London-based private equity house Doughty Hanson has held a first close of its fourth European buyout fund, securing commitments totalling E700m.
Like its predecessors, Doughty Hanson IV will invest in middle market and large-sized European businesses with an enterprise value above E250m. The firm is planning to raise E3bn for the fund. The firm’s previous fund, Doughty Hanson III, closed in September 1998 raising $2.66bn.
According to Doughty, investors making commitments to the new fund include Partners Group and Pantheon Ventures; public employee pension funds including West Midlands Pension Fund and State of Michigan; and private corporate pension funds including Verizon Investment Management. European investors comprise 45 per cent of current commitments, US investors 30 per cent and Asian investors a total of 25 per cent.
In a move that may have benefited the fundraising, Doughty recently sold FL Selenia, a distributor of automotive lubricants, to US private equity firm, Vestar Capital Partners for E670m. The sale provided limited partners in Doughty Hanson III with a return of 2.5 times their investment.
“The fundraising market changed in the last year with investors becoming over-allocated in private equity due to the fall in the value of their quoted portfolios,” said Stephen Marquardt, head of the fundraising team at Doughty Hanson. “Coupled with the losses sustained in the dot com and telecom booms, this made them much more cautious. In the past it was commonplace for funds to achieve first closing of at least half of their target.”
Marquardt believes that the first close will precipitate a more rapid fundraising until the final close, scheduled for next summer. “Now we seem to have a reverse of the 80/20 rule, with most investors waiting until after first close before committing. Whilst it is understandable that they wait to see what everyone else is doing, it does lead to the rather curious phenomenon of a short period of frantic activity between first and final closing.”
Doughty Hanson has offices in London, New York, Chicago, Frankfurt, Milan, Munich, Paris, Prague and Stockholm. The firm has 25 investment professionals at its private equity unit.