The report card

ABRY Partners

The Boston-based firm is a leader when it comes to successful fundraisings. Performance – and apparently some modesty – has set apart ABRY’s fundraising campaign this year.

ABRY Partners, founded in 1989, has built a strong following of loyal limited partners over the years who have stuck with the firm. ABRY launched two funds around the beginning of the year – ABRY Partners VII, targeting $1.6 billion, and ABRY Advanced Securities Fund II, targeting $1.3 billion.

Both funds were expected to hit their hard caps and were set to close in March and April, taking only a few months to finish marketing. This is made even more impressive by the fact that the main Fund VII pays the general partner a 30 percent carried interest – significantly more than the standard 20 percent – while the debt fund pays 20 percent, which is considered high for credit-related vehicles.

ABRY’s quick-fire success can be attributed to its solid track record. The firm’s sixth fund, which closed in 2008 on $1.35 billion, was generating a 24.7 percent internal rate of return and a 1.30x investment multiple as of 30 June, 2010, according to numbers from the California Public Employees’ Retirement System. The $900 million Fund V, which closed in 2005, was producing a 19.1 percent IRR and a 1.90x multiple, according to CalPERS.

LPs also like the firm’s “discipline” in staying at a certain fund size and not expanding too much beyond, despite market support that would allow the firm to raise much bigger funds.

Capital International

The emerging markets are a big investment theme this year for many limited partners and one firm likely to fly through fundraising for investments in various developing markets is Capital International.

The firm, a division of global asset manager The Capital Group of Companies, is targeting $2.5 billion for its sixth fund, which it launched in December. It has a $3.5 billion hard-cap.

For a firm that has operated in emerging markets in Latin America, Asia and Eastern Europe since 1992, Capital International has posted a consistently strong performance record. Overall, the firm has generated a total return multiple of 2.23x on realised investments and a 21.7 percent internal rate of return. Including all investments, the firm has produced a 1.63x multiple and a 19.9 percent IRR.

Capital International makes growth investments in the $50 million to $300 million range and pursues a flexible strategy that allows it to go where the opportunities are, rather than stick to a rigid investment mandate that allocates certain amounts of capital to various regions.

The firm “believes its agile strategy to be particularly vital in emerging markets, which tend to experience less predictable swings in investor sentiment and capital flows compared to developed markets”, according to an investment memo from one US pension considering making a commitment to the firm.

Encap Investments

Energy was one of the favourite strategies for LPs in 2010, but it remains to be seen if the energy-related vehicles that hit the market this year will get the same level of LP support, since many investors allocated to the strategy last year.
One of the firms that did receive capital from LPs in the past year is EnCap Investments, which closed its largest-ever fund on $3.5 billion in February. The firm’s success in hitting its hard-cap came after LPs flocked to the fund in its final months of marketing.

The success enjoyed in marketing EnCap Energy Capital Fund VIII was explained by the firm’s strong performance in past funds. While the firm’s Fund VII, closed in 2007 on $2.5 billion, was producing a negative IRR as of 31 May2010, its sixth fund was producing a 15.54 percent IRR. The $525 million fourth fund was generating a 50.62 percent internal rate of return and a 1.69x cash-on-cash multiple as of 31 May 2010.

EnCap also benefitted from timing, sources have told PEI. LPs flocked into energy funds in 2010 as a solid hedge against commodities. Early indications show LPs are still enamored with the sector, sources say.

BC Partners

One consultant recently told PEI that 2011 could be viewed as a “referendum” on mega-funds. If this is the case, then an early vote has been cast by LPs in favour of large private equity. BC Partners, a London-headquartered firm investing across Europe and North America, has collected more than €4 billion on its way to a €6 billion target on its ninth fund, which launched in the autumn of 2010.

The firm didn’t wade into the market unprepared; BC Partners built an in-house fundraising team led by the ex-head of Goldman Sachs’ European financial sponsors group, Charlie Bott. Also, to build quick momentum in the fund, BC offered LPs a 5 percent discount on fees if they committed before the first close.

