Investcorp plans first US institutional fund

Investcorp, one of the Gulf region’s biggest private equity firms, is exploring several fund structures to access US institutional capital for private equity as it doubles down on increasing its footprint in North America.

The firm may come to market with its debut fund by the end of this year or early next year, according to three sources familiar with the firm. The fund’s target is not yet decided, sources said.

The US has historically been the preferred investment destination for Bahrain-headquartered Investcorp, which was founded in 1982 to enable Middle-Eastern families to invest their wealth in alternative investment opportunities in developed markets, one of the sources said.

Apart from raising capital on a deal-by-deal basis, Investcorp also invests off its balance sheet and has non-US-focused third-party funds. One such investment was a co-investment alongside Canadian pension plans Caisse de dépôt et placement du Québec and PSP Investments to acquire Alix Partners in 2017.

The firm has raised US institutional capital since 2005 for its absolute returns and real estate strategies. It is understood that the nature of US institutional investors necessitated a fund-like structure for private equity for the firm.

Investcorp declined to comment on fundraising and fund structures.

These investors, especially the US public pension systems, are fiduciaries and often limited by resources and other constraints to analyse deal-by-deal investments. Their process is to align themselves in fund structures of managers they trust, which have a long track record and will deliver performance, the source said.

The fund is a natural progression for Investcorp, which has traditionally designed products to serve its client bases, it is understood. For some of the firm’s Middle-Eastern clients who wanted to maintain discretion over investments, Investcorp constructed deal-by-deal portfolios.

Several of these clients graduated to “packaged” portfolios, giving Investcorp more discretion on capital allocation.

Investcorp’s May acquisition of global advisory placement firm Mercury Capital Advisors is critical to its US strategy, the sources said. Mercury’s core strength is its insights into the US market and the attitudes and appetite of various institutional investors. It can help shape Investcorp’s product, pitch and story to make it appealing to a wider investor audience, according to one of the sources.

Investcorp’s portfolio includes investments in European technology companies, business services and industrials companies in North America, and family-owned businesses in the Middle-East and North Africa. It has also committed to buyout funds in North America, according to PEI data.