Charterhouse Development Capital, the London-based buyout firm that bought itself out from HSBC in 2001, has announced the final close of its latest fund, Charterhouse Capital Partners VII [CCP VII] at just over E2.7bn. This figure is higher than the most recent revised target total of E2.5bn mooted by the firm in May. Originally the aim was to raise a total of E3bn when marketing for the fund started in earnest in early 2002.
Since then the ability for many investors to commit to new private equity funds has been compromised both by minimal distributions from their existing private equity investments and by distortions in their overall allocation models caused by the slump in public equity values – causing their private equity allocations to assume disproportionate significance.
There has also been increasing debate amongst the investment community as to how large buyout funds are set to perform in an environment where quality assets are becoming more scarce, competition from other buyout funds [both European and US] is intense and where smart financing and the ability to exploit leverage supplied by eager banks has been markedly reduced.
'LPs are taking much more time to commit to any fund now,' commented a UK placement agent [who did not work on CCP VII], 'and there is also a tendency to see more issues as reasons to say 'no, not now' to funds that can't evidence the full range of must-have features. Performance – and that's cash out, not just IRR – team stability and focus are all crucial.'
A number of large buyout funds have been fundraising over the past year or more and have been finding the market far less receptive than in the past. Terra Firma, Doughty Hanson, Industri Kapital are three such firms that are continuing to fund raise in this much cooler climate, whilst the final closing of CCP VII will bring to a conclusion what many at Charthouse will regard as a hugely protracted and distracting – albeit essential – exercise.
Gordon Bonnyman, chief executive of Charthouse, said in a recent interview with PEO that 'the fund raising environment is horrible. And that means we have been on the road for a long time.' The firm has been assisted in the fund raising by the placement agent group at Citigroup, headed by Loren Boston. Clifford Chance acted as legal advisor to the fundraising.
The announcement earlier in July by UK-based buyout firm Permira that it had been able to hold a first close for its third buyout fund at over E3bn, a matter of months after formally launching its fund raise, is therefore all the more remarkable. The firm has been able to realise some very successful exits – most notably from its investment in UK DIY retail chain Homebase – and this has helped encourage existing investors in previous Permira funds to recommit: over 70 per cent of the funds raised came from such investors. The firm aims to raise up to E4.75bn in total.
Although no details have yet been forthcoming about the number and origin of the investors in CCP VII, the Financial Times reports that members of the Charterhouse team contributed around E27m, or one per cent of the fund total.