ING, the Dutch financial services group, is expected to be joining the numerous financial institutions endeavouring to reduce their exposure to private equity. In particular, according to market sources, the bank does not want to commit any new capital to funds being raised by subsidiary Baring Private Equity Partners (BPEP).
Sources also report that ING is looking at exit options for its existing investments in the asset class, with a whole or partial sale to a secondary buyer being considered alongside a full or partial buyout by BPEP’s management.
ING responded to requests by stating that it did not as a matter of policy discuss what it described as 'market rumours'. Chris Brotchie, chief executive of BPEP, declined to comment.
ING makes up 20 per cent of BPEP’s circa E2.2bn in total under management. Around 80 per cent of BPEP's funds are invested in emerging markets. Some, notably its Russia-focused fund Baring Vostok Capital Partners, have delivered exceptional returns and are widely regarded as class leading. Other BPEP funds have performed less well as the markets they invest in, such as Latin America, have slumped, or have had to compete in more crowded and competitive sectors, such as the UK mid-market.
Brotchie is understood to have been exploring how a backer could be found to support the buyout of the whole business. Sources familiar with the current situation report that a number of partners running individual BPEP funds are looking at gaining independence via a buyout of their own particular fund.
Several financial institutions have sought to cut their exposure to private equity, often as a result of the new capital adequacy rules that are part of the Basel II proposals relating to the regulation of banks. Whereas banks presently need only carry eight per cent in reserves for their private equity investments, i.e. E8 for every E100 invested, the new ruling would oblige them to make a 24 per cent provision. This three-fold increase would have a profound impact on banks’ capital requirements – and their appetite to tie up such capital by investing it in private equity.
Partly in anticipation of these changes, banks such as Deutsche Bank have moved to reduce their exposure to private equity by selling portions of their portfolio either to third parties, such as their E100m sale of direct investments to Vision Capital, or via the E1.5bn management-led buyout of DB Capital Partners earlier this year to form MidOcean Partners.