Caledonia seeks longer-term deals in UK with directs unit

The UK-listed firm, which owns a stake in multi-family office Stonehage Fleming, plans to make three investments every two years via its rebranded direct investment unit.

Caledonia Investments, a UK-listed investment firm, is set to make more longer-term investments in the country in the next five years via its rebranded direct investment unit Caledonia Private Capital.

Previously named Unquoted, Caledonia Private Capital accounted for as much as 45 percent of Caledonia Investments’ £2 billion ($2.5 billion; €2.3 billion) in assets under management as of end-March. It typically invests between £25 million and £125 million in UK-headquartered private companies valued between £100 million and £250 million.

Duncan Johnson, Caledonia Private Capital
Duncan Johnson

“We buy 90 percent-plus stakes in management buyout structures and want to be invested for seven to 10 years,” Duncan Johnson, head of Caledonia Private Capital, told Private Equity International.

The firm wants to use its stability and duration of capital so that the development of its investee companies is not impacted by the manager’s need to raise capital every three to five years, he added.

“It is hard out there differentiating standard private equity,” Johnson said. “It’s an auction game; it’s ‘my pound is the same as your pound’.”

Johnson noted the unit plans to make three investments every two years and is not looking to exit any of its investments at the moment.

In January the unit picked up a 37 percent stake in multi-family office Stonehage Fleming valued at about £92 million ($116 million; €102 million). The investment will be used to expand its geographic offerings in the US and Asia, as well as fill gaps in its service ecosystem, PEI reported previously. It has also backed wealth management company Seven Investment Management and generator manufacturer Deep Sea Electronics.

Investments in financial services made up 28 percent of its portfolio; industrials 25 percent; and consumer services 24 percent. Healthcare, leisure, real estate management and construction and engineering services accounted for the remaining 23 percent, according to the firm.

Caledonia’s private capital portfolio generated one-year annualised returns of 11.7 percent and a 14.5 percent annualised return since its inception in 2011, according to its website.

Caledonia has a separate fund of funds business that has backed managers including Axiom Asia Private Capital, JF Lehman & Company and PAG, according to PEI data.

Large LPs have signified interest in growing their direct investments exposure and building full direct investing programmes, with portfolio diversification as a key driver behind such moves, according to McKinsey’s Global Privates Review 2019. Family offices are among the most active direct investors, the latest UBS/Campden Wealth Family Office Report found, with nearly 40 percent of participants in the report planning to make direct private equity investments over the next year.