CVC seeks €4bn for second long-life vehicle – exclusive

The firm has widened its potential LP base for CVC Capital Partners Strategic Opportunities II, Private Equity International has learned.

CVC Capital Partners is in market with its second long-life fund and will seek capital from a wider group of investors than in Fund I, Private Equity International has learned.

The European buyout giant is seeking €4 billion for CVC Capital Partners Strategic Opportunities II and has begun discussions with investors, according to two sources familiar with the fund.

CVC declined to comment.

The fund’s predecessor, a 2016-vintage, raised €3.9 billion, according to CVC’s website. It is understood that fund’s capital came from a handful of very large investors and Fund II will look to raise capital from a wider range of LPs.

The California Public Employees’ Retirement System committed $981.8 million to Fund I, according to a CalPERS investment performance document.

CVC’s Strategic Opportunities platform was established in response to growing demand from large investors to be able to invest for the long term in stable, high-quality businesses, according to a statement from the firm announcing Fund I’s first investment in December 2015. Its portfolio includes stakes in UK roadside assistance company RAC and Spanish oil transportation firm CLH.

Fund II marks the latest in a growing list of long-life vehicles from blue-chip private equity houses. KKR announced in early February it had amassed $8 billion for its Core Investment strategy, which will target deals with an expected hold period of 15 years or more and does not have recycling provisions.

Long-term funds that held their final close last year include Bain Capital spin-out Core Equity Holdings, which raised €1 billion for its debut vehicle in September, and Cove Hill Partners, also founded by a Bain alumnus, which held the final close on its debut vehicle in September on $1 billion. Apollo Global Management has plans to launch a long-term equity and credit vehicle, it announced in December.

Some of these funds have tweaked the traditional fund structure; Core Equity’s vehicle has a “hard hurdle” of 5 percent, meaning LPs don’t pay carried interest to the GP on the first 5 percent of returns. The firm has also done away with the GP catch-up, so there is no period in which profits are returned solely to the GP. Finally, carry is set at 27.5 percent, so Core Equity reaps a bigger share of profits as long as it outperforms the industry average and delivers more to its LPs.

More than a quarter of private equity professionals believe long-life funds will grow in popularity over the next five years, according to Intertrust’s Private Equity Market 2017 report. Respondents to the survey – a mix of LPs and GPs – cited the potential to generate greater returns through longer holding periods as the main driver of the anticipated growth in long-life funds, which it defined as those with a term of between 15 and 20 years.