthcare across the Middle East and North Africa.

TVM toys with $200m fundraise opportunities

JVP nears $120m target for Fund VIIJerusalem Venture Partners has registered $100m for its $120m-targeting third venture capital fund.

The vehicle has attracted commitments from 62 LPs so far according to the firm’s filing with the US securities regulator.

The total sold includes commitments reg-istered under JVP’s parallel funds, JVP VII (Israel) and JVP Entrepreneurs Fund VII.

The firm is focused on the digital media, storage and infrastructure, enterprise soft-ware and cyber security sectors.

A separate filing from JVP shows it has pulled in $60m for its $65m-targeting JVP VII Cyber Strategic Partners, described as the ‘cyber investment initiative of JVP VII’.

REGIONAL PERSPECTIVES: AFRICA

94 Q1 2015

Private equity-backed Nigerian phone tower group IHS has raised $2.6bn in equity and debt in one of the largest raises in Africa in the past decade.

The company is backed by the likes of Goldman Sachs,Wendel of France and Emerging Capital Partners.

IHS has raised $2bn in equity and $600m in debt, and will use the money to finance infrastructure spending and recently agreed

acquisitions. It said the equity funding was from new and existing shareholders, but did not provide further details.

Ecobank, Standard Chartered, Standard Bank, Investec and the World Bank’s in-vestment arm IFC participated in the loan.

IHS chief executive Issam Darwish said, “This is the largest equity raising by a pri-vate entity for the past seven to eight years in Africa. You’ve had mining, banks, and

now telecoms infrastructure as a standalone sector is commanding this much interest.

“This sends the right signal – it’s say-ing the international investor community believes in Africa and they’re putting a substantial amount of money behind that.”

Recently it was reported that European private equity firm CVC Capital was look-ing for prospective deals in the Middle East and North Africa.

PE-backed phone tower firm IHS raises $2.6bn

Nigerian phone tower group IHS has raised $2.6bn in equity and debt, with backers including Goldman Sachs and Emerging Capital Partners

Leapfrog exits minority stake in Apollo to Swiss RePrivate equity firm LeapFrog Investment has exited its minority stake in East African insurer Apollo Investments to Swiss Re after three years.

The firm initially bought a stake in the business in April 2011 and made a further investment the following year, committing a total of $13m.

LeapFrog’s deal is the second exit from its first fund following the sale of its stake

in Ghanaian insurer Express Life to UK-listed insurance giant Prudential last year.

Firm founder and CEO Andy Kuper said LeapFrog had received a number of approaches from parties interested in the stake.

It decided that Swiss Re, which is also a limited partner in the firm’s new fund, was the “right choice”. The firm recently closed its oversubscribed second fund with $400m

of commitments, earmarking up to $100m to invest in East Africa.

LeapFrog invests in high-growth busi-nesses in Africa and Asia, providing growth capital for companies that can operate at scale.

LeapFrog is an operational investor, and its team of specialists actively partners with portfolio companies from strategy to product design and distribution.



Pan-emerging markets private equity investor Actis has invested $65m in South African sports and lifestyle shoe seller Tekkie Town.

The 13-year-old business currently has more than 260 stores across the country selling global sportswear brands.

Actis consumer head Andreas von Paleske said, “[Founder Braam van Huyssteen] and his team have built a fantastic business targeting the consumer segment that aligns with our investment

strategy – brand aspirational, emerging middle-class consumers who are looking for quality products at real value.

“We look forward to partnering with Braam to help the business continue its impressive growth and to expand to other countries in the continent.”

Actis has previously backed consumer-focused businesses on the continent, including fabric design company Vlisco Group and food group Edita. To date the firm has invested $1.6bn in the sector.

African returns outperform more mature markets – EY

Africa-focused private equity firm Develop-ment Partners International has agreed to exit Nigerian insurer holding company Assur Af-rica to AXA Group as part of a €198m deal.

Assur holds a 70 per cent stake in Nigerian stock exchange-listed Mansard, which pro-vides a range of life and non-life products.

The holding company, which is backed by development finance initiatives and pri-vate equity firms, bought Mansard in 2011. Backers include Germany’s DEG, France’s Proparco and FMO from The Netherlands.

