Close Brothers raises £50m for growth fund

Close Brothers Growth Capital Fund II, which invests in UK SMEs using hybrid debt and equity structures, has raised £50m from four institutions.

Close Brothers Growth Capital (CBGC), a majority-owned subsidiary of independent UK investment bank Close Brothers Plc, has held a first closing at £50 million (€71 million; $91 million) of its second fund.

The fund has a target of £100 million, which according to Barrie Moore, a director of CBGC, the firm is hoping to reach later this year. The investors that have already committed to Fund II are the ones that also backed Fund I, a £50 million vehicle closed in 2000 – The European Investment Fund, Prudential M&G, Bank of Scotland and parent Close Brothers.

Moore said in an interview that another 17 institutions from the UK, continental Europe and North America were currently carrying out due diligence on the fund.

Moore, a former mezzanine finance specialist who joined Close Brothers in February 2003, said CBGC was the only UK third party fund manager specialising in providing SMEs with integrated debt and equity capital. The group aims to invest between £2 million and £25 million per transaction. 

CBGC invests in businesses through structured instruments that combine loan characteristics such as downside protection with the potential upside of equity investments. According to Moore, the fund offers a contractual yield of between 12 to 17 per cent yield in addition to further equity gain when investments are realised. The fund’s overall return target is 25 per cent.

In a statement, CBGC said Fund I, which was raised in 2000, had returned over £20 million to investors to date, giving it a ratio of distributions to paid in capital (DPI) of over 47 percent.
 
CBGC is being advised on the current fundraising by Continental Capital Partners, a London-based independent private equity placement specialist.

CBGC was established in 1999. Its parent Close Brothers Plc also has a mid-market private equity investment business, Close Brothers Private Equity, which is currently in the process of raising its seventh fund and is expected to hold a final close at £350 million later this year.