Pan-European firm IK Investment Partners has held the final close on its ninth flagship fund on its €2.85 billion hard-cap, Private Equity International has learned.
IK began marketing IK IX Fund, which had an initial target of €2.5 billion, about one year ago and held a first close last summer. Market disruption caused by the coronavirus pandemic stretched out the timeline for the final closing of the fund, which was already oversubscribed by December, said Mads Ryum Larsen, a managing partner and head of investor relations.
Just over €1 billion came from new investors. The majority (60 percent) of investors are from Europe, 30 percent from North America, 7 percent from Asia and 3 percent from South America. US limited partners in Fund IX include Minnesota State Board of Investment, New York State Common Retirement Fund and Illinois Municipal Retirement Fund, according to PEI data.
Larsen said: “At the outset of the fundraise, we wanted to expand our North American investor base, which we did, and also we wanted to attract investors from new geographies. We [brought in] four new Latin American investors, two Chinese investors, and we’ve now also got a cluster of investors in Tokyo.”
The total raised includes a GP commitment of €75 million. Fund IX has a 10-year term, with a five-year investment period, and a European-style carry waterfall.
The fund has yet to commit to any transactions, and Larsen anticipates it will not do so until late in the third quarter or early in the fourth quarter. A lack of existing assets has, in this case, been a blessing.
“Prior to covid-19, the more assets you had in the fund, the better, the easier it would be to fundraise or finalise the fundraising. Post covid-19, the cleaner the portfolio, the fewer assets you have in the fund, the easier the fundraise,” Larsen said.
“It’s been turned around, basically. A clean fund is definitely preferable for most LPs in this market.”
IK invests in companies in the business services, consumer and food, engineered products and healthcare sectors across four core markets: the Nordics, the DACH region, France and the Benelux region.
Larsen said he anticipates the fund will initially focus on sectors that have been less affected by covid-19, such as food production, some parts of healthcare and software-as-a-service, with no geographical preferences between the four core markets.
“Many buyers will likely focus their attention on high-quality assets, so I would say we’re not expecting a significant decrease in pricing for these types of assets. However for some time to come there’s going to be less debt available, which means the pricing is probably going to be less frothy than we saw in 2019,” Larsen said.
“We don’t expect forced sellers for quality assets.”
When it comes to the current portfolio, IK set up a covid-19 “war room” that goes through the entire portfolio on a weekly basis, focusing on aspects such as trading, liquidity, covenant and financing issues, as well as opportunities around making the companies stronger and positioning them for growth once the general economy reopens.
“We don’t think we’re seeing permanent damage to our portfolio companies, but there will definitely be earnings adjustments for 2020. We have written down our portfolios for the end of Q1, but those write-downs have been primarily multiple contractions, which have expanded again during Q2.”
Fund VIII, which closed on €1.85 billion in 2016, is fully deployed in 16 companies and has made one full exit. The firm exited two companies from the €1.4 billion IK VII Fund this year: CID Lines, which develops and produces cleaning products for the agricultural, food, vehicle care and institutional sectors, and ready-to-use dough manufacturer Cérélia Group, both delivering a return of 2.5x.
Fund VII delivered a net internal rate of return of 14.03 percent and a net multiple on invested capital of 1.73x as of 31 March, according to Minnesota SBI.
IK is also investing its €550 million IK Small Cap Fund II, which closed in 2018.