You have doubled the fund size. What was the thinking there?
The increased capacity is in line with the growth in the market. We position the firm in the space vacated by the big boys as they get larger. The upper mid-market has moved and investors are clearly interested in that argument.
You have only had one exit to date. Was that a problem for investors?
This was not an issue with investors during the fundraising. They understood it was a young portfolio. All the plans came right with TSL, a publisher of business to business newspapers, magazines and websites for the UK education market, and quicker than expected. It was a helpful proof of principle, but it would have been unrealistic to expect more.
What were investors asking about?
Investors were more concerned about the effect of the credit crunch on bank lending to the mid-market and the impact on M&A activity. This was hard to predict at the time of the fundraising, but to date there was still liquidity for mid-market deals. The terms have changed and you have to look at the fine print. The covenants are more onerous.
Have the problems in the credit market hit deal flow?
The firm's work in progress has held up well aided and abetted by the change in the treatment of [UK] capital gains tax for business assets. The introduction of a [higher] flat rate instead of taper relief is encouraging vendors to sell.
How is the portfolio performing? Are you seeing any signs of a UK economic slowdown?
The portfolio, which includes Durrants Media Monitoring, acquired in a secondary from August Equity for £82 million in April 2006, and Trainline, bought from Virgin for £163m in June 2006, is in good shape and there is no evidence of an economic slowdown.
What's your outlook?
It is difficult to map macroeconomic changes on to the deal landscape. Will businesses be cheaper in a year? Who knows? It is best to look at deals from the bottom up: is this a good business with a good plan and a good management team at this price? Can we make some money? That's the best protection.
How long did it take to raise the new fund?
It was swift, opening in May with most commitments secured by September. It has taken till now to tie down one or two investors, who were with us in the first fund and who have moved.
The fund's legal adviser was Debevoise & Plimpton and the placement agent was Helix Associates, part of the boutique US bank Jefferies.