IK Investment Partners has closed its latest fund just below €1.4 billion this week, PEI has learnt.
The London-headquartered firm, which came to market in December 2011 targeting €1.7 billion, reportedly held a first close on approximately €1 billion in March 2012.
“We are very happy. This is a very good result in this [challenging fundraising] market,” Mads Ryum Larsen, partner and head of IR, told Private Equity International.
However, after the first close, the fundraising slowed somewhat as LP sentiment was negatively impacted by economic turmoil in Europe, Christopher Masek, IK’s co-managing partner said. “In an incredibly difficult market, where we had great timing at first, we got hit in our stride by issues in Europe – Greece in particular. I dislike blaming the markets, but it did affect us.”
“Many LPs asked us whether it was wise to raise a euro fund, and whether we should not consider a different currency and have a back-up, perhaps the deutsche mark. Often three-quarters of meetings were focused only on Europe, and whether it was going to fall apart,” he added.
Many LPs asked us whether it was wise for us to raise a euro fund and whether we should not consider a different currency and have a back-up, perhaps the Deutsche Mark. Often three-quarters of meetings were focused only on Europe and whether it was going to fall apart
But sentiment changed in Q2 of this year, according to Ryum Larsen. “The euro is pretty strong now against the dollar. And at present, the key issue on a global scale is not about the Eurozone, but the debt ceiling in the US and what will happen once the extension runs out again. There has been quite a surge in valuations of Southern European governmental debt, with the interest rates narrowing in recent months, and I think that is a sign of confidence that Europe is holding it together.”
Approximately 60 percent of IK’s LPs re-upped. “Some investors increased their allocations, but we also had quite a few investors that couldn't re-up, including some Nordic investors [that] were troubled by regulatory changes like Basel III and Solvency II,” he added.
However, one corollary of this was that IK ended up diversifying its investor base beyond the Nordic region. The US and Canada now account for close to 50 percent of IK’s LP base, compared to just under 25 percent with the firm’s previous fund.
IK also attracted 16 new investors – the biggest group of new LPs since IK’s 2000 fund, according to Ryum Larsen. These included the Minnesota State Board of Investment, Hermes, the Danish Growth Fund, Alberta Teachers Retirement Fund and Dansk Vækstkapital. IK, which used Campbell Lutyens as a placement agent, also attracted a Japanese investor. Other LPs in the fund include SL Capital Partners, Varma and MetLife Investments.
IK didn’t offer LPs an 'early bird' discount and fund terms remained similar across the board, according to Ryum Larsen. “I don’t recall a fundraising being so 'negotiating light' as this one. The terms have stayed very similar; there has been very little change. Perhaps some requests about off-setting some of the transaction fees, and a bit tighter key man clauses, but nothing major. The terms are pretty standard right now.”
LP did express more interest in co-investment opportunities, however. “Traditionally we do provide quite a lot of co-investments – approximately 25 percent of the fund size would be offered in co-investments, typically to the larger investors,” according to Masek.
IK VII is the first fund raised by the firm since Masek and Detlef Dinsel took over as managing partners from Björn Savén in 2010, with the latter moving to a chairman role. IK’s GP commitment in the current fund is 5 percent – which is “considerably higher than the industry standard and shows the team's commitment to this fund”, the firm said.
While IK didn’t get to its €1.7 billion target, it believes it is well-positioned in the market, Ryum Larsen said. “With our fund positioning, we tend to be larger than the country funds we compete with in each market, and we tend to be smaller than the bigger mid-market pan-European funds. So we have a good spot in the middle, which investors appreciate. Also, LPs get exposure with us in more than one country and don’t have to back the country funds and manage multiple relationships.”
When we talked about it with our investors, they talked more about capping the fund size, rather than being nervous about the fund not being big enough
Mads Ryum Larsen
Furthermore, it has become more acceptable in today’s environment to raise lower amounts, he insisted. “Interestingly, LPs are supportive of this, because it means the deployment of the capital will probably go quicker, minimising the J-curve. Again, it should lead to a larger number of co-investment opportunities for LPs. When we talked about it with our investors, they talked more about capping the fund size, rather than being nervous about the fund not being big enough.”
IK VII has so far done three deals: VPS, Hansen Protection and Ampelmann and is nearly 20 percent deployed. “The equity size has been around the €80 million mark. That’s a good sweet spot for us and I suspect we will do approximately 15 deals from this fund,” Ryum Larsen said.