EIF's push into private capital management

Unquote reported recently that John Holloway, previously head of equity investments at the European Investment Fund (EIF), had moved onto a new role in the organisation at the beginning of January, with a focus on private-sector fundraising to support the equity commitments being made by EIF.

Domiciled in Luxembourg, EIF's Asset Management Umbrella Fund (AMUF) is a fund-of-funds platform with three distinct pockets: ICT venture, life sciences venture and growth capital, the latter of which should represent around half of the total commitments. Investors are free to choose which pocket they want to commit to, and EIF will be able to add further compartments down the line to target additional asset classes, dependent on investor appetite.

With a three-year investment period and a minimum commitment set at €80m, the fundraising will be managed by a dedicated team of 11 people,  Part of the team was recruited externally, with more hires expected as the fund is raised. The management board (headed by Holloway) and the governance are totally separate from the rest of EIF.

New horizons
Holloway tells Unquote that, while the overall aim of EIF has not changed since inception, the exponential growth of the commitments made by the institution led EIF into discussions with institutional investors that are seeking access to the asset class, as stable double-digit returns are emerging and have become a key element of asset allocation decisions.

"From our special position in the industry, we began to hear frequently from institutional investors who wanted to make or increase allocations to the asset class we know best," Holloway says. "Therefore, we created an investment solution that enables investors to benefit from our market knowledge and privileged access to the best funds in Europe. EIF has now backed in excess of 450 vehicles across Europe, and it continues to receive strong support from its two sponsors, the European Investment Bank and the European Commission. But now, this new Umbrella Fund enables us to channel even greater volumes of private institutional investment into this asset class. And while EIF has traditionally been very good at catalysing private sector investment in the GPs it has backed, this time we have extended our scope to enable a new stream of institutions to invest through the Umbrella Fund."

EIF's new initiative will focus on investors that may have had some exposure to private equity previously but never developed a long-term strategy of investing in the asset class, or are entering this space for the first time, with a particular focus on local pension funds across Europe.

AMUF recently netted its first LP with Cassa Forense, the pension fund for Italian lawyers, committing €175m to the platform. EIF is currently in the process of securing commitments from another two investors with a broadly similar profile, with the expectation of attracting another €175m or so by the end of April. More prospects from outside Europe are also in the pipeline.

Meanwhile, the vehicle has already made its first investment by backing IK Investment Partners' Small Cap II fund, which held a final close on €550m in February after a short while on the road. Holloway says that AMUF's target was carefully set based on deployment expectations given the pipeline of quality venture and growth funds likely to return to market in the next few years. The team also built in an allowance for first-time funds, although Holloway points out that the platform will mostly focus on established managers, given EIF's already strong support for debut vehicles from other sources of funds it manages.

Road less travelled
Although local pension funds are being increasingly courted by fund-of-funds managers or even GPs themselves, Holloway believes the fund's specific focus should ensure that the arrival of a new player on the fundraising trail will not end up displacing capital. "Existing players in the fund-of-funds or asset management space have not really been focusing on venture and growth capital in recent years, instead meeting the growing appetite for mid-market private equity and beyond," says Holloway. "This allows us to offer something different from institutional investors, and we can put forward in addition to this our access to the best managers, cultivated over years of successful relationships; our track record and expertise in the venture space; and the flexibility and efficiency of our platform."

More than navigating a crowded fundraising market, the challenge for Holloway's team lies in making the case for European venture, which still lives in the shadow of buyout-focused private equity. "We could not have launched this initiative four years ago," Holloway says. "There is still a perception that US VC continues to outperform Europe's offering, but one of the reasons we felt ready to launch is that we are now able to sit down with investors and show them concrete evidence of what European VC has been able to deliver in terms of returns and in each of the compartments we target. For instance, our extensive database shows us that currently the best performing segment we have at EIF is life sciences, and this also includes a significant proportion of first-time funds. These are two counter-intuitive messages that would have fallen on deaf ears just a few years ago, but there is a real change in perception taking place."

Click here to view Unquote's recent profile of EIF's wider strategy, including its focus on supporting first-time funds

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