DPI partner Idris Mohammed said, “DPI is proud to have been part of building the premier insurance brand and platform in Nigeria. Backed by the technical and financial resources of AXA, Mansard is well positioned to harness the significant growth opportunity in insurance and other financial services presented by Africa’s largest con-sumer market.”

One Thousand & One lands $67m for first sub-Saharan fund

DPI, DEG and others sell Assur stakes to AXA in €198m deal

US private equity fund One Thousand & One Voices has landed $67m for its first fund targeting sub-Saharan Africa, Limited Partner understands.

The firm is eyeing $300m for its Africa Fund I, according to a US regulatory filing.

CEO Hendrick Jordaan previously worked as a partner and global chair of the Private Equity Investments & Buyout Practice at law firm Morrison & Foerster.

Target sectors include consumer, logistics, agribusiness, financial & business services, healthcare, education and telecommunica-tions, media & technology.

The firm’s investment strategy is to provide controlling or influential minority growth equity and mezzanine debt in private enterprises valued at between $10m and $100m.

Tekkie Town bags $65m injection

Africa is outperforming more mature markets when it comes to cash-in, cash-out returns according to Ernst & Young’s Graham Stokoe.

Stokoe told EMPEA’s most recent Private Equity in Africa Conference, “After a detailed study looking at exits in Africa, there I two things I can touch on.

“One, there was a large number of exits which had been done already. By the end of this year [2014] we are look-ing at more than 250.

“The second is returns… for the com-parison we have done to Europe and North America from 2010-2012, Africa is outperforming in terms of gross cash-

in cash-out returns. It’s a very positive story for private equity exits in Africa.”

Development Partners International co-founding partner and CEO Runa Alam said, “The opportunity I see is returns and the fund I was with before AVP I has had its full cycle.

“It’s not fully done yet, but fully-re-alised returns are already at 37 per cent net of fee-carrying expenses.

“We underwrite FDPI, AVP one and two at 30 per cent or three times cash on cash.”

Alam said the fund had seen one partial exit, one full exit and one that was in progress.

Actis has invested $65m in South African sports shoe seller Tekkie Town


96 Q1 2015

The Ebola crisis raging through several West African countries has had a “massive effect” on private equity deal-making – but should not trouble long-term opportunities the continent has to offer, Sovereign Risk Insurance’s Justin Willmott has said.

Willmott told EMPEA’s Private Equity in Africa Conference, “This is an example of one of those discrete hard-to-predict events that would not have been put in the DCF or projection, which as a result is having a massive effect on the business opportunities there.

“I don’t want to underplay the risk, but whilst no deal activity is expected in the next six to nine months, in my view it’s not changing the underline fundamentals of the country.”

He said at the time, the risk wasn’t taken seriously by private equity firms looking for investment opportunities.

“I think even before Ebola there was a massive perception gap between the opportu-nities in Africa, as perceived from the West.

“In the current case of Ebola, I was in Namibia in July and to be honest it wasn’t taken that seriously.”

Intangis Holdings senior partner Jean Missinhoun agreed there are risks in every opportunity. He said, “Certainly the current

crisis has resulted in issues, and no-one can underplay that.

“But if you put in perspective there is un-derlined risk in every opportunity, so I think this is a false signal just because Ebola is in the headlines.”

Missinhoun pointed to the role private equity can play in helping the economy become resistant to these types of risks.

He said, “It’s important to have responsi-

ble capital flows into these markets, which creates a cycle in which businesses pay their taxes so the government can provide the necessary services.”

White and Chase Partner Mara Topping added, “I am very proud to say that I have a client who just closed on a Sierra Leone-Liberia fund and the closing went ahead, which is very good, as they see the long-term opportunities.”

Ebola ‘shouldn’t hit long-term opportunities’

Ebola has hit short term private equity deal-making, but shouldn’t affect long-term prospects, says Willmott

IFC helps African Capital Alliance push target for Fund III to $600m

Phatisa’s AAF backs Meridian Group

Private equity firm African Capital Alliance is targeting $600m for its third fund, up one-fifth from the $500m the firm was initially seeking for Capital Alliance Private Equity (CAPE) III.

