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Candover set to downsize its latest fund

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UK buyout house Candover has become the latest large-cap investor group to succumb to the pressures facing firms at the top of the market by announcing a reduction in the size of its latest fund.

The fund, the firm's fifth, had quietly held a first closing on around £2.8bn in August 2008 and was seeking to raise total commitments of around EUR5bn. According to the release, the target size of the fund will now be substantially reduced, which will provide many incumbent LPs with the opportunity to reduce the size of their commitments.

The firm's listed arm, Candover Investments Plc, has confirmed that it will significantly reduce its contribution to the vehicle, which currently stands at around EUR1bn. Indeed, press reports have speculated that the downsizing may have been prompted by difficulties in the listed business, echoeing the Permira move of December 2008, which was prompted by liquidity issues in its semi-captive listed LP SVG Capital.

Like many LPs, Candover Investments had followed an over-commitment strategy in recent years based on the assumption that dividends from previous funds would finance draw-downs. The share price has fallen dramatically in recent months and currently stands at around 380p - 80% less than its September peak of almost £23. There have also been suggestions in the press that a wider restructuring may take place that could see the firm launch a rights issue and renegotiate its bank debts.

In conjunction with the downsizing, Candover will adapt its investment strategy to target smaller investments. The moves are likely to affect annual fee revenue, in terms of both management fees and carried interest payments, which could prompt cut-backs at the firm in terms of staff and bonus payments.

An announcement on the restructuring discussions will be made on 2 March 2009 when the group releases its 2008 full year results. The results are expected to reveal a large write-down against the investment in oil services business Expro International, which was acquired by a Candover-led consortium in June 2008 for around £1.8bn and is the only portfolio company of the new fund.