Friday Letter Getting ready for the fundraising rush

BC Partners’ €4bn first close was a ray of light for GPs at this week’s EVCA Investors’ Forum in Geneva, especially those among the large crowd getting ready to raise a new fund.  

Laurent de Rosière, an investor relations-focused partner at BC Partners, was understandably wearing a smile on his face at this week’s EVCA Investors’ Forum in Geneva. Earlier in the week it had emerged that his firm had rounded up €4 billion, or two-thirds of the final target, for its latest fund.

de Rosière was also sporting a grin on his tie, which featured on it a winking smiley face –   😉   – in “text-speak”. It had been a while since he had donned that particular garment, he noted.

Elsewhere delegates were praising BC for its “neatly executed” fundraising exercise and commenting on the larger-than-expected first close.

The phrase “bellwether” is an over-used – and frequently inappropriate – phrase attached to post crisis fundraising efforts like BC’s. One firm’s success – and even a handful of firms’ fundraising triumphs – does not mean others will find the going easy.

Nevertheless, BC Partner’s first close, like the unseasonably warm Geneva sunshine, was a ray of light for the army of firms planning a return to the market in 2011. There have been several estimations of the number of firms that will kick off a fundraising process during 2011. The largest we have heard so far is 1,500.

The scale of this impending rush of GPs was really driven home at the Geneva event. While the on-stage programme dealt with various hot topics – performance, regulation, macroeconomics – it was marketing that dominated hallway discussions. As the statistics would suggest, almost every GP encountered was either in the process of raising a fund or planning to come to market at some point during the year.

Judging by some of the on-stage comments from the limited partner community, and as we argued earlier this week, many will fail.

The LP toolkit has changed, said Juan Delgado-Moreira, a managing director at gatekeeper and fund of funds Hamilton Lane. Investors are more sophisticated and if you are raising capital for primary private equity investment, you are now competing against other options, such as the secondaries market and co-investment programmes.

LPs are also under a lot of pressure internally to explain the asset class better, said Steve Byrom, head of private equity at the $95 billion Australian Future Fund. This leads to slower commitments with more due diligence. “We are definitely seeing a drive towards fewer relationships to allow teams to stay on top of the relationships they have,” he said.

“There is a greater recognition,” added Byrom ominously, “that unless you can access the top of this market, [private equity] is not worth the risk.”

LPs were also unenthusiastic about first-time funds. “New teams mean an extra layer of risk,” said David Plummer, private equity manager at the $20 billion New Zealand Superannuation Fund. The only circumstances under which he looks at first-timers is if they fit into a thematic investment area identified by the fund itself, in which there are no experienced managers.

The LP panel was – needless to say – well attended, but there was little in the way of encouragement for GPs to draw from it. One observation from Delgado-Moreira may have improved their mood. Private equity, he noted, was a relatively young asset class undergoing “long-term secular growth”. The presence of Australia’s and New Zealand’s respective sovereign wealth funds on the panel – two relative newcomers to the asset class – was testament to its growing appeal.

The overriding sentiment was that the immediate prospects for fundraising seem bleak, but in the longer term there may still be cause for GPs to sport a  😉  .