Debut managers to face daunting fundraising market in 2020

The jury is still out as to the eventual impact of the coronavirus crisis on fundraising processes – with some managers near their targets now pushing for quick closes, which could help boost H1 figures despite the ongoing turmoil. But the consensus among a number of market participants contacted by Unquote is that debut managers out to market are unlikely to hold closes in 2020, and very few new teams are likely to launch funds.

Sunaina Sinha, managing partner at Cebile Capital, says: "Debut managers face particularly difficult headwinds because the market has undoubtedly slowed. There will certainly be a lower number of debut funds coming to market in the next 6-12 months, and while a number of first-time funds are currently raising, I don't know many that are expecting to hold a close this year."

Currently, around 20 debut funds are raising across Europe, including UK-based BD-Capital I, Italy-based Metrika I and Netherlands-based IceLake Capital I, according to Unquote Data.

"It's going to take you a while if you're a first-time fund to raise," says MVision CEO Mounir Guen. "An expected 2020 close might not happen. We see exceptions to that though; we have first-time funds that are quite far along." MVision is currently advising on three debut funds in Europe.

Some market participants have reported a complete freeze among some LPs on investing in any buyout strategies. As such, these investors are unlikely to look at debut managers at all for their 2020 allocations. Furthermore, following a stabilisation of the market, when LPs will begin investing as normal, market participants expect LPs to prioritise their existing relationships with established GPs rather than invest in relatively unknown debut managers.

Ricardo Felix, a director at Asante Capital, says: "For most new groups, it would be premature to launch a debut fund in today's uncertain environment, unless there is a cornerstone group of LPs who have known the principals from their prior life – we're seeing interest developing in the case of certain new special situations and uncorrelated strategies where they can argue they're relatively well positioned for the 2020/2021 vintage that lies ahead."

Take what you can
To those managers stuck in the difficult situation of fundraising in this market, Felix says: "Our advice for debut managers already in the market would be to refocus efforts on commitments they can close in the near-term. If there's visibility on a close, we'd recommend they accelerate sub-doc collection and secure that capital."

There is definitely a fine balancing act – while managers may not want to signal failure by closing below their target, they are also mindful of being able to hit the ground running with some quantity of dry powder when the market returns to a more normal footing. "The strategy for subsequent closes can be recalibrated following the timeline relief provided by the first close," says Felix. "The impact of not having capital to deploy as the dust settles and not being able to demonstrate to the market that they're 'in business', outweighs any negative perception of holding a close on a sub-optimal figure."

Another strategy that many debut managers engage in, prior to raising an institutional fund, is deal-by-deal investing. This could be a good way for managers in pre-marketing to progress. Guen says managers looking to raise capital for deal-by-deal transactions may still be able to do so: "It's a much more transaction-orientated investor base that sees this type of investing as much less risky because there's more visibility on what the capital is going towards."

Uphill battle
Even in boom times, such as those the market has seen in the past several years, the market is challenging for debut managers. Guen says: "In a normal fundraising market, any debut fund usually takes 18-24 months to raise, while established funds can raise in less than a year."

Track record continues to be essential when it comes to the allocation of capital to private equity strategies, which can factor in an LP's reluctance to invest in a debut fund. Many debut funds turn to sector specialisation as a differentiating factor. Preservation Capital, a debut fund that held its first close in Q4 2019, is focused on asset-light financial services businesses, while FrenchFood Capital, a fund that closed on €132m in April 2019, is dedicated to the French food sector.

Says Felix: "The spinout stories that we tend to see succeed are managers that come from well-established, large GPs who are able to effectively install and replicate best practices and institutionalise a new team at a smaller scale, typically with a focus on a particular sub-vertical or market niche."

The bifurcation in the market between funds that have an established investor base and then raise rapidly, in comparison to less well-known funds that can take longer to raise (if they are able to raise at all), is particularly acute for debut managers. In recent years, however, this has not stopped them from emerging.

Sinha says: "We rarely take on debut managers ourselves, but in general there has been record-high volumes of debut managers coming to market. The risk appetite among LPs has been high and the capital has been flowing during the past few years." Some LPs focused on smaller market segments have also expressed a keen interest for debut funds as they see managers as potentially more focused on performance without past funds to manage and rely on for compensation.

From March 2019 to date, nine debut managers held a final close across Europe, while the previous year saw 15 debut funds close, according to Unquote Data, though many more will have launched and been unable to raise successfully.

European debut funds on the trail

Fund name	Fund manager	Country of origin	Fund launched	Status
ABE Private Equity Fund	ABE Capital Partners	Spain	January 2020	Open
AVerest Capital Fund	AVerest Capital	Netherlands	December 2019	Open
BD-Capital I	BD-Capital	United Kingdom	July 2019	Open
Capdesia Structured Equity Partners	Capdesia	United Kingdom	May 2018	Open
Entangled Capital I	Entangled Capital	Italy	November 2019	Open
Equip Capital Fund I	Equip Capital	Norway	December 2018	Open
Evolving Europe Principal Investments I	Integral Venture Partners	United Kingdom	November 2019	Open
France Industrie I	Prudentia Capital	France	n/d	Open
Gyrus Principal Fund	Gyrus Capital S.A.	Switzerland	n/d	Pre-Launch
IceLake Capital I	IceLake Capital	Netherlands	June 2019	Open
JPD Capital Fund	JPD Capital	United Kingdom	February 2020	Open
Kings Park Capital Fund	Kings Park Capital LLP (KPC)	United Kingdom	n/d	Open
M80 Capital I	M80	Belgium	n/d	Open
Melior Equity Partners Fund	Melior Equity Partners	Ireland	January 2020	Open
Metrika I	Metrika SGR	Italy	January 2020	Open
Mimir Invest	MIMIR	Sweden	n/d	Open
Moonfish Capital Partners I	Moonfish Capital Partners	Spain	n/d	Pre-Launch
Morphosis Capital Fund I	Morphosis Capital	Romania	n/d	Open
Preservation Capital Partners Fund I	Preservation Capital Partners Limited	United Kingdom	n/d	Open
Saari I	Saari Partners	Finland	January 2018	Open
Tilt Capital Clean Energy Fund	Tilt Capital Partners	France	n/d	Pre-Launch
Trajan Capital I	Trajan Capital	France	December 2018	Open
Treun Capital I	Treun Capital	United Kingdom	n/d	Pre-Launch
We Are Jane	We are Jane	Belgium	n/d	Open
Women Equity Partners Fund	Women Equity Partners	France	January 2020	Open
Zamo Capital I	Zamo Capital	United Kingdom	June 2019	Open

source: Unquote Data

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