
DACH funds still proliferate despite fundraising lull

Fund managers in the DACH region have continued to launch new vehicles and new strategies at a record pace, despite a dip in capital raised. Oscar Geen reports
Managers of primary investment vehicles tracked by Unquote Data in the DACH region have registered or launched 13 funds in 2018 at the time of writing, with at least one more set to launch by the end of October. This is an increase on the 11 that hit the road in the same period in 2017 and could conceivably close in on the full-year record of 25 set in 2016.
This is somewhat surprising considering final closes in the region have actually slowed from 2017's record, in line with a trend observed across all of European private equity. In 2017, 22 funds held €8.8bn's worth of final closes by September, compared with just 12 collecting €3.79bn in 2018 so far. "The European fundraising market is somewhat bifurcated at the moment," one adviser told Unquote. "LPs are borrowing allocation from 2019 to meet re-up commitments and don't have a lot of time to look at anything else."
This has not stopped GPs from continuing to launch and could have driven further specialisation in a bid for differentiation. The DACH region is no exception to this, as evidenced by the proliferation of strategies across the capital structure. For example, larger VC funds have been raised to fill what is perceived as a funding gap for startups seeking later-stage capital, most notably Lakestar, Rocket Internet and Digital+ Partners.
Additionally, more funds with bespoke financing solutions are coming to market, such as Swiss secondaries investor Evoco and Munich-based 3i spinout Marondo. The latter is looking to fill what it sees as a gap between later-stage VC funding and private equity, and held a first close on €72m against its €175m target in August.
Stick to what you know
Despite an increase in options, LPs are not having their demands for DACH exposure met. One placement agent speaking to Unquote anonymously explains the dilemma: "The problem in DACH is still the same. It is just so hard to get access to the Mittelstand companies. The first question all LPs ask you about the DACH market is: have you seen anything interesting in the Mittelstand recently?"
This interest has buoyed the fundraising efforts of lower-mid-market firms that do have this access, but there are simply not enough of them, even taking into account large fund size increases. The extent of these increases was exemplified recently by the launch of lower-mid-market buyout firm Seafort Advisors' third fund with a target of up to €250m, which would represent an increase of more than 200% on its predecessor.
Though Mittelstand companies are more concentrated in the lower size brackets in DACH than in neighbouring European countries, there is still room for growth in the upper-mid-market. Swiss buyout firm Capvis was the most recent to convince its LPs of this when it closed its fifth fund on €1.2bn in September. The firm joined an exclusive set of GPs that are both headquartered in, and focused on, the DACH region with a fund size of more than €1bn. Others include Deutsche Beteiligungs AG, Triton Partners and perhaps soon Bregal Unternehmerkapital.
The €1bn milestone is a really important one in the DACH region. It allows you to attract the big US pension funds and sovereign wealth funds" – Source familiar with Capvis
A person involved in the Capvis fundraise told Unquote that joining this select group was important to the firm. "The €1bn milestone is a really important one in the DACH region," they said. "It allows you to attract the attention of the big US pension funds and sovereign wealth funds that are looking to deploy the bigger tickets." Capvis Equity V included a €75m commitment from New York State Teachers Retirement System, according to Unquote Data.
However, at this size, the competition is no longer confined to domestic peers. "Once you're in the larger deal brackets, most of the best deals are still not done by DACH-based GPs," says the placement agent. "They're taken by the big pan-European or global houses." One solution to this is partnering up with them, an approach taken by Capvis on the first deal from its new fund when it took co-investment from Partners Group to acquire Austrian dental chain Amann Girrbach.
Individual successes aside, one thing appears clear: based on current trends, not all of the funds currently being launched in the DACH region will be able to hit their targets.
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