Barlage, Knoth fundraising ends in failure

Barlage, Knoth & Cie, the Munich-based private equity fund manager, has abandoned plans for a E175m first-time fund after failing to win sufficient support from investors.

Economic uncertainty and a tough fundraising climate have proven insurmountable for Barlage, Knoth & Cie, the first-time private equity fund manager, which launched from its Munich base early in 2002.

 

Barlage had scheduled a first close for its debut fund for the end of 2002 with a final-close target of E175m in 2003. But the management team abandoned fundraising when it fell short of its first-close target by E20m and concluded it was unlikely to make up the money in the current environment.

 

Frank Hock, managing director of Barlage, Knoth & Cie, said: “At the end of the year we had some commitments but were short of the minimum for our first closing and there was no comfort that we would get it.” The fund had landed cornerstone investments in May 2002 from HypoVereinsbank, which committed 20 per cent, and Klaus Murmann, a former president of the Federal Association of German Employers.

 

Barlage, Knoth & Cie’s failure is characteristic of the toughest fundraising environment in European private equity for many years. 2002 saw a decline in fundraising activity that was most dramatic among firms in continental Europe and Ireland, according to Thomson Financial.

 

Fundraising in Germany can be especially challenging because uncertainty over the tax treatment of private equity funds, long a concern for investors, persists despite the industry’s best efforts. Ironically, Barlage, Knoth & Cie had taken an innovative, tax-transparent structure to the market, which should have made it easier for institutions to invest.

 

However, Hock said that the three investor groups that Barlage, Knoth & Cie approached, high net worth individuals, German and international institutions, all had good reason to pull in their horns. Germany’s high net worth individuals are still suffering from losses on investments in venture capital and private equity made in 1999. The German institutions, mostly insurance companies, have come under enormous regulatory pressure to reduce their exposure to risk-bearing assets in the wake of the decline of their quoted portfolios.

 

International institutions excused themselves by saying they did not back first-time funds. The growing reliance by battle weary investors on established teams with demonstrable track records may come to haunt the industry as it stifles fresh talent.

 

Barlage, Knoth & Cie, whose key personnel had all worked together in various constellations, but never as one team, will not return. Hock said: “The pessimistic view on first-time funds will not change in a short period of time; there will be no second try by us. Those new funds that are successful will be spin-off funds, by teams that have proven their track records and are taking them with them.”

 

Barlage, Knoth & Cie’s executives are now in talks with Hans Albrecht, one of their founders, discussing ways they may work together with Albrecht’s Nordwind, a private equity fund with a similar investment focus. Prior to launching Nordwind, Albrecht founded the German office of The Carlyle Group.