The 10-year vehicle will target growth companies in Nigeria and other countries along the Gulf of Guinea.

LPs committed so far include the Interna-tional Finance Corporation, which has ear-marked $40m to the fund. That is the same amount IFC committed to African Capital’s previous vehicle.

Fund III is expected to invest 40 per

cent of the committed capital in the energy sector, principally in Nigeria and other countries in West Africa, according to due diligence documents filed by IFC.

Previous investments from African Capi-tal include a Protea Hotel in Benin City, First Hydrocabron Nigeria and the Union Bank of Nigeria.

Formed in 1997, ACA focuses on Nigeria and the broader West African region, and has, to date, obtained aggregate capital commitments of more than $750m across several funds raised from its offices in Lagos, Nigeria.

African private equity firm Phatisa has deployed half its African Agriculture Fund (AAF) following a new investment in fertiliser producer Meridian Group.

The deal is the vehicle’s seventh since it was closed on $246m in September 2013.

Investors in the fund include the African Development Bank, the Development Bank of Southern Africa, the government agen-cies of Spain, the US and France, a fund of funds, and private investors from America and Europe.

Meridian’s main focus is the manufacture and distribution of specialised fertiliser blends.



Abraaj snaps up stake in South Africa’s Liberty Star

Emerging markets private equity investor Abraaj has bought into one of South Africa’s biggest unlisted food and personal care product manufacturers.

The firm picked up the stake in Liberty Star Consumer Holdings from shareholders including Old Mutual Private Equity, Metier, Development Partners International and Lereko.

Metier helped launch the business in 2005. It produces products including cheeses, sauces, detergents, washing powders and baking aids.

Abraaj partner and sub-Saharan Africa head Davinder Sikand said, “The acquisition of Libstar represents another exciting African investment partnership.

“Metier, along with the Libstar man-agement team and employees, has built an impressive market position as one of the leading manufacturers and providers of high-quality products and services to the African foods service and retail industry.

“We look forward to adding our deep experience in helping accelerate the growth of our numerous fast-moving consumer goods and food businesses, not only across Africa, but from our other growth markets as well.”

Abraaj said the acquisition of Libstar represented an attractive opportunity given the large, non-cyclical markets and industries the company targets.

Abraaj has bought a slice of unlisted South African food producer Liberty Star

Helios Investment Partners has reportedly pulled in at least $797m for its third fund, putting it more than three-quarters of the way to its $1bn target.

That is over $100m more than the $681m Helios registered with the US securities regulator in October 2014.

The exclusively Africa-focused invest-ment vehicle has a $1.1bn target, and was set to pay finder’s fees of $1.27m to placement agent Lazard Freres.

Helios closed its second fund on $900m in June 2011.

At the time it was the largest vehicle ever to focus exclusively on investments in Africa. The firm’s strategy is to buy and/or build market-leading, diversified platform companies operating in the core economic sectors of key countries within Africa.

Last year’s deals include investing $40m in broadband provider Wananchi and buying a 13.6 per cent stake in Impact Oil & Gas.

Africa-focused Helios on way to $1bn target

South African firm Vantage Capital has invested $7m in building and construction materials company AfriSam.

The firm made the investment through its second mezzanine fund, Vantage Fund II.

The asset manager raised $223m for the fund back in 2012, receiving capital from 20 institutional investors.

Investors include 14 pension funds from South Africa and Botswana, as well as the Development Bank of Southern Africa, the Norwegian Investment Fund for Developing Countries and the WK Kellogg Foundation.

AfriSam is the tenth mezzanine transac-tion in Vantage’s second fund, of which more than 80 per cent of available funds have been invested.

Vantage backsindustrial producer AfriSam with $7m

Brait exits Pepkor in $5.7bn dealAfrica-focused investment firm Brait has agreed to sell discount clothing retailer Pepkor to strategic player Steinhoff International in a $5.7bn deal.

Brait controls about 37 per cent of the company through its Brait Mauri-tius subsidiary, with about 52 per cent owned by Titan Premier Investments.

Cape Town-headquartered Pepkor

sells clothing, footwear, homeware and personal accessories, as well as mobile phone products and financial services. It currently employs about 32,000 people and has a network of more than 3,700 retail stores.

