UK buyout house Candover is to shrink the size of its 2008 fund, which has raised €3 billion of its initial €5 billion target. Candover Investments, the London-listed entity that owns Candover and makes majority commitments to its funds, said its €1 billion commitment would be reduced “significantly”.
As well as reducing the fund’s size, Candover is in talks with its limited partners to revise the fund’s entire investment strategy “in light of both a smaller fund and the significant changes in the global economy in the last six months”, said the firm.
The firm was unable to comment on the changes, which could include a move to smaller deals. Candover would normally target businesses with an enterprise value of more than €500 million.
Candover is the latest large buyout house to allow limited partners to withdraw uncalled capital, effectively shrinking their funds. Permira, a fellow UK-headquartered private equity firm, announced a similar move in December. Like Candover’s 2008 fund, Permira IV – then an €11.1 billion vehicle – included a significant commitment from an affiliated listed investor struggling with liquidity issues, SVG.
The decline of Candover Investment’s share-price, which has lost around 84 percent of its value since October, has been linked to concern over its over-commitment strategy. Many listed vehicles, including Permira investor SVG, have pursued such a strategy, whereby the investor’s ability to honour its capital calls is reliant on receiving ongoing distributions from existing commitments, which in the current market have slowed considerably.
Candover had originally sought commitments of €5 billion for its 2008 fund, but the turmoil in the financial markets affecting limited partners has made raising money for large buyout funds a difficult proposition.
TPG has also allowed limited partners to reduce commitments to at least two of its funds, and reduced its management fees to aid struggling limited partners.
The reduction in Candover fund’s size means reduced fee income, which may well lead the firm to take cost-cutting measures already being implemented by major buyout firms. The Carlyle Group, The Blackstone Group and 3i are among firms that have reduced staff in the wake of the financial crisis.
Last year Candover expanded its investment capacity by hiring a four-strong Central and Eastern Europe team led by former JPMorgan Partners European head Lindsay Stuart. The firm also hired ex-Volvo chief executive Fredrik Arp as advisor.
Candover Investments is due to update investors on the fund’s restructuring plans when it delivers its 2008 results on March 2.