In the current US market, there’s no point in starting a fund without previous experience. “To go out in the marketplace today and try to raise a fund with no evidence of ability to invest in private equity successfully is just a complete waste of time,” says Augustine Long, a partner at placement agency Stanwich Advisors.
As in Europe, investors want teams with track-records. “Clearly you start in a better position if at least the core of your team has come from somewhere where they already worked together and can point to deals they have done,” says Pantheon’s di Valmarana.
New funds that are currently attracting the most interest in the US are often spin-outs; experienced teams that offer an unusual fund structure or a focused investment strategy. Take energy for instance. It’s a sector that is increasingly appealing – even to generalist LPs, like Dutch pension fund PGGM. “The energy sector, which is attracting more attention in recent years, may be an area we could consider,” says Maurice Klaver, investment manager at PGGM.
“Clearly there’s a large focus from pension funds on energy related investments and infrastructure,” agrees John Gripton, a managing director at Capital Dynamics. “If a manager is raising a fund in a niche area with little competition, then they will attract more interest,” he says.
The biggest problem first-time funds face, sources say, is getting to a first close. Investors are sceptical about adding a new relationship that might not work out, says Long. “They don’t want to go through all this effort to find out that the fund is not going to get to the finish line,” he says. Nonetheless, there are some newcomers who look like they’ll be able to pull it off …
THREE DEBUT FUNDS TO WATCH
1. Blue Water Energy:
Set up in 2011 by Graeme Sword, a former partner and head of oil & gas at 3i Group, Jerker Johansson, a former chief executive of UBS Investment Bank, and Thomas Sikorski, former head of the London office at First Reserve Corporation to target investments in the global energy market. Fund I, which has a target of $750 million, held a $300 million first close last October, according to Private Equity International’s Research & Analytics division.
2. Augusta Columbia Capital:
Led by former Blackstone senior managing director Chip Schorr, the firm launched its debut fund in 2011, targeting $750 million; a source told PEI at the time. But although the firm is technically raising its first fund, the team has plenty of experience: Schorr used to be a managing partner at CVC, where he led the acquisition of Fairchild Semiconductor International in 1997. The vehicle (which boasts a 10 percent GP commitment) will reportedly invest between $30 million and $150 million in mid-market technology companies.
3. Altas Partners:
Set up by Andrew Sheiner, a former Onex Corporation partner, Altas Partners – an acronym for Alternative Long Term Assets – offers LPs and management teams an alternative strategy. “The irony is that often GPs sell their best businesses in order to bolster track records to support fundraising efforts; our objective is to try to get away from all that,” says Sheiner. Additionally, the firm uses less financial leverage, and offers LPs a lower fee structure, says Sheiner. “This allows us to generate comparable net returns to traditional funds, but with less risk.”