Private Equity International caught up with managing partner David Ewing to discuss the sometimes-tricky art of raising capital for UK-only vehicles in the wake of the Brexit referendum.
How has your LP base changed for Fund XI?
One US state pension fund has come in, a Danish state pension fund, a Japanese investor and then we’ve got some money from the UK as well that’s new. These are people that have invested with us for the first time.
Eighty percent of the capital of the larger £700 million fund came from existing investors. We had a small number of investors that didn’t come into the vehicle and that’s largely a function of timing. Because the fundraising process was so quick, there was a small number of people that were not fast enough to get there.
Then we had investors that have pulled their European programme. They had internal changes where the European team left the business, so they just weren’t in a position to come into Fund XI.
We’ve got a little bit more exposure to North America than we had previously, Europe has come down slightly.
What role did Brexit play in discussions with LPs?
People were initially concerned about forex movement – what you’re doing at a portfolio company level. The concern then moved on to what was likely to happen from a macroeconomic perspective in the UK; will there be a stopping of demand or not?
We’re a sterling fund and clearly we’ve got a lot of dollar/euro gain investors. People were concerned about the kind of increased currency volatility we have across the world, particularly in the matched currencies with the pound. There’s nothing we can do about that.
At the fund level they’re rebasing everything back to dollars or euros; we’re a sterling fund and we’re investing in sterling. That’s whatever their own hedging strategies they have in place, but equally they’re large global investors and they will be deciding what kind of currency exposures they want.
It’s a large and important market from a private equity perspective. For the big international investors it is wholly appropriate for them to maintain or indeed even increase exposures to UK private companies. There’s lots of entrepreneurs in the UK and if people are serious about running global private equity programmes they need to maintain exposures to the UK.
What’s the key to a successful fundraise?
The fundraising industry is about momentum and what seems to be the case is that some funds get momentum and some funds don’t. There are some very influential LPs and if they provide wholehearted early support for a GP then that seems to be of strong importance. That’s viewed as a very positive endorsement [by some LPs] to supplement their own thinking and the diligence that other LPs are doing.
Clearly if you’ve got strong performance, that’s the single most important factor. The other things that are important are confidence in the succession management of the GP as well. Behind that you’ve got these influential LPs that are arguably the thought leaders in the sector.