Capital Dynamics holds EUR 300m final close for Future Essentials II

The fund is more than two-thirds deployed in terms of commitments to underlying investments, secondaries managing director Mauro Pfister told Unquote.

Capital Dynamics intends to provide access to global primary, secondary and co-investment deals for DACH institutional investors vis its Future Essentials strategy. "The strategy is targeted at institutional and smaller qualified investors," Pfister said. "It is a targeted strategy in terms of the managers we seek, but it allows LPs to cover their entire PE asset allocation in one product, which is attractive for smaller investors."

The strategy aims to fulfil the investment appetite and portfolio, regulatory and tax requirements of these LPs, according to a statement.

"The way we run our fund-of-funds products is to try to have a product open more or less at all times for our clients," Pfister told Unquote. "So these typically have longer marketing periods that our traditional products, and this one took a little longer due to Covid – it is an entry level product with new investors in private equity, and it can be harder to get new investors comfortable when they can’t meet you."

The fund's first close in October 2019 meant that it was well-placed to deploy and take on new LPs, according to Pfister. "Given that we held a first close a few months before Covid emerged, the product was well-positioned to make commitments to a number of managers who were raising at that time, when other managers may have stood on the sidelines," he said. "This was attractive for people coming in recently as they have strong visibility on the portfolio. A lot of managers were access constrained, and some had to allocate capital to try to backfill the vintages they had missed."

The GP’s first Future Essentials fund held a final close in January 2019 on EUR 208m.

According to a statement, Future Essentials II is an Article 8 fund under the EU SFDR.

In addition to its Future Essentials strategy, the GP manages secondaries and co-investment funds. Capital Dynamics Global Secondaries VI was launched in March 2022 with a USD 850m target and a USD 1bn hard-cap, according to Unquote Data. The GP held a final close for its latest co-investment vehicle, Capital Dynamics Mid-Market Direct IV, in October 2017 on USD 383m.

Investors
Future Essentials II is backed by 30 LPs, the GP said in a statement. These include pension funds, insurance companies, banks, and multi-family offices.

"Given the demand for this type of product, there are quite a lot of new clients in this fund," Pfister said. "They typically invest because they are new to PE and looking to find a provider, or as they are not happy with what their existing providers are delivering in terms of diversification."

LPs in the predecessor vehicle included family office Auretas Family Trust, as well as SV Sparkassen Versicherung.

Investments
Around 15% of the fund will be committed to co-investments made via the GP’s Mid-Market Direct strategy, which generally makes 25-30 deals per fund, Pfister said. Around 10%-20% will be reserved for USD 20m-USD 50m secondaries deals at the smaller end of the market, which will be made alongside Capital Dynamics' secondaries strategy. The remainder of the fund will be dedicated to primary fund commitments, Pfister said.

The fund expects to make up to 20 primary fund commitments, focusing on mid-market buyout and growth funds in the EUR 250m-EUR 4bn range that target businesses valued at up to EUR 1bn.

Just over half of the fund will be dedicated to Europe, with around 40% reserved for the US and the remainder for investments in Asia.

The increased size of the fund versus its predecessor means that it can write slightly larger equity cheques in the EUR 10m-EUR 15m range, Pfister said. However, primary commitments made by Capital Dynamics can be larger, since they would include other funds or clients advised by Capital Dynamics.

According to Unquote Data, the GP has previously made commitments via its Future Essentials strategy to funds including Hg Mercury 3.

Looking ahead, the ongoing shift from virtual to in-person fundraising and investing remains a challenge, Pfister told Unquote. "Travel is still a challenge – people have had to get accustomed to doing due diligence via Zoom, and meeting people is not back to full swing yet. We have monitored existing relationships for the past two years but are trying to forge new ones, and it’s something that GPs and LPs will take time to recover from and to get to the right comfort level."

Steady allocation will be key to combating ongoing economic uncertainty, according to Pfister. "Despite an abundance of capital being available, people are still a little reserved about allocating given the current economic environment," he said. "But as an investor and adviser to our client, we try to advocate against this. Whenever you look at PE performance, there is strong case to be allocating capital continuously as a fund investor. You can be cautious in terms of what kinds of investments you select, but you should refrain from tying to be tactical – there is ample evidence that trying to time the market as a manager making fund commitments is impossible."

People
Capital Dynamics – Mauro Pfister (managing director).

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• Topics
• Fund-of-funds
• DACH
• Secondaries
• Switzerland
• Co-investments
• Capital Dynamics