Q & A

Q: What sort of level of activity are you seeing in the fundraising space at the moment?

A: 2007 was an interesting year for the private equity industry in general, with two distinctive halves. The first half was marked by record deal activity & fund raising levels, whilst the second half was marked by a considerable change in sentiment across the industry triggered by the credit crisis, affecting private equity-led M&A activity, recapitalisations, exits and distributions. With fewer distributions LPs now have less pressure to redeploy capital as quickly and this trend is paired with lower investment rates by GPs and a prolongation of fundraising cycles in general. LPs have been showing increasing interest in 'hands-on' operational strategies which are less reliant on financial engineering. In addition investors are increasing their preference towards lower and mid-market buyout funds, as well as in turnaround funds, niche strategy managers and emerging markets. Many of the independent Dutch buyout GPs have closed their funds successfully over the past two years, including Gilde, Bencis and Waterland, with Egeria still believed to be in the market. We have also seen a number of established turnaround managers, who have previously funded their investments on a deal-by-deal basis, such as H2 Capital, Redesign and Value Enhancement Partners, emerge to raise blind pool funds.

Q: What future trends do you expect to see in the Dutch fundraising market?

A: Globally GPs may find it more challenging to raise funds in 2008 and 2009 and fundraising volumes may drop as a result of lower demand for mega funds. However the number of funds raised may not drop by the same measure, reflecting the stronger demand for lower and mid-market funds, a trend Dutch GPs may benefit from. The credit squeeze is rekindling the interest in mezzanine funds. Despite the credit crisis, long-term investors are unlikely to follow short-term trends and we expect them to continue to invest in mid-market buyout, emerging markets, and emerging technologies. In the Netherlands for example, Ernest Lambers, formerly responsible for emerging markets at AlpInvest, has now started his own firm (EMAlternatives), advising large institutional investors in building tailor made emerging market portfolios and Robeco has developed a particular expertise in cleantech funds and is currently raising its second dedicated fund-of-funds in this space.

Q: Access to funds became an issue for LPs in 2006/07 as more successful GPs were oversubscribed. How do you think 2008 will be?

A: Private equity is relationship driven, favouring long-term investors. Investors tend to continue supporting existing managers, as long as the GP stays within its strategy, fund size and continues to produce satisfactory returns. With lengthening fund cycles and fund sizes not growing at the same rate as seen in some funds over the past three years, new LPs may find it difficult to get access to more established GPs. With track records of 2002-2005 generally looking good, differentiation is more difficult and GPs will face stronger scrutiny even by their existing investors. Another trend we expect is the trimming of the number of GP relationships investors are comfortable to manage, and some GPs may find that, despite an overall strong performance, some LPs are not coming back into the next fund. With a limited number of independent buyout houses in the Netherlands we would expect firms such as Bencis, Gilde and Waterland to continue to enjoy the support from their existing investors, leaving limited space for new ones. Good GPs will always face oversubscription, especially those with LPs that can scale up (for example, pension funds and fund-of-funds). For the GPs it will be critical to strategically diversify their investor base while treating existing investors fairly, a process a placement agent can add significant value to.

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