Why Canadian pensions and sovereign wealths are backing this TPG spin-out

Reports emerged last week that BGH Capital was nearing a first close on its debut Australia and New Zealand-focused fund.

BGH was founded last year by former TPG head of Asia Ben Gray, Simon Harle, ex-partner at TPG, and former Macquarie Capital Australia head Robin Bishop. The firm expects to raise as much as A$2.5 billion ($2 billion; €1.6 billion) from investors.

Private Equity International asked industry insiders for details of Gray’s first-time fundraise.

Canadian pensions and SWFs have backed the fund

Gray launched the fund in September after his non-solicitation clause with TPG expired. Before he went on the road he had a significant amount of capital amassed from the LPs he is close to, sources told PEI. Among them are Canadian pensions as well as sovereign wealth funds, US pensions and global funds of funds, a Singapore-based placement agent noted.

“[Gray] had most of the fund spoken for from previous contacts, having worked with them on multiple co-investments with TPG and kept a very good relationship with a whole bunch of them,” the placement agent said.

British Columbia Investment Management Corporation, Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec and HarbourVest Partners have backed TPG’s previous Asia funds, according to PEI data.

BGH will have “some form of backing from TPG” and the firm’s group level partners will commit capital, a Hong Kong-based partner said. Industry watchers also said the firm will have no issue raising money as LPs have a degree of confidence in BGH underscored by Gray’s track record at TPG.

There is pressure to deploy

BGH seeks to invest in mid-market companies while maintaining the scale required to execute larger buyouts and flexibility to pursue smaller growth deals, the firm notes on its website. A Sydney-based GP told PEI the firm will focus on “concentrated buying”, targeting larger deals and putting the firm in the same echelon as pan-Asian players KKR and Affinity Equity Partners.

Gray’s track record and investment history sheds light on BGH’s strategy: at TPG he led Australia investments which included department store chain Myer, healthcare operator Healthscope and ports and rail operator Asciano Group.

Large private equity deals in Australia are few and far between: in FY2017 the average investment value per transaction was A$75 million, while FY2016’s was A$58 million, according to a report from the Australian Private Equity and Venture Capital Association.

Industry insiders agree A$2.5 billion is a large amount of money to invest for Australia. Gray’s team will most likely be aggressive wherever they can and may participate in cross-border transactions. What is sure is that BGH will become a major force in ANZ corporate buyouts, rivalling Australia’s biggest manager Pacific Equity Partners.

It will be Australia’s second-largest fund ever

BGH’s A$2.5 billion offering, if successfully raised, would be Australia’s second-largest private equity fund. Pacific Equity Partners holds the top spot for PEP IV, which amassed A$4 billion in 2008, followed in third place by PEP V, a 2014-vintage vehicle that closed on A$2 billion.

Market sources noted it will be interesting to see how BGH’s debut fund fares in terms of deployment and whether it will cause constraint for the market place in Australia.

“It’s not that often that large deals come up and there are lot of large firms in Australia and pan-Asian players competing in the space. Fundraising will be no issue but it would be very interesting to see what happens with Gray’s first fund.”

BGH did not return requests for comment.

CPPIB, CDPQ and HarbourVest could not be reached for comment by press time.