First half of 2015 highlights demand for UK funds

Most recently, Palatine Private Equity held a first and final close for its third fund on £220m after just 11 weeks on the road. Other impressive raises this year include Cabot Square Capital Partners reaching a first close of £275m, with commitments already secured to reach £300m as the firm speeds towards its £350m hard-cap.

UK-based Silverfleet Capital Partners closed its second fund, albeit a pan-European vehicle, on €850m in the same month. Also in this category were Equistone, which hit its €2bn hard-cap in April 2015; Exponent held a final close on £1bn also in April; and Bridgepoint collected €4bn for its fifth fund in March. 

According to Mounir Guen, CEO of MVision, UK-based and UK-focused funds are in favour with LPs. "Historically, UK institutions are consistent long-term performers," he says. "Where UK houses differ from other private equity firms is that they are historically very focused on fund performance; on being able to generate a return profile at fund level. Because of this, UK funds are often labelled as a safe pair of hands by LPs."

However, Guen also warns that because of this nuance it is important for funds to remain in their market segment and avoid the temptation of raising a larger amount simply because it is possible.

Looking at recent fundraising successes from this perspective is encouraging; it would appear most managers have been disciplined in raising funds that adhere to their strategy. Indeed, Palatine's previous fund raised £150m in July 2013. While its most recent third fund is £70m larger, when it announced the fund close, the GP was keen to point out that although it could have raised a substantially greater amount, it closed the fund on £220m in order to preserve its market focus.

Moving targets
There is a group of GPs that have raised differing amounts with each fund, where there is no real trend for raising larger or smaller amounts as time progresses. Equistone is a case in point – while its most recent fund closed on €2bn, its fourth fund closed on €1.5bn, yet its third fund raised €2.4bn.

Bridgepoint has followed a roughly similar pattern, having just collected €4bn for its fifth fund: its fourth vehicle raised €4.8bn, while its third vehicle closed on €2.5bn. The obvious correlation between these seemingly erratic fund sizes is, of course, timing. Equistone's fourth fund was launched in November 2011 while Europe was still a troubled region, especially for US-based LPs. As for Bridgepoint, the GP's fourth fund was raised during 2007 and closed in November 2008, just before the financial downturn sunk its teeth into the fundraising market.

In terms of struggling to stick to one's original remit, Exponent's funds have seen the most dramatic increase in size. The GP first raised £400m in 2004, it then collected £805m in 2008 and most recently closed its latest fund on £1bn.

However, it is easy to see why managers based in the UK are able to attract such large sums of cash. "UK funds usually have a good following from the European LP community. Venture houses, for example, typically get support from the EIF, which is a solid LP," says Guen. "In the growth and buyout segments, depending on fund size, there are a number of European funds-of-funds that are strongly supportive."

Guen also points out that European funds-of-funds often have concentrated support numbers. This means that with just a handful of investors a GP can build up a cornerstone investors pool in a relatively limited amount of time. "The only question then depends on the rest of the investor base; some may take longer to commit but the fund will get there," he says.

Finally, as Europe moves into deeper uncertainty around a possible Grexit, for LPs the region still offers good value. "From a macro perspective, Europe is good value for LPs based in the US as well as those in Europe," says Guen.

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• Topics
• UK / Ireland
• Buyout
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• UK Funds
• United Kingdom
• Palatine Private Equity
• Silverfleet Capital
• Equistone Partners Europe
• Bridgepoint
• MVision Private Equity Advisers
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• Unq2015July