HMTF targets E1bn for Europe II

Hicks, Muse, Tate & Furst is expected to launch its Europe II fund with a E1bn target and several investor-friendly terms and conditions.

When Hicks, Muse, Tate & Furst’s second European fund is launched next week, it is expected to feature a number of terms designed to appeal to prospective limited partners.

The US-based firm, which raised E1.5bn for its first European fund, is understood to be targeting E1bn this time around in light of tough fundraising conditions.

'We would be crazy to put out a number that we wouldn’t get,' said Lyndon Lea, partner in the firm’s London office, in an interview. 'A number of fund targets that were not reached were set in a difficult environment a year ago, but we have factored in prevailing market conditions.'

Lea added that in discussions so far, only one of the firm’s existing investors has said they ‘will sit this one out’. The fund will have the same focus as its predecessor, with media/publishing and consumer branded products remaining the two core target sectors.

The firm appears to have decided that the attractiveness of terms for LPs will be an important part of the proposition. 'HMTF has been having a constant and very good dialogue with LPs in recent months as to what they want and don’t want and we think the end result is market leading in terms of what’s on offer,' said Stephen Murphy, managing director in the European Financial Entrepreneurs Group at Citigroup, which is advising on the fundraising.

One provision built into the partnership agreement that is likely to appeal to investors is subordination of the general partner’s carried interest. Under the clause, the GP will not receive any share of the fund’s profit until all the called capital, as well as the preferred return, has been returned to the investors. According to Murphy, it may take until year six in the life of the fund until HMTF is able to access carry.

Other features of the fund include a three per cent capital commitment from HMTF itself, rather than the more common 1 per cent expected of a GP, and the removal of exit fees on transactions. In addition, HMTF intends to relocate a senior investor relations executive from the US to Europe in an attempt to ensure LPs’ interests are well looked after.

HMTF has suffered from the disastrous performance of some of the telecommunications and media investments it made in the late 1990s in the US, but boosted its reputation in Europe with the flotation of telephone directory publisher Yell Group, in which its original investment almost doubled.

Murphy said that the firm has already returned 65 per cent of its first European fund, which was raised at the tail-end of 1999 – a figure that could rise to 80 per cent if it were to sell its remaining minority stake in Yell.