How would you describe the fundraise?
I think for all of us, it was one of the most challenging fundraises we’ve been through. We couldn’t have picked a worse time to start but completed a first close in April 2009. It took us another 13 months and a series of other closes before we got the job done in May 2010. In the “old days” you might expect a first and final close, following the production of pretty standard investor information and a PPM; that was not possible this time. You have to treat every investor as an individual entity, provide them bespoke information, answer lots of individual questions to support their exhaustive analysis.
ILPA participation was an increasingly common theme which did add some consistency to the negotiations. There is a more unified voice on issues. During the negotiations you often had the feeling that investors were negotiating to ensure the ILPA would protect them against challenging issues that they had experienced with other funds over the last few years. It was clear during the fundraise that investors had suffered some pain.
The end of a successful fundraise is like childbirth, having been through it as a father three times, I find it amazing that women go through it more than once. However, if it turns out well, you only remember the good bits!
What are LPs requesting that they didn’t before?
One request that was more consistently seen was ability for LPs to initiate an early termination of the investment period of the fund. In initial conversations this was proposed without any compensating payments, this was not commercially acceptable and most understood this. There was a feeling that LPs may have been caught in funds they might have liked to walk away from. The key is in the word “commitment”. The challenge for the industry in the last couple of years was that even the best organized groups could have problems with their private equity portfolios. The market impacted everyone.
Are you concerned about the pending AIFM legislation?
All the major changes in corporate governance regulations over the last 25 years have followed troubled markets. AIFM is primarily a reaction to the high levels of leverage that were available and to some extent the market solved that problem. The larger part of the industry will recover and continue to do significant deals. We will need to be a bit more used to providing more disclosure. One of the dangers with AIFM is the possibility of disclosure for disclosure’s sake. We are a UK fund, we only invest in the UK, but we have a global investor base. The legislators must make sure that the key global investor constituencies are not engaged in tit for tat regulation. The provisions are not absolutely crazy but the temptation to politicise the discussions must be resisted.
You get used to [regulation] once it's there, but that doesn't mean it's a good thing. Steve Darrington
You get used to [regulation] once it's there, but that doesn't mean it's a good thing.
We’d end up doing a hell of a lot more paperwork, which doesn’t add value, and the lawyers will do well. You get used to [regulation] once it’s there, but that doesn’t mean it’s a good thing. We will be doing more work and investors will inevitably pay for some of it. It will be a small margin, but we will have far more people managing regulation and portfolio reporting.
What keeps you up at night?
Any culture that sees the entrepreneurial spirit as a bad thing and taxes it accordingly. I’ve been working with entrepreneurs for most of my career and there is an energy and a belief in the future that they bring. Entrepreneurs have a resistance to words like “no” and “can’t”. If the tax system discourages them, we are in danger of a number of unintended consequences. It would be a disaster and could fundamentally change the industry. We rely on these entrepreneurs to build the businesses in which we invest.