Vitally, performance played a part in the popularity of the offering. BC Partners’ eighth fund, which closed on €6 billion in 2005, was generating a 24.5 percent internal rate of return as of March 2010.

Elsewhere at the larger end of the private equity spectrum, Kohlberg Kravis Roberts has found some early success. The firm, which launched its 11th North American fund this year, collected $1 billion from two existing LPs. The target on Fund XI is between $8 billion and $10 billion.

Litorina

One of the hottest areas for private equity has been the Nordic region, where firms raising relatively small funds have been receiving more LP attention than they can handle, leading to quick fundraisings and oversubscriptions.
One such firm, Litorina, founded in 1998 and based in Stockholm, moved through the marketing of its fourth fund quickly, hitting its hard-cap on its first and final close.

The fund closed so quickly – after about five months on the market – last October that some LPs hoping to get into the fund were frustrated when it closed, sources told PEI at the time. The fund was split about half and half between existing investors and new LPs.

The overriding reason for the fund’s performance was – as ever – past performance. Litorina’s second fund, a vintage 2002 fund that closed on €50 million, was producing a 2.61x multiple and a 40 percent internal rate of return as of 31 December 2010. Fund III, a 2007 vintage that raised €150 million, was producing a 1.38x multiple and an 18 percent IRR, with 85 percent of the capital called.

Baring Private Equity Asia

In Asia, as with many other fast-growth private equity markets, demonstrable experience and track record are valuable assets to LPs looking for top quality managers. A common concern raised by limited partners when examining options in, for example, China, is that a huge number of investment teams have been springing up seemingly out of thin air with little evidence they will be able to produce solid returns for investors.

So LPs probably breathed a sigh of relief when Baring Private Equity Asia V came to market last summer.  The 14-year-old firm has demonstrated a track record that reflects experience that spans different cycles, which sources say is imperative for the survival of a team working in a developing economy that will not always be in growth mode.
BPEA V closed oversubscribed on $2.4 billion after launching in late July last year. The fund launched with an initial target of $1.75 billion and was already oversubscribed by October.

The firm attributed the popularity of Fund V to the macro-situation in Asia, which put the region at the top of many LPs’ wish lists. The fund was the largest to have launched in Asia since the financial downturn, and the second largest to have closed at that time behind The Carlyle Group’s third buyout fund.

Around 57 percent of existing investors returned to the fund.

Apax Partners France

If you began raising a fund before the financial crisis escalated in late 2008, the road ahead suddenly became very uncertain. This was the case with Apax Partners France’s eighth buyout fund, which is expected to close on €700 million to €750 million in June. The firm had not announced a target.

The firm, which was once affiliated with Apax Partners but is now independent, began raising Fund VIII before the escalation of the financial crisis in 2008. The fundraise, as described by Eddie Misrahi, chairman and chief executive officer of the firm, progressed “at the limited partners’ pace rather than our pace”.

Apax France’s previous fund closed on €900 million in 2006 and is 90 percent invested.

In France the domestic LP community has historically been dominated by insurers and banks. Those two groups are both affected by regulatory changes under Basel III and Solvency II that will most likely push them away from private equity. Because of the changing LP dynamic, a larger portion of Apax France will be made up of non-French LPs.

Stone Point Capital

As LPs sift through the hundreds of managers they will see this year looking for capital, one characteristic that can give GPs an advantage is specialisation. LPs have become increasingly interested in committing to managers who have specific talents in one strategy, rather than generalists.

Stone Point Capital, which spun out Marsh & McLennan Company’s MMC Capital in 2005, captured some of that hunger for specialisation recently. The firm closed its fifth Trident fund on $3.5 billion, well above its original hard cap of $3 billion.

Performance, as always, was a factor. The fourth Trident fund, which itself was over-subscribed when it closed on $2.25 billion in 2007, was generating an about 13 percent IRR and a 1.2x cash-on-cash multiple as of 30 June.