Oakfield Capital Partners has launched its debut fund to invest in small- and medium-sized businesses in the UK.
The firm is targeting £20 million, though the fund’s spending power will be boosted by Oakfield’s partners, who will kick in 10 percent of the capital in each of the fund’s deals, David Pitman, an Oakfield Partner, told Private Equity International.
Oakfield sees opportunities in the UK SMEs segment, as they are a vital part of the British economy, it said in a statement. “They account for 60 percent of employment and 50 percent of turnover in the UK’s private sector and we believe that successful SMEs will typically produce faster growth and better returns than larger companies,” Pitman said in the statement.
Due to the tough lending climate, SMEs are more likely to turn to private equity to get access to capital, he said. “More [businesses] have to accept equity as a source of finance and in many cases that’s a good thing for these companies. Some of the businesses don’t have a stable revenue stream and equity finance can be the best sort of finance, but clearly that means giving up some control,” he said.
More [businesses] have to accept equity as a source of finance and in many cases that’s a good thing for these companies. Some of the businesses don’t have a stable revenue stream and equity finance can be the best sort of finance, but clearly that means giving up some control
Investors in the fund will qualify for tax relief under the Enterprise Investment Scheme (EIS), which aims to encourage investments in smaller and medium enterprises. “Many banks are not actively lending to this sector, so the [UK] government is trying to get people to invest in this sector,” Pitman said.
While this tax relief scheme “fundamentally improves the risk-return profile of investments in SMEs”, the investments the fund makes have to be high quality on their own, outside of the tax relief structure, he said.
The minimum size that an investor can put in is £50,000, but investors – typically high-net individuals and other “sophisticated” investors — usually put in more than that, he said. The firm is mainly targeting UK investors, although Oakfield has attracted some international investors as well. “They can’t necessarily benefit from the tax reliefs, but they simply put money in because they like our investment model,” he said.
Despite the challenging fundraising climate, Oakfield aims to reach a final close in the fall. “We think there’s a large [group] of private investors that have money in the bank, returning very little interest and they are looking for ways to make their money work harder so we are finding there’s good demand out there for this type of investment,” he said.
Oakfield operates across a range of sectors including industrials, media, telecoms, leisure and business services. Oakfield’s portfolio companies include: Coryton, an oil service company, Taylor, a producer of commercial waste bins, Ingresso, an e-commerce company, Jolly Fine Restaurants, a Michelin-starred restaurant group and Secure Parking & Storage, a parking and storage service.