Q&A - Placement agents

01 March 2008

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The Southern European market has experienced the impact of limited liquidity when it comes to completing leveraged transactions, but the industry is seeing a range of opportunities surfacing, translating to new players disembarking and fundraising reaching impressive heights, giving indications of a generally healthy market. But what are the sectors investors are interested in and where do managers see potential? Francinia Protti-Alvarez speaks to two industry players

What is the current level of fundraising activity in Iberia and Italy?

Mounir Guen

There is genuine interest by LPs, however, both markets are quite different from one another. The Italian market has routinely had more global-leading companies and entrepreneurs with specific areas of expertise, while the Iberian market is characteristically more fragmented.

Both markets are dominated by a high number of family businesses, experienced local GPs and both are seeing changes in the succession of management. Therein lies the current caution expressed by LPs. These last are waiting to see how these structural changes within GPs play out. GPs will need to demonstrate their sourcing and execution ability in order to 'regain' LPs' trust.

Armando D'Amico

Italy seems hot this year, at least when one adds up the totals from the 12-15 funds announced or currently fundraising which revolve around the EUR6bn mark. Whether that figure is achieved is something entirely different. Some funds may not close until 2009. However, if the figure is met, it would be the highest in the history of Italian fundraising.

As for Spain, it is seeing seasoned and new players fundraise. Recently N+1 closed its third vehicle at EUR500m - and that after having to deal with the departure of most of its team to Proa Capital. Meanwhile, Magnum is said to have closed its vehicle at EUR850m. Miura and Realza Capital are also in the process of conducting fundraising.

What type of deal size/sectors are you seeing more interest in fundraising for at the moment?

Armando D'Amico

In the past two to three years, special interest has been recorded for special situation/distressed funds and those focusing on emerging Central and Eastern European markets.

Distressed funds have historically been more active and numerous across the Atlantic, however, in Italy three of these funds announced their closings in 2007. This is an indication of where LPs are seeing potential for investment.

What does the future hold?

Mounir Guen

There is certainly 'caution in the air' but this is not due to the current effects of the liquidity crisis on private equity or the market in general. Private equity is a long-term asset class and cycles should not affect the mood of investors, whether LPs or GPs. LPs will continue looking for a good track record in their GP selection.

Local GPs will need to position their strategies as the quality of the team, along with its sourcing and deal generating capabilities will continue to influence LPs decisions."

Armando D'Amico

Established funds will not encounter that many problems, but newcomers with less of a track record will be another story. The memory of Magenta is still very much present in the minds of LPs, which renders them cautious.

As for ensuring the quality of their investment with regards to special situation (and emerging markets) funds, LPs are seeking to establish evidence of the team capabilities, through individual deals, deals in which one or more team members took part or deals where the team took part under a different investment vehicle. LPs are exhaustively doing their homework.

It is also true that for those LPs already 'inside the tent' this due diligence process is easier to carry out than for those LPs investing for the first time.