Ibersuizas spinout Portobello Capital to raise first independent fund

In 2010, Inversiones Ibersuizas partners Ramón Cerdeiras, Fernando Chinchurreta, Juan Luis Ramirez Belaustegui and Iñigo Sánchez-Asiaín were dismissed. The build up to the dismissal was long and, the partners maintain, unfair; Ibersuizas wanted to recover control of the management company, of which it owned 66% of the shares. This breached the contract signed by partners in 2005, which gave them full control over the life of the funds.

Ibersuizas' response was to dismiss the partners, which triggered the key man clause on the GP's two funds. LPs then voted to transfer the vehicles back into the hands of the team that had managed them, giving rise to Portobello Capital. 

AK: You are in the pre-marketing phase of Portobello Fund III. How much are you hoping to raise and across what time period?

Partner Juan Luis Ramirez Belaustegui on the upcoming fund and the shortage of domestic LPs

JLM: We want to raise the vehicle as quickly as possible. We sense that the situation now with regards to Spanish mid-market funds has got much better since the start of the year. It really has improved quite a lot, and several international teams have been established here. There is an interest in Spain, which wasn't the case before.

We have hired Probitas as placement agent. We are aiming to begin fundraising after the summer, probably starting in October. We will have the same strategy of investing in buyouts in the Spanish mid-market. Our last vehicle held €330m, and this one will be roughly the same at around €300m.

We would like to hold a first close before year-end, if possible. The amount isn't important, what's important is to demonstrate to potential investors that the fund can be raised successfully. I remember back in 2006 we held a first closing with almost 90% of the target, and two months later we held a final close. That probably won't be the case this time; we'll probably aim for €100-150m at first close, with perhaps a final close before summer next year.

That schedule also fits well with expectations that we have for Fund II. We have been able to return a bit more than 50% of the capital invested to LPs, which for a 2006 vintage is very reasonable. We will probably be giving some more money back before year-end, through a divestment that we're working on at the moment and maybe a couple of recaps. We might have another divestment too. And that means that before the end of the year, we would have returned almost all capital invested. If not all, then at least a substantial part, which could help convince existing investors to re-up.

Are you speaking primarily to domestic or international LPs? Are they mainly existing or new backers?

Most of our capital will be raised internationally, as was the approach for Fund II. But we have seen some interest from Spanish LPs. Last time we raised a fund, we counted a private bank that invested on behalf of families among our LPs. That was Banif, the private banking arm of Banco Santander. Post-merger it's now called Banco Santander Private Banking. They haven't yet confirmed their final interest, but we hope they will commit as they did last time.

We have also had discussions with pension funds, some of which are existing investors and some new. And we have spoken to Spanish insurance companies that, after several years of not committing to private equity, are returning to the asset class. But we don't expect to have more than 20-25% of our fund raised in Spain.

I think we are also one of the first potential investments that the Fond-ICO (a €1.2bn fund-of-funds launched by the Spanish government) would consider, because we demonstrated in Fund II that we do exactly what ICO wants to do; we grow Spanish companies, we help them internationalise and we create jobs. That's what the Spanish government wants to create with this vehicle. So we think they will probably be in a position to commit by Q4 2013, which fits perfectly with our calendar. I hope that would be one of the commitments made by the first closing of the fund.

Personally, I have been a bit surprised because I have been looking at more interest than I initially expected from Spanish investors. But the majority of our investors will be international; the big funds-of-funds and insurance companies for example. We've been lucky with our previous investors, which are mainly large international players. That's not the same for many Spanish GPs, where most of their backers were the Spanish savings banks, which no longer exist. They'll be in a difficult position when it comes to fundraising.

Of course, some of our existing investors may have changed their strategies and focus, their European allocations perhaps. Others may no longer back funds and just invest directly. But in general, I think a substantial part of them will re-up because they are happy with the investments we've done.

Where do you see the most promising assets in Spain?

Generally, we see good opportunities in Spain. But we never invest if we don't see a clear growth strategy. That could come from internationalisation, which we follow for all our portfolio companies, but also from other trends in the Spanish markets focused on efficiency. And that means outsourcing businesses are important. We have three in Fund II; one in insurance, another in catering services and a third in merchandising. That's a growing trend.

We're also interested in sectors that grow regardless of the macro environment. So we have a company in healthcare that sells incontinence products. The Spanish population is an inverted pyramid, which means there are more elderly people and the population is continuing to age. We've demonstrated that despite the macro environment, this company has been able to grow 6-7% each year.

We don't like to leverage the companies too much. We put some debt on them, but as they are going to grow we don't stretch their debt. Normally, we also commit to capital increases as new acquisitions or growth opportunities arise.

unquote" has noticed Latin America taking a more prominent position in the investment strategies of Spanish GPs – some have even opened offices there. Does Latin America feature prominently in your strategy?

LatAm is one of the areas we find interesting for growth opportunities. It isn't the only one, but we do share a language so that makes it easier in some ways. But most of our companies are growing more in Europe than in Latin America.

For example, we have an ice cream company (Ice Cream Factory) that was originally focused on Spain only. Now its number one customer is Tesco, its second is in Italy and its third in France.

On the other hand, we have an outsourcing company in the insurance sector (Multiasistencia) that has just signed a joint venture in Brazil. On the catering services side (Mediterranea de Catering), we have recently opened a branch in Chile and Mexico for catering services in hospitals because at the end of it all, most of these hospital chains belong to Spanish groups.

So yes, there are interesting opportunities, but we decided not to open any sort of private equity activity in those countries because we believe there are local groups there that have been doing it for longer. The markets there are very different, so even though we speak the same language it is very different for an outsider. We prefer to have agreements with locals that could help us in certain activities concerning our portfolio companies, rather than start direct private equity activity there.

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