Fundraising: Unlocking LP appetite

Julian Longhurst
15 April 2010

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Fundraising in the current environment can feel like facing a series of closed doors, but there are ways of unlocking LP commitments. Julian Longhurst reports

There is little doubt that many GPs across Europe are eyeing the fundraising markets nervously. True, there are signs that some limited partners are back in play after a 12-18 month sabbatical, but their appetite for private equity investment remains fragile and they will be hard to please.

But some GPs are showing that it is possible to raise fairly significant sums – even with a broad generalist investment philosophy. Back in late 2009, German mid-market group capiton completed the fundraising for its heavily-oversubscribed fourth fund well ahead of schedule, raising a capped €350m in little over six months. Triton and HgCapital have also hard-circled large sums in fundraising efforts that appear to buck the general trend. And of course, there are the specialists: it is perhaps less surprising that groups like Platina, with its renewable energy focus, has been able to raise sizeable new pools of capital. It recently closed the European Renewable Energy Fund (EREF) on €209m.

In some cases fundraising success in such an austere environment will be symptomatic of the much-mentioned flight to quality; in others it is clearly that the GP's specialist strategy neatly reflects the Zeitgeist. It could even be a case of being in the right place at the right time. Then again, just focusing on ‘the basics' may well go a long way.

This week, another fundraising story emerged in the Spanish financial press: local mid-cap specialist Diana Capital confirmed that it was well underway with plans to raise its second fund. The group's managing director Francisco Gómez-Zubeldia admitted that the prospect of going to market in the current environment was not that appealing, but that the feedback received so far has been very strong.

"We decided to begin the formal fundraising process at the end of February. Between that point and Easter, we met with each of our 22 existing investors and I can tell you that I am more confident now than I was a month before. The response has been excellent and we already have soft circle commitments totalling more than the €70m that we raised for Fund I," comments Gómez-Zubeldia.

The Diana team will now open up discussions with new potential contributors in Spain before turning to the international market, probably assisted by a placement team. Overall the aim is to close up to €175m.

Gómez-Zulbeldia attributes the strong response to two factors. Firstly he cites the group's cautious and patient investment philosophy, which focuses on organic rather than leveraged growth. The group invested its first pool of capital between 2002 and 2006, but then, rather than heading straight back out to fundraise, chose to focus on maximising value in its six-strong portfolio with a view to making divestments. Secondly, the group's approach towards transparency and proactive communications have also paid dividends. "All of our investees are in good shape and we have made sure that our LPs have received quarterly reports, annual accounts and auditor reports for each of our investees so that they have been able to sleep well at night!," he says. Surely music to an LP's ears...