Golding Capital Partners and VCM Venture Capital Management, two private equity fund of funds specialists based in Munich, have set up a joint venture to raise E100m from institutional investors for VCM Golding Mezzanine, Europe’s first dedicated mezzanine fund of funds.
The fund, which according to VCM managing director Thomas Schwartz is aiming for a first close near E50m by the end of the year, will make between 10 and 15 investments in mezzanine investment funds operating both in the US and Europe. It aims to generate an internal rate of return of approximately 10 per cent.
Commenting on the initiative, Jeremy Golding, managing partner at Golding, said: “The German market is having a tough time, but the mood is getting better. People are talking about private equity again. VCM Golding Mezzanine, which in terms of its risk and return profile is comparable to a corporate bond fixed income product, is attractive to investors who are looking to earn an attractive return on investment but who are also keen to see money coming back early and consistently.”
Investors in a mezzanine fund typically receive regular payments by way of coupons while also participating, through so-called equity kickers, in the potential upside of the fund's underlying investments.
Prior to launching VCM Golding Mezzanine, the two managers teamed up with the Center of Private Equity Research (CEPRES) at the University of Frankfurt to build a database of approximately 900 mezzanine transactions completed in Europe and the US between 1986 and 2002. According to Golding, quantitative analysis of the data confirms that mezzanine investments offer an average return of approximately 10 per cent, low default risk and limited correlation with other asset classes such as quoted equities and corporate bonds.
VCM Golding Mezzanine primarily aims to attract medium-sized pension funds, insurance companies and endowments in Germany, Austria and Switzerland. Depending on their specific legal and fiscal requirements, investors will be able to choose between different legal structures to invest in the fund.
VCM and Golding, through various private equity fund of funds programs, currently manage approximately E900m of invested capital between them.