PEI: Why did you back NorthEdge?
A lot of managers we [have] historically backed were London-centric … and [yet] EIF has now backed a manager that is completely focused on the north of England. But in general, we liked the manager [and] the investment strategy. We do first-time teams and first-time funds; but we obviously like to see experience in the team and NorthEdge is a good example of that.
What is your overall investment strategy?
We try to find the best GPs with the best performance, while meeting EU community objectives. But we do take more risks by investing in first-time teams. By going into a [first-time] fund we are trying to give it a seal of approval and therefore hopefully [make it] acceptable to other LPs. Most of the time we invest, we commit at first closings – and often through our investment, they actually reach first closings.
Criteria for fund selection includes checking during due diligence that the value creation should primarily be through revenue growth. We check what happens to the capital in these companies; we’d like the money to go into the companies to [support growth], launch a new product or enter new markets, rather than [the] money being taken out.
Do you feel LPs have more influence on fund agreements in the current climate than they did pre-crisis?
It’s clearly easier to get your terms and conditions adopted [at the moment]. But EIF’s requests have not changed materially from pre-crisis levels. We have always been quite strong in our demand to get sufficient investor protection clauses and good alignment of interest between the LPs and the GPs. We try to avoid abusing the current market dynamics of having more power, as in my view this will only hit us back when the situation reverses.