Hg caps management fees at 1.75% for £2bn Fund

The European private equity firm has departed from the traditional 2% management fee structure, opting to take 1.75% for managing its latest fund.

HgCapital has cut the management fees for its latest fund, capping them at 1.75 percent for its prospective £2 billion (€2.5 billion;$3.2 billion) Hg Fund VI, according industry sources. The fund's initial target had been £1 billion, a small increase on HgCapital 5 which it closed on £950 million (€1.4 billion; $1.66 billion) in 2006.

A source familiar with the firm's fundraising says it now looks close to more than doubling its previous fund size thanks to the cut in fees.

The fee change was negotiated and agreed in Autumn last year, when it was decided that opting for the reduction in management fees provided the potential to make more money through carried interest eventually, the source said.

The decision was not a reflection of the weak fundraising market, but that the change came from “a situation of strength”. In return for reducing the fees, Hg negotiated an increase in the fund's hard cap to £2 billion, he said.

HgCapital Trust released a statement two days ago passing a resolution to approve the proposed management fees. HgCapital Trust is listed on the London stock exchange and has minority participation in all HgCapital's investments.

Hg Fund VI will invest in pan-European mid-market companies, primarily in the United Kingdom, Germany and Benelux. It will target 15 to 20 companies with average equity investment of between £80 million and £120 million, according to information published by the Pennsylvania Public School Employees' Retirement System.

Established in 2000 as successor to Mercury Private Equity, HgCapital currently has €2 billion under management, according to its website.