Brait bought into Pepkor in 2011 using capital raised by issuing about $850m of new shares.

REGIONAL PERSPECTIVES: LATIN AMERICA

98 Q1 2015

Actis backs $100m Brazilian insurance brokerage

Carnival time: Brazil’s burgeoning insurance market has tempted Actis to invest $100m in a buy-and-build brokerage

Emerging markets-focused private equity firm Actis has invested $100m to create a buy-and-build insurance brokerage platform in Brazil.

It’s Seg has already bought three com-panies to give the platform a reach of more than 400,000 people, with a total of about $400m in annual premiums.

The company is initially targeting the benefits market for corporate, medium and small businesses.

Actis Latin America co-head Chu Kong said, “The Brazilian insurance brokerage sector offers enormous potential for growth and consolidation, reaching $7bn in revenue in 2013 and growing by eight per cent a year in real terms.”

The firm’s head of financial services, Nick Luckock, added, “We looked at opportunities across the markets where Actis invests and

Brazil is the most attractive market to create such a platform.

“Low insurance penetration rates and high fragmentation in the insurance distribution market provides a clear rationale for a scale business like this.”

In 2010 the firm invested $58m in XP Investimentos, Brazil’s largest independ-ent brokerage firm.

Since then the company has more than doubled in value, diversified into new prod-uct lines, and made five acquisitions.

Last year Actis set up Credit Services Holdings, a buy-and-build credit services business in Africa.

In September the firm invested $250m in Mexican energy platform Zuma Energía. The new vehicle which will be used to target pro-jects providing at least 500MW of installed electricity generation capacity.

Riverwood Capital buys ConductorRiverwood Capital has bought Brazilian payment processing busi-ness Conductor for an undisclosed amount.

The firm said it injected capital in Conductor to fund an aggressive growth strategy and consolidate the company’s market position in Brazil and across Latin America.

Conductor provides payment pro-cessing to retailers and banks, and focuses primarily on credit cards and prepaid debit cards in Brazil.

The company owns a proprietary, web-based processing platform which manages the operational cycle.



US private equity firm Advent International has hit its sixth Latin America fund’s hard cap of $2.1bn after less than six months.

Advent Latin American Private Equi-ty Fund VI received commitments from more than 60 institutional investors, in-cluding pension funds, endowments and foundations, fund of funds, sovereign wealth funds and family offices.

About 50 per cent of the capital was raised from North American investors, 25 per cent from European investors and the remainder from Latin America, the Middle East and Asia, the firm said.

Advent’s previous fund focused on the region held a final close on $1.65bn in 2010, three years after the firm raised $1.3bn for its fourth Latin American vehicle.

The fund will focus mainly on com-panies in Brazil, Mexico and Colombia, and target high-growth sectors such as

financial services, airport services, busi-ness services and education.

Advent managing partner David Mussafer said, “LAPEF VI underscores our longstanding commitment to invest in attractive opportunities in our target sectors throughout Latin America.

“We believe our industry and local market expertise, combined with our global resources and operational ap-proach to creating value, provides us with a distinct competitive advantage in the region.

“We are pleased investors continue to recognise this and we remain focused on exceeding their expectations.”

In August 2014, Advent acquired a 49.99 per cent stake in Brazilian nation-al park operator Cataratas do Iguacu.

Similar funds in the region include Acon Investments, which closed its latest Latin American fund on $515m last year.

Advent collects $2.1bn for Latin America Fund VI

South Ventures supports Brazil’s Trocafone

Macquarie launches development vehicleInfrastructure investment giant Macquarie Capital is set to form the Macquarie Development Corporation (MDC) to invest in pre-construction infrastructure projects in Latin America.

The Australia-headquartered firm will part-ner with shareholders China Communication Construction Company and Brazil’s Banco Modal, and expects additional shareholders to participate in the coming months.

Head of Latin America infrastructure Mark Ramsey said, “A shortage of develop-ment capital continues to be a constraint on infrastructure development in many Latin American markets.

“MDC represents a significant opportunity to facilitate economic growth in the region.”

