Germany's coalition government is struggling to find support for its Private Equity Gesetz, a pending law aimed at clarifying the fiscal status of private equity funds. The latest draft published by the Ministry of Finance proposes to limit tax breaks for German private equity funds to early-stage investment funds with less than €20 million.
Institutional investors are not impressed. In September, the Bundesverband Alternative Investments (BAI), which lobbies on behalf of institutions participating in private equity and other non-mainstream asset classes, has urged the government to throw out the draft and start from scratch. In a letter to Federal Finance Minister Peer Steinbrück in September, the BAI described the pending law as “wholly inadequate” to bring about the kind of tax transparency private equity funds in Germany depend upon in order to attract institutional capital.
The BAI reminded Steinbrück that according to the European Venture Capital Association, Germany already has one of the least conducive legal and fiscal frameworks for private equity investment in Europe. If the Ministry's current plans were to become law, the BAI expects institutional investment in German funds to decline, despite German businesses having “a significant need for private equity funding”. Ultimately, it says the German economy as a whole would suffer.
The BAI's criticism echoes concerns raised by Germany's private equity trade association, the BVK, which has described the Ministry's stance as a “missed opportunity” in that it failed to create a framework in which the whole industry could flourish, rather than just a small section of it.
It seems unlikely that these interventions can succeed, however. According to German private equity professionals, the Finance Ministry's refusal to promote laterstage private equity funds in Germany is underpinned by political quarrelling. Steinbrück's left-of-centre Social Democratic Party (SPD) is more sceptical of the benefits of financial investors operating in Germany than Chancellor Angela Merkel's Christian Democrats (CDU). With private equity struggling to improve its public image in the country, a tough stance on the industry is seen by SPD politicians as a potential vote-winner.
Ironically enough, the Private Equity Gesetz appears to have failed to impress even close allies of the SPD: Germany's powerful trade unions. IG Metall, which has more than two million members in metal-processing businesses, thinks the idea of promoting funds with up to €20 million in commitments way too generous. IGM would much rather dust off an earlier version of the law – which had a limitation on tax breaks to funds with as little as €500,000.
BRIDGEPOINT AIMS FOR ?4BN FUND
Bridgepoint, the European mid-market private equity firm headed by William Jackson, is heading back to market to raise its fourth and largest fund with a target of €4 billion ($5.5 billion). Bridgepoint invested €902 million in 2007 from its third fund, which it closed on €2.5 billion in May 2006. This followed €868 million of capital committed in 2006. The firm's management has looked at its historic capital requirement of almost €1 billion a year since holding a first close on its predecessor fund in April 2005 and estimated a €4 billion pot would give it four-year's firepower before fundraising again.
PPM CAPITAL'S INDEPENDENCE COMES A YEAR LATE
PPM Capital, the buyout arm of UK financial services company Prudential, is set to spin out from the company at the end of this year. PPM Capital is raising a €1 billion ($1.4 billion) fund, which will hold a first close at the same time as the firm spins out from the company. The buyout arm had been tipped to spin out at the end of last year. Prudential is expected to take a €250 million stake in the fund, while Scottish bank HBoS is also slated as an investor.
CARLYLE RAISES ?5.35BN EUROPEAN FUND
US alternative assets manager The Carlyle Group has closed its third, dedicated European buyout fund, Carlyle Europe Partners III on €5.35 billion ($7.3 billion). The firm had initially targeted €3 billion when it launched its fundraising a year ago. To the end of June, Carlyle had $24.7 billion in funds dedicated to buyouts across the globe, putting it ahead of The Blackstone Group, which closed its record global fund on $21 billion. As of 28 August, Carlyle managed 55 active funds with $75.6 billion of commitments. The European fund will invest in companies with potential for value creation through performance improvement and organic growth, focusing on Carlyle's core sectors including aerospace, building materials, chemicals and TMT.
MID EUROPA CLOSES FIRST ?1BN CEE FUND
Central and Eastern European buyout firm Mid Europa Partners has held the first close of its third fund on over €1 billion ($1.36 billion). Mid Europa has capped the fund at €1.5 billion, which it intends to raise by the fourth quarter of 2007. Mid Europa's fund recaptures the record size for a CEE fund held briefly by Enterprise Investors' €658 million Polish Enterprise Fund, which was raised last year. Enterprise seized the crown from Mid Europa's €650 million second fund, also raised in 2006.
NOBLE HOLDS £87M FIRST CLOSE
UK-based Noble Fund Managers has held the first close of its second venture debt fund on £87 million (€127 million; $177 million). The fund is thereby close to its £100 million target size and is over twice the size of the firm's first fund raised in 2003. The fund will be able to commit up to £350 million over its lifespan including re-investments. It will provide debt and working capital finance of between £1 million and £5 million to venture capital companies across Europe. The company has had three exits from its first fund so far generating internal rates of return of 16.4 percent, 32.9 percent and 39.1 percent.
ALVEN ON TRACK FOR ?100M
French venture capital firm Alven Capital has held the first close on a third generation fund at €80 million ($111 million) six months after fundraising began. The fund has a target size of €100 million. The fund has attracted re-ups from investors such as CDC Entreprises as well as ten new French and European institutional investors including funds of funds, pension funds and insurance companies as well as several family offices. The venture capital firm maintains its focus on “low-tech” and fast-growing French companies.
DARWIN HITS HALF-WAY MILESTONE WITH £122M
Darwin Private Equity, a new UK mid-market firm founded by former executives from mega-fund managers Permira and CVC Capital Partners, has held a second close of its debut fund on £122 million (?176 million; $244 million) after three months of active marketing. It is counting commitments from eight investors including RIT Capital Partners, Goldman Sachs, Oxford Investment Partners and Pantheon Ventures. RIT Capital Partners, an investment trust listed on the London Stock Exchange with a market value of approximately £1.6 billion, backed Darwin with a cornerstone investment of £50 million in April this year.
Jonathan Kaye, a founding partner at Darwin said: “Investors get Darwin. They believe the story especially with the credit crunch and big buyouts slowing. We spent most of our careers in the mid-market.” Increasingly the mid-market is seeing some of the same features of the large caps: auctions, vendor due diligence and aggressive time tables, which Kaye said plays to Darwin's experience. The firm is targeting £250 million, which it expects to hit by the end of the year.
Kaye, who founded the firm together with Permira's Derek Elliott and Kevin Street, said: “We have a hard cap of £300 million. Let's see where we get to. We spent a lot of time thinking about strategy and £250 million is the right number. The strategy wouldn't change too much with £300 million, but we are not desperate to hit the hard cap.”
AAC STEPS OUT OF ABN AMRO SHADOW
The former captive private equity arm of Dutch bank ABN AMRO has taken the last step to independence with a new name AAC Capital Partners. The firm operated at arms-length from ABN AMRO and had reached an agreement before the summer with ABN AMRO to transfer the control of Northern European buyout activities to a management company which is majority-owned by the executives of AAC Capital Partners in Amsterdam, London and Stockholm. The current ?1.1 billion portfolio will continue to be owned by ABN AMRO and will be managed by AAC Capital Partners. In addition, ABN AMRO has made a ?2 billion commitment earlier this year to fund the investment programme of the new firm. The bank retains about a 15 percent stake in the management company of the independent business.