BC Partners has wrapped up fundraising for its 11th flagship vehicle short of its initial fundraising target.
The firm gathered €6.9 billion for BC European Fund XI across related vehicles, according to a statement this week. It had sought €8.5 billion for what would have been its largest private equity fund.
Private Equity International reported last month that the firm expected to hold a final close on the vehicle “broadly in line with its prior two funds”. BC European Capital IX and BC European Capital X raised €6.7 billion and €7 billion respectively, PEI data shows.
PEI caught up with BC chairman and partner Raymond Svider to talk about the fundraise and how it plans to invest in an inflationary environment.
“During the fundraise, LPs had raised questions around the low level of distributions,” Svider said. “We also had not necessarily fine-tuned our narrative in the way we should have done.
“If we were to start fundraising today with the performance we have right now, it would be a very different scenario.”
BC began raising capital for Fund XI in early 2020, when governments around the globe were imposing shutdowns and economies came to near standstill. Svider noted the firm had lost a bit of momentum that year as investors had put new commitments on hold. In addition, the timing of the fundraise had slowed exits and dragged the performance of its two previous flagships.
Fund XI’s investor base has more Asian, Middle Eastern and South American LPs than prior funds, representing almost 50 percent of its capital base, he added.
Svider noted the firm is “full-speed deploying” Fund XI. Capital raised from the vehicle has already backed some $2.4 billion-worth of transactions across eight deals, according to the company’s statement. It has also secured over $1.8 billion of co-investment opportunities.
In fact, it plans to be back in the market with Fund XII in the second half of 2023, according to an investor letter seen by PEI last month. Fund IX and Fund X have also returned about €4 billion to investors over the past 12 months.
Asked about how the firm plans to deploy capital in a higher-inflation period, Svider said high prices and global supply-chain disruption will affect valuations.
“What I think matters the most is the impact [that inflation and the supply-chain crunch] could potentially have on exit valuation and multiples in the market. That’s the $100 billion question, because it’s very difficult to know,” Svider said.
“Interest rates going up between 1 percent and 3 percent are not that meaningful by any historical standard. I don’t believe that the developed world is going to be in any shape or form in a period of hyperinflation. I don’t believe either that’s going to be at 7 percent, like in the US, on a constant basis.”
Svider, who declined to comment on the investor letter, expects an equilibrium in the near term and underscored the importance of how central banks respond to inflation levels.
“Hopefully, they’re not going to raise too much and choke the economic expansion. There may be short-term volatility in valuation levels because of this, which is what you’re seeing right now,” Svider said.
“In the buy-side, we’re going to have to remain very disciplined, because as valuations levels fluctuate there is more risk than upside when buying a business now.”
One of the interesting things that happened in the market over the past two years is continuation funds and SPACs have become potential sources of exits, Svider said.
“The constraint in our business is that we need to provide liquidity to our LPs. But in this competitive, high-valuation environment, when you own a high-quality asset company, which is a great compounder of returns for the next 10, 15 years, you may want – and it may be the right thing to do – to explore ways to continue to own that company for more than four years. It is also good for LPs as it offers them optionality to either monetise now or have continued exposure to future performance.”
BC held onto academic publisher Springer Nature last year via a continuation fund backed by Neuberger Berman. The firm will certainly contemplate situations such as these in the future on a case-by-case basis, Svider said.