Unsurprisingly given the ongoing private equity boom, delegates at EVCA's annual investor meeting in Geneva last month were given some intriguing data points to ponder during their afternoon strolls along the shores of Lake Léman.
For example: with an unprecedented €90 billion of new money raised in 2006, European private equity made a strong contribution to the global fundraising boom last year. Also good news was the fact that €16 billion of this total came from venture funds – 50 percent up on 2005 and an indication that the fortunes of European venture capitalists have taken a turn for the better.
Then there were the performance figures, which EVCA compiles together with Thomson Financial and Pricewaterhouse Coopers and presents every year to the Geneva crowd. On the face of it, these numbers also showed that all is well in private equity today: top-quartile private equity funds are currently showing an overall long-term internal rate of return of 29.1 percent, with buyouts funds contributing 37.6 percent and venture funds contributing 29.1 percent.
Less heartening, although still reassuring, was the picture for all the funds in EVCA's sample. The historical 27-year annualised return net of fees stands at 10.3 percent, which an EVCA press release – rightly – described as indicative of a highly attractive asset class.
However, the trouble even with the overall average is that unless you invest in many of the best-performing funds, you are going to struggle to get anywhere near double digits. Urs Wietlisbach, co-founder of Swiss alternative giant Partners Group reminded delegates during a panel discussion, three quarters of all funds in his firm's database are showing a net return of 10 percent or less. And let's not forget either, Wietlisbach said, that returns shown for vintages younger than 1998 are to a significant degree unrealised – which is not the same as cash in the bank at all.
To be sure, anyone with even a modicum of private equity experience has heard this all before. Still, the point bears repetition: success in private equity fund investment is all about who you know and who manages your money. In promoting its appeal as an asset class to inside and outside audiences, the industry must not neglect to draw attention to this crucial fact.
INDEX VENTURES RAISES €350M
European venture capital firm Index Ventures has closed its fourth fund on €350 million ($460 million) and has appointed three new partners. The fund takes Index's total capital under management to more than €1 billion. It will target European IT and life sciences companies and has a three-year investment period. The firm has hired Saul Klein, the founder of Video Island, and Mark De Boer, founder of PanGenetics, as venture partners, and has promoted Michèle Ollier to partner. Founded in 1996, Index has previously backed success stories like internet telecom company Skype and online betting exchange Betfair.
PATRON CAPITAL CLOSES FOURTH FUND ON €895M
London-based Patron Capital has closed its biggest fund to date on €895 million ($1.17 billion). The fund, Patron Capital III, was four times oversubscribed. The private equity real estate's firm's previous three funds delivered an average internal rate of return of 64 percent. Patron's investments include the Hotel Arts complex in Barcelona, UK bulk liquid and gas company Simon Storage, and the Radisson SAS Carlton hotel in Bratislava. The prior Patron Capital Captive Fund has so far invested €233 million of the total €329 million in 13 deals. Outside its four funds, the firm owns a majority stake in listed French real estate business Vectrane, which Patron floated on the French stock exchange as a real estate investment trust. Founded in 1999, Patron has offices in London, Barcelona, Milan and Warsaw.
3I RAISES £700M FOR QUOTED INFRASTRUCTURE FUND
London-listed private equity firm 3i has raised £700 million (€1 billion, $1.4 billion) for its quoted infrastructure business, hitting the bottom of its target range. It had hoped to raise as much as £1.3 billion, but the fund's gearing effectively gives the team up to £1 billion of firepower. The fund has acquired an initial portfolio of UK investments from 3i, including interests in Anglian Water, the country's fourth-largest water supply and wastewater company; Infrastructure Investments, one of the biggest UK equity funds investing in secondary PFI projects; and investments in two other PFI projects.
AP3 SEEKS TO INCREASE PRIVATE EQUITY ALLOCATION
AP3, one of five buffer funds in Sweden's national pension system, has indicated in its 2006 annual report that it is looking to up its private equity allocation. Under the rules of the national pension system, the AP funds are supposed to invest a maximum of 5 percent in the asset class, but AP3 pursues an over-commitment strategy. The fund has so far committed 5.9 percent of its portfolio to private equity but aims to have 6.5 percent invested in the asset class within the next one to two years. AP3 has SEK212.2 billion (€22.8 billion, $29.9 billion) under management. The five buffer funds are designed to meet the national pension system's shortfall.
S&P LAUNCHES LISTED PRIVATE EQUITY INDEX
Standard & Poor's, the financial data company, has created an index designed to track the performance of publicly listed private equity entities around the world. The S&P Listed Private Equity Index comes on the heels of two products from US exchange-traded fund provider PowerShares which track listed private equity indices. The 25 stocks in the index include the high-profile recent offering from US buyout firm Kohlberg Kravis Roberts on the Euronext Amsterdam exchange.
AMADEUS CLOSES $310M FUND
UK-based venture capital firm Amadeus Capital Partners has closed its third fund on $310 million (€236 million). The firm has already made nine investments from the new fund, and is also investing the $19 million Amadeus & Angel Seed Fund, which closed in November 2006. Investors include Partners Group, Adams Street Partners, Pantheon Ventures, Capital Dynamics and the European Investment Fund. The firm's recent realisations include Optos, a manufacturer of laser retinal scanners, which floated on the London Stock Exchange in 2006.