Every private equity firm would like to think its funds are standout performers, but in reality only a handful of managers can legitimately make such a claim.
In December 2017, Private Equity International introduced the HEC Private Equity Value Creation Hall of Fame, compiled by Oliver Gottschalg’s team at HEC Paris and co-founder of its private equity observatory research centre. The ranking sets three criteria which funds have to meet in order to be considered among the industry’s best ever. An explanation of how the list is compiled can be found here.
One year on, we introduce the Hall of Fame’s fifth inductee and look back at which funds made the grade over the past 12 months.
Our fifth entry is the 2000-vintage seventh flagship vehicle from London’s BC Partners. The fund – which focused on buyouts in sectors such as consumer, financials and telecommunications – raised €4.3 billion and had generated a 2.1x total-value-to-paid-in multiple and 17.9 percent net internal rate of return as of April.
Notable deals included its exit of Spanish IT services business Amadeus in 2011 at around a 7.7x money multiple.
According to PERACS, the performance analysis consultancy founded by Gottschalg, the fund compares extremely favourably with its relevant peers in terms of TVPI.
Fund VII’s limited partners included New York’s Andrew W Mellon Foundation, Canadian public pension British Columbia Investment Management Corporation and Finland’s Ilmarinen Mutual Pension Insurance Company. Michigan Department of Treasury, Montreal Urban Community Police Pension Funds and Japan’s Mitsubishi Corporation also committed.
Peer group analysis
PERACS creates a peer group of relevant funds by assessing a fund’s individual deals and categorising them by sector, region, 3-year timing window and size, and then finds those funds whose deals overlapped most with these “strategic cells”. The relevant peers are:
Countercyclical secret sauce
Mostly notable within the PERACS analysis of BC Partners, and perhaps one of the keys to the firm’s success, is its extraordinary lack of ‘procyclicality’ with its peers in terms of investment timing. ‘Procyclicality’ is defined by PERACS as a comparison of the timing of the fund’s investment patterns with the overall private equity universe. It is taken as a proxy measurement for the quality of dealflow, because it demonstrates its ability to invest when others cannot and slow down when others are speeding up.
BC Partners ranked way beyond the least procyclical quartile of its relevant peer group.