Archer’s freeze is the product of a changing market

A shift in Australian private equity has left firms like Archer, which has decided not to continue raising its sixth fund, without deep institutional backing.

Archer Capital told investors last week it will not return to market for a sixth fund and instead concentrate on maximising the performance of its existing investments.

Founding partner Peter Wiggs is also set to retire in the next few years once his commitments to Archer’s existing funds are complete, Private Equity International understands. The latest fund, the 2011 A$1.5 billion ($1.2 billion; €940 million) Archer Capital Fund 5, will be his last at the firm.

One long-time investor tells PEI the firm had frozen fundraising last year and the latest step simply confirms it is no longer a “temporary suspension”.

“This is also consistent with what many LPs have told them before,” the investor says. “Focus on exits, get the returns first, then come back to us and talk about your next fund.”

Archer, a longstanding fixture in Australian PE, was reportedly set to raise up to A$1.5 billion for its sixth fund early last year.

Its last fund, the 2011-vintage, A$1.5 billion Archer Capital Fund 5, is among the 10 largest funds in the country, according to PEI data. It counts the British Columbia Investment Management Corporation, Alaska Permanent Fund, Alaska Retirement Management Board and ATP Private Equity Partners among its investors.

Contrary to local media reports, Archer is not shutting up shop or “going into wind-down”, a source with knowledge of the firm told PEI. It is instead “focusing 100 percent of its efforts on maximising value creation opportunities within its existing portfolio of eight companies”.

The source added there is no change to each portfolio company’s strategy and the announcement was only made to its LPs to clear up speculation about Archer’s fundraising plans and Wiggs’s decision to retire.

The firm’s current portfolio includes two assets in the 2007-vintage A$1.36 billion Fund 4 (Supercars and Craveable Brands) and six in Fund 5, PEI understands.

Archer declined to comment or provide details on fund performance. One of the firm’s investors says the firm’s funds show “mediocre” performance, although he adds this is not necessarily a problem. “As fund sizes get too large, you’d naturally expect a tail off in returns.” This perception exists alongside a 21-year track record of A$3.2 billion invested across 46 acquisitions, producing returns of 3.2x money multiple and a 32 percent internal rate of return from exited deals.

While industry-watchers are naturally interested in Archer’s future plans (which PEI understands are still a work in progress), it’s important to note that this is as much a story about the changing LP-GP landscape as it is about one firm.

Buyout managers in the country have been slowly closing their doors for years because fundraising is getting harder.

In the words of one local investor: “When the Australian LP base fell away it got harder to benchmark themselves against a global manager universe. Often today LPs are looking for specialised managers, or managers where they get fee-free co-investments, and those two aspects have not been available within the Australian market until recently.”

GPs that have shut up shop include CHAMP Ventures and Ironbridge Capital.

“It’s the latest in the ongoing evolution of the Australia GP landscape, given that superannuation funds are increasing direct investments,” Wen Tan, co-head of private equity for Asia Pacific at Aberdeen Standard Investments says.

“This is an indicator of future trends, where you will have established GPs being disintermediated from the private equity landscape.”

GPs further afield should take note.

This post was updated to include Archer’s performance.