Bucking the trend

Is the higher level of commitments from North American LPs to Cinven’s new fund good news for other European GPs still on the road? Not necessarily, writes Yolanda Bobeldijk

It’s no secret that persuading non-European LPs to commit to European funds has been tough lately, given the lingering economic uncertainty in the region. So GPs currently on the fundraising trail may feel encouraged by the news that Cinven actually managed to increase its North American investor base for its Fifth European Buyout Fund, which closed on its €5 billion target in March after 18 months in market. 

Approximately half of LPs came from the Americas, compared to 42 percent in the previous fund, Cinven’s managing partner Hugh Langmuir told PEI, with some of the Canadian and US state pension funds “very well represented”. (The fund also benefited from a “substantial” re-up rate, he said, while the average LP commitment increased by 10 percent.) 

Could this be a sign that American LPs are starting to believe in Europe again? Confidence has clearly improved – and because the volume of private equity dealflow has picked up, generating distributions, American LPs have more money to allocate, one market source suggests. 

In addition, he adds, LPs are increasingly returning to the developed markets, having made their bets elsewhere. “LPs are saying: I’ve backed three managers in China, I’ve made two commitments in Brazil, let me see if that is going to pay off.” 

This may be music to the ears of the European GPs currently on the road, in what has proved to be a challenging climate. Last month, Permira cut its fundraising target for Fund V by a quarter, to between €4 billion and €5 billion, down from its original target of €6.5 billion. In February, Nordic Capital held a €1.7 billion first close, after reducing its target from €4 billion to €3 billion last October. Apax Partners is still officially trying to raise €9 billion for its eighth buyout fund, after holding a €4.3 billion first close in March last year.  

The climate “has been tough and remains so”, Langmuir admitted. Cinven reached its €5 billion target – but the new fund is smaller than its €6.5 billion predecessor, which was raised in 2006. The fourth fund initially had a €5 billion target as well, but benefited from strong demand. “Clearly we are in a changed market place,” Langmuir admits.  

Cinven’s eventual success with the new fund was down to “a strong track-record, a clear strategy and an experienced team”, he said. The firm has realised €5 billion in value since the start of 2011, and has recorded a 41 percent gross IRR across its 82 realised investments since 1988, according to Langmuir – while the previous two funds are both classed as top-quartile performers by Cambridge Associates and the Washington State Investment Board, he added. 

However, Langmuir also suggested that Cinven’s success was partly down to LPs cutting the number of managers in their portfolios. “There has been a trend of manager consolidation, and we have benefited from that trend,” Langmuir said. 

And of course, the flip side of this consolidation is that others – very possibly those in the same ‘bucket’ – may lose out. So while the increase in North American allocations is encouraging in general terms, Cinven’s success in getting across the finish line could actually have made life more difficult for those firms still in market.