And still they come
Published Wednesday, 14 July 2010 in Amy Carroll.
The private equity industry is taking an almighty battering. Regulators seem determined to make life as difficult as possible, while the Treasury seeks to make it as unrewarding. Recalcitrant vendors are stubbornly denying buyout houses bargains. But most worryingly of all, new capital is in short supply.
The latest figures from Preqin show that fundraising hit its lowest level in seven years in the second quarter of 2010. Indeed, the stats paint a picture of an asset class in retreat. There are 1,522 private equity firms on the road chasing $560bn (€445bn), compared with 1,623 firms chasing $889bn a year ago.
But for every fair-weather private equity investor packing up and heading home, another brave soul is preparing to enter the fray. In fact, 14 first-timers have raised $1.7bn so far this year, while 39 raised $6.8bn in the immediate aftermath of global economic implosion in 2009.
In the past four weeks alone, Gresham’s Mike Henebery has launched specialist private equity debt firm Palio Capital Partners, as revealed in Real Deals earlier this month; a new distressed-debt team has defied a tainted brand to amass close to £300m (€361m) at Alchemy; former chief executive of ill-fated Kaupthing Capital Partners David Sherratt has shaken off the Icelandic ash to raise more than £100m for new venture Ashridge Capital; and Flutter.com entrepreneur Tim Levene has picked up a handy £50m from that champion of the new boy Lord Jacob Rothschild, and has now formally launched Augmentum.
Other investors to have succumbed to the contrarian siren call of recession include Stephen Keating, who left 3i to create turnaround house Privet Capital last year and who has recently completed his first deal; Montagu spin-out Vespa Capital; the German quartet who launched mid-cap firm Pinova; Stirling Square Capital Partners’ founder Martin Calderbank, who has walked away from the relative security of an established brand to start all over again with Agilitas Partners; and Jon Moulton, who famously stuck two fingers up to his former colleagues with the acerbically named Better Capital.
But just because other people are doing something doesn’t mean that it isn’t extraordinarily hard.
Preqin’s data reveals the brutal reality of post-Lehman fundraising, and for first-timers these troubles are magnified. Limited partners are a notoriously conservative breed. A handful of LPs – primarily the US pension funds and a smattering of European names such as Morley, Scottish Widows and Pantheon – have active emerging manager programmes. There are even a few fund-of-funds players – notably Parish Capital – that offer specialist emerging managing services. But most LPs have strict “no first-time fund” rules.
New entrants must therefore be patient, persistent and above all creative. While just a few years ago it seemed anyone with a smart suit and Mayfair postcode could raise money regardless of experience – although no doubt it seemed a lot harder than that at the time – simply passing round the hat is no longer going to work.
