Five Minutes With John Gripton

Fund of Funds manager Capital Dynamics continues to see opportunities for growth in Europe – despite the subdued economic outlook – and believes the fund of fund model is here to stay.

You recently expanded your London office to make it the hub of your European investment management activities. With the Continent still struggling to get out of recession, is it really the right time to focus on Europe?

“The strong uncertainty we had at the beginning of last year has to some extent gone away. There has been a clear demonstration by Germany and France that the Euro will continue and the risk of its demise has receded. The state of the economy, of course, is still an issue – but I think the question is when we are going to pull out of recession, not if we are going to. This is quite important.”
“But what we also stress to investors, in particular to non-European ones, is that the whole of private equity has become much more global in the last 10 years. There are many small, domestic businesses in France or Italy, for example, which can generate much of their revenues outside of Europe. So what we do, as advisors from an alternative assets business, is to select managers who have demonstrated they can find businesses that have either already got international sales or can expand businesses on an international basis. These businesses are less dependent on the European economy, and are more correlated to buoyant economies elsewhere. When Europe becomes buoyant again they can also take advantage of the European economy. We think this is where the future really lies.”
The past few years have seen a number of LPs reduce the number of GPs they work with. Does that significantly impact your business?  
“This situation has arisen from the large-scale fundraising that happened in 2006 and 2007. These years have seen a lot of cash committed by LPs. But with the dramatic economic slowdown in 2008 and 2009, fewer investments – and hence few realisations – have been made, so today a lot of investors are still relatively over-committed and lack the resources to make new commitments. As a result they’re looking at those managers who have been most successful and are being more selective.”
“And you also have pension funds who’ve built a portfolio over 10 to 15 years, and who’ve realised they’ve got a large number of funds in their portfolio to manage. Therefore some of them are looking to rationalise the portfolio and to reduce the number of managers. So LPs are clearly more selective and this impacts the whole industry – whether it is primary funds or the funds of funds businesses. Few managers are immune. Fundraising is difficult at the moment, and even some of the top brand names are finding it difficult to raise funds.”