CVC attracts big LP tickets for new flagship fund

The board of the Pennsylvania State Employees' Retirement System (SERS) notably approved a follow-on commitment of up to €50m to the vehicle in a meeting on 21 April. In a statement, the board said the decision reflected "SERS's strategy of concentrating commitments to top-tier private investment managers".

On 20 March, the investment division of the state of New Jersey proposed an investment of up to €100m in the fund to the State Investment Council, according to a document seen by Unquote. The division noted that CVC – an existing GP relationship for the state – "generated consistent returns for investors across multiple economic, industry and market cycles", with "every mature CVC flagship fund individually returning at least 2x net TVPI". The proposed commitment to CVC is consistent with the division's objective of "concentrating in core, high-conviction, existing relationships", it added.

On 5 March, Hamilton Lane told the Teachers' Retirement System of Louisiana that it planned to commit up to €70m to CVC VIII on behalf of the pension fund.

CVC is targeting €17.5bn for its newest flagship fund. The fund looks to invest in mostly North American and European companies. It would typically invest in 30-40 companies in its lifetime, with enterprise values of around €1-5bn. Equity ticket sizes would be in the range of €200m-1bn, according to various documents seen by Unquote. The CVC investment team for Fund VIII consists of 109 investment professionals in Europe and the Americas.

The GP commitment is currently set at 3%. The management fee is set at 1.425% of total commitment during the investment period, lowering to 1.25% of unreturned cost after the investment period. Carry is set at 20%, but CVC opted for a lower hurdle rate of 6% (compared to the industry standard 8%).

Choppy waters
The fundraising market is expected to remain largely dormant in the coming weeks as LPs navigate lockdowns worldwide – although these are progressively eased in a number of US states and other countries – and, more importantly, contemplate a very uncertain rest of 2020.

However – despite the fact that some sources place the proportion of institutional investors putting all decisions on hold at up to 80% – top performers and name brands could be comparatively less affected as the market bifurcates sharply.

"LPs as of now are still investing, though they are tending to invest in re-ups with GPs that they know well, so CVC is well placed," a placement agent noted, on the condition of anonymity.

"Most LPs looking back at the global financial crisis remember that the crisis-period vintage years of 2009 and 2010 were strong performers and many of them anticipate something similar this time around," the agent added. "However, if you are under a liquidity crunch, you need to balance things out. Even if you really like CVC, if you invested $100m in CVC's last fund you may have to cut that to $75m or $50m. And the dislocation caused by LPs' inability to travel or take in-person meetings is slowing down the investment process. They may have difficulty in achieving that target if the crisis goes on longer, but they will almost certainly take longer to raise."

CVC is still targeting a first and final close by the end of June this year, Unquote understands.

CVC spent just over six months on the road for its previous flagship effort, holding a final close for CVC Capital Partners VII on its €15.5bn hard-cap in mid-2017. The fund originally targeted €12.5bn.

The firm has raised significant amounts of capital across various strategies in recent months, most recently securing total commitments of $657m for its second US-focused direct lending fund, CVC Credit Partners US Direct Lending Fund II, in excess of a $500m target.

Earlier this month, it also closed its fifth-generation Asia-Pacific fund on $4.5bn. The fund had a target of $4bn, while the fund's predecessor closed on $3.5bn.

CVC also closed its second growth vehicle, CVC Growth Partners Fund II, on $1.6bn (including a sidecar co-investment vehicle) at the end of last year. Launched in August 2018 with a $1bn target, the fund held a first close in August 2019 on $1.048bn. The vehicle targets mid-market technology businesses and intends to pursue the same investment strategy as its predecessor, CVC Growth Partners Fund I, which closed on $1bn in February 2016.

The GP recently announced a deal, with CVC VII taking a stake in Greek e-commerce platform Skroutz. Meanwhile, the firm has delayed its £300m investment in rugby tournament Six Nations, according to a recent report by the Financial Times. The delay is due to a financial crisis in the sport as a result of the spread of the coronavirus. The Six Nations said that discussions are ongoing and are taking the pandemic into account. Neither a break in negotiations nor a push to complete the deal has been agreed upon, the organisation said.

CVC declined to comment on the CVC VIII fundraise when contacted by Unquote.

(additional reporting by Attila Veszelovszky and Paul Tilt)

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