Highland Europe closes fourth fund on €700m hard-cap

Katharine Hidalgo
07 December 2020

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Highland Europe IV has closed on its тЌ700m hard-cap.

The fund was registered in September 2020 with a target of €600m, though the firm began fundraising in July 2020.

Fergal Mullen, co-founder and partner at Highland Europe, told Unquote that the majority of the capital was committed by September, but some investors preferred to have a final close closer to year-end. "You have to be grateful when you can raise a fund in two months," he said. "All our meetings were held previously and you have to earn your way into the situation based on the returns from our previous funds."

Mullen said the fund has a 2+20 management fee and carry rate, respectively. The fund has a European waterfall structure and an undisclosed hurdle rate, with a 10-year life with two one-year extensions. It is domiciled in Jersey.

The fund's predecessor closed on €463m in June 2018.

Kirkland & Ellis provided legal advice and the firm did not use a placement agent.

Investors
Highland Europe has a high existing re-up rate, with the group of investors that committed €463m to the firm's third-generation fund, committing €555m to this fund. The remainder of the capital came from new investors.

Mullen said: "Our investor list would significantly overlap with a lot of the top US-based and Silicon Valley funds." Of the fund's LPs, 70% hail from Europe with the remainder based in the US.

Existing investors in Highland Europe's funds include Alpha Associates, the European Investment Fund, Industriens Pensionsforsikring and Pictet Alternative Advisors, according to Unquote Data.

The firm prioritises LPs with mission-focused capital, a long track record of investing in the asset class and a team committed to Highland Europe and its strategy, according to Mullen. "We're looking for permanent capital that typically comes from foundations, family offices and pension funds."

He continued: "It's important for us that our LPs have a mission, whether that be surrounding healthcare, the environment, early-childhood education or homelessness; we are just interested in that kind of money because we find it motivating."

The fund has commitments of more than €40m, and while it does have a minimum commitment, the firm can apply discretion with their friends and family network. The Jersey-defined minimum commitment is £100,000.

The GP commitment to the fund is more than 2%.

Investments
The fund will write average equity tickets of €30m across 16-18 investments and will have an investment period of three years. The fund's predecessor recently finalised its three-year investment period and is 75% deployed with the remainder of that capital going towards follow-on funding for its portfolio.

Mullen told Unquote that the next investment from the firm would be drawn from the fourth fund. He said: "We're working on a couple of things in our pipeline and one could close before the end of 2020, though it could also be in Q1 of 2020.

"We're extremely founder-focused and active in the market, and that's never going to change. We're big believers in positive and collaborative relationships, and we try to protect founders in tough board situations, which is why we're very focused on boards with good people already at the table."

The fund will invest across Europe in software and internet-enabled businesses with global growth ambitions.

People
Highland Europe – Fergal Mullen (co-founder, partner).