Latin American startup investor South Ventures has tapped its SV Invested Global Fund II to back Brazilian mobile phone e-commerce site Trocafone.

Trocafone acts in the space between traditional mobile phone retailers and buyers, picking up phones in need of refurbishment and selling them on at discounted prices compared with new models.

The company’s business model is built on the fact that mobile phone technology is in constant flux, with users frequently back in the market for new functionality.

Company founders Andy Freire and Paul Simon Casarino started with Brazil as it has more than 200 million inhabitants, but have plans to expand to the rest of Latin America.

South Ventures is made up of more than 3,000 investors from about 20 different countries, and has already parted with over $3m for deals in the last 18 months.

The business co-invests with successful venture capital firms around the world to fund startups from the US, Brazil, Colombia, Spain and Ireland, among others.

MORE REGIONAL NEWS For breaking news across the global private equity market, visit: www.AltAssets.net

Advent International’s sixth Latin American fund hit its hard cap in just six months


100 Q1 2015

More than 60 per cent of Latin America-based LPs are planning to increase their allocations to the asset class in the coming year, according to the annual Latin American Private Equity Survey from Coller Capital and regional industry group LAVCA.

Institutional investors are forecasting strong returns from their Latin American private equity investments according to the report, which revealed almost two-thirds of PE investors in the region are forecast-ing annual net returns of more 16 per cent in the next three to five years.

These plans are reflected in LPs’ hiring intentions, with nearly half of investors planning to recruit new staff for their Latin America-focused private equity teams in the next 12-18 months, the report added.

It said that LPs are most optimistic about returns from Colombia and Mexico, closely followed by Peru.

Coller Capital CIO Jeremy Coller said, “Investors are signalling continued growth for private equity in Latin America.

“Their positive outlook is reflected in the attractive returns they expect, both from the region as a whole and especially from the less developed private equity

markets of Colombia, Mexico and Peru.” Private equity in Latin America could hit

$8bn by the end of the year, according to data released by LAVCA earlier last year.

Buyout fundraising in region kept up the continent’s strong momentum in the first half of 2014 after $3.5bn of fresh capital was raised.

Advent International is currently raising

its sixth Latin American fund with a target of $2bn.

Deutsche Bank’s head of primary and direct investments for the Americas David Koh told AltAssets that “broadly speaking, you are seeing a greater presence of Latin American LPs within the make-up of differ-ent GP funds, whether that’s on a co-invest-ment, primary or secondary basis”.

Strong returns prompt LPs to boost investment

Latin American LPs are planning to increase their allocations to private equity

Caisse to put $500m into Mexican real estate via new partnership

Spark Capital makes first Brazilian deal

Pension fund manager Caisse de dépôt et placement du Québec has partnered up with real estate private equity firm Black Creek Group to form a new Mexican real estate investment platform.

The Caisse will invest up to $500m to the fund via its real estate company, Ivanhoé Cambridge.

The new partnership will invest in the de-velopment of mixed-use urban communities in Mexico City, Monterrey and Guadalajara through real-estate development platform MIRA.

Ivanhoé executive vice-president Rita-Rose Gagné said, “With this investment,

Ivanhoé Cambridge is setting a major foothold in Mexico, which will provide excellent access to opportunities, includ-ing long-term investments in a portfolio of high-quality assets.

“The investment is part of Ivanhoé Cambridge’s strategy of developing a long-term, active presence in growth markets. The economic growth and demographic trends in Mexico are producing a large and sustained local demand for commercial and residential real estate.”

Ivanhoé has already allocated $100m for a residential development project located in the Mexico City borough of Cuajimalpa.

US venture Capital Firm Spark Capital has completed its first deal in Brazil, leading a $41.7m Series C financing round in real-estate portal VivaReal.

New York-based firm LeadEdge Capital also took part in the round, which brings capital invested in the company to more than $70m.

Existing investors include Valiant Capital Partners, Kaszek Ventures, Monashees Capi-tal and Dragoneer Investment Group.

Boston-based Spark has $1.5bn under management across four funds and is cur-rently investing from its $450m Fund IV.

VivaReal was founded in 2009 and oper-ates from 14 offices in major cities in Brazil.

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Documents

[E1] LP Magazine Q1 2015