On the road again

Emanuel Eftimiu
18 May 2011

Tweet
Facebook
LinkedIn
Google plus
Send to

Fundraising of course is the name of the game at the moment. After a two year lull, many houses are already on or expected to hit the fundraising trail this year. EQT is currently looking to raise €4bn for its latest buyout vehicle, on a par with its last fund. Segulah, Reiten & Co and Nordic Capital are likely to send out PPMs later this year or early next.

What may surprise many is that many Nordic funds have already successfully raised follow-on funds on the back of 2006 and 2007 vintages - commonly deemed ‘troublesome' by most. Last year for example saw Litorina Kapital close its fourth fund on its hard-cap of SEK 2.5bn - almost double the amount raised for its previous 2007 fund. Other successful fundraisings in 2010 following supposedly ‘troubled' vintages include Finnish outfit CapMan closing its Buyout Fund IX on €294.6m and Danish private equity house Polaris raising €350m for its third fund.

These vintages have not been impacted as hard as people might have expected a couple years back, as James Moore, global co-head of the Private Funds Group at UBS points out: "Many more funds will return capital, will post a positive return and hit their preferred return than perhaps we may have initially anticipated" he states. What is more, although these vintages aren't as auspicious as the 2003 and 2004 years, investors are not going to lose all the money they made in previous vintages. "They'll make a positive return, which is most likely to be higher than what they would have got out of public equities," argues Moore.

To boot, last year's handful of successful fundraisings benefited from a dearth of funds in the market meant that precious LP capital had limited opportunities to be committed. Therefore, a number of smaller Nordic funds with decent track records such as Litorina and Valedo were able to close fairly quickly.

However, while the Nordic tag attached to the funds is certainly helpful in fundraising, the quality of the investor and its ability to raise money is not entirely based on the vintages or performance of the last fund. Jordahl explains: "Your fundraising success will also depend on way you managed your portfolio through the down-cycle; the measures you implemented at your portfolio companies and therefore your credibility of managing that portfolio through the crisis and getting it back to a fair value in order to generate a decent return".

The oft-cited "hands-on" investing might evoke cynicism from LPs, but being able to demonstrate the value-add to investments by being proactive is certainly a major factor for a successful fundraising. Polaris Private Equity's third fund is a case in point. "We started fundraising in 2008 in a market when everything went the wrong way, so we weren't able to say ‘Look how well our existing portfolio is performing', because it wasn't," recalls Kühl. Consequently, fundraising was tough, but Kühl stresses a key factor to success: "The fact that we were able to show the measures implemented to support our companies through the downturn as well as the progress made between meeting the LP the first time and then a few months later, proved to investors that we not only have a toolbox but can actually also apply it and deliver results," he adds.

This industrial approach is certainly favoured by LPs in today's market environment as questions are being asked of how private equity is going to drive returns in a de-levered world. "At the end of the day, the success of a fundraising sinks or swims with the track record and whether you have got the tools to repeat this going forward," highlights Moore. Judging by their continuing success, Nordic private equity houses seem to have that box clearly ticked.