High hopes for second Fondo ICO Global tender

Amy King
17 April 2014

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Fondo ICO Global, Spain’s €1.2bn fund-of-funds, launched its second tender in late February - it is hoped the Axis-managed vehicle will give flattened fundraising prospects a much-needed boost and throw a lifeline to cash-strapped SMEs. Amy King reports

The Spanish market certainly needs a fundraising boost. According to unquote" data, not a single local fund held a final close last year. The absence of fundraising is hardly surprising given the dearth of local LPs. According to Ascri data, in 2006-2008 - when the majority of local players raised a fund - pension funds committed €790m, equal to 10% of total funds raised. Fast forward to the present and you will find pension funds did not commit a single euro in the past two years. Similarly, in the past two years, funds-of-funds committed around a 10th of their allocations in 2006-2008.

But perhaps the biggest loss among the LP base has been the disappearance of the savings banks. Coupled with the lack of innovative financing solutions available to Spanish SMEs, local companies desperately need a boost.

"The timing has been quite important. We had forecasted recession to be over by the middle of last year, which is what we have seen," says José Abad, chief economist and head of international relations at the Instituto de Crédito Oficial (ICO).

"What ICO wanted was to support the recovery process in the whole space of lending to SMEs. In the UK and the US it is more common to see mid-cap companies resorting to external financing, but there is a lack of diversification in financing structures in Spain and continental Europe," says Abad. While credit funds are starting to spring up across Spain, this is a new development against a long-standing background of reduced bank lending. "ICO has tried to provide commercial banks with enough funding to lend to SMEs and, on the equity side, Axis has tried to develop the private equity and venture capital markets as a source of non-bank financing," says Abad.

The Spanish venture market is particularly underdeveloped. ICO's commitment to venture funds can reach a maximum of 40% of the total fund size, with a capital injection of up to €20m. The vehicle must invest at least twice the amount committed by ICO in Spanish companies. Adara Venture Partners and Ambar Capital y Expansión are among the venture recipients of ICO's first commitments in the venture space.

Dealflow in the Spanish venture space has been lacklustre to say the least. According to unquote" data there has been a steady drop in early-stage dealflow since the peak in 2011. "Total gross investments in the venture capital market in 2012 was €104m - a very sorry time," says Abad. The market segment pulled in just €19.3m in 2013 - less than a quarter of total deal value for the previous year.

Size matters

"We also realised that the market was small because the players were small. If you look at the average assets under management of Spanish players, it's half the size of players even in continental Europe. The idea was therefore to support the enlargement of the private equity and venture capital markets by enlarging the average size of existing players and also by attracting new players to the market," says Abad. And the Spanish government is on board with ICO's efforts; it too is playing a part in improving Spain's attractiveness and is currently drafting a new regulatory framework to support the industry.

As part of ICO's plan to attract international investors to Spain - which has seen a return of pan-European buyout houses in recent months - the fund-of-funds will support international GPs, too. Fund managers must have a certain percentage of investments in Spain, or invest at least twice the amount of ICO's investment in the fund in the country. From international to local funds, hopes are high for renewed activity in the fundraising market, starting with ICO's second tender.