Tim Sims is softly-spoken, answers questions with relevant (but sometimes boring) data and doesn’t like having his photograph taken. A former consultant at Bain & Co, this low-key personal manner is reflected in an almost scientific approach to private equity – which emphasises research, detail and the practical implementation of strategy.
Nonetheless, as co-founder and managing director of Sydney-based buyout firm Pacific Equity Partners, he has done some big and dramatic things.
That includes raising the largest ever Australian buyout fund, an A$4 billion (€3.2 billion; $4.2 billion) vehicle that closed in early 2008. Even though the fundraising climate was buoyant back then, some sources have questioned whether it was simply too much money for a country with a population of 22 million.
Was Fund IV too big, in hindsight? “Categorically not,” he insists. “The majority of deals in Fund IV have been in the same size range as Fund III. There is a commonly held view that smaller deals make more money or have higher proportional returns than bigger deals. There’s nothing intrinsic about a smaller business that makes it easier to get it to perform at higher levels than a bigger business. According to data from our own investments, large deals have delivered 2.5x the money, middle-tier deals 2.3x and smaller deals 2.4x. There is no clear correlation in our experience between [deal size and performance].”
In 2013, PEP hopes to raise another A$3 billion of capital: an A$2 billion core fund with an additional A$1 billion co-investment vehicle that is structured on a discretionary basis.
Sims says that the core fund, which will be a traditional 2-and-20 structure, will not go far beyond this target number. “This is not targeting $2 billion and ending up much larger.”
The co-investment facility will be aimed at certain large LPs who “demonstrate co-investor capacity”, according to Sims. For every dollar an LP invests over a certain (as yet undetermined) amount in the core fund, they get a 50 cent co-investment opportunity. “We see a large number of institutional investors interested in actively making direct discretional co-investments,” he says.
Some LP sources told Private Equity International that the co-investment sidecar will likely appeal to large investors such as US or Canadian pension funds or sovereign wealth funds. Indeed, PEP held a meeting for investors in December, which had “a big turnout with a lot of large LPs”, according to a source who attended.
Appealing to these investors makes sense for PEP, which historically has only had a small percentage of Australian LPs. Sims says Fund I was 10 percent local, 90 percent foreign, and the proportions haven’t shifted much in the 15 years since. Foreign LPs to back PEP have included Harvard Management Company, Stanford Management Company and Yale University, according to PEI’s data division.