Last year the private equity industry in Europe finally put to bed its economic troubles and re-emerged as a serious contender for investors’ capital. After some tough post-crisis vintages, the upswing that began in 2013 continued to build momentum, with the exit market soaring to pre-Lehman levels fuelled by a thriving IPO market and readily available debt.
Today, as mid-market firm Bridgepoint wraps up the legals on its fifth buyout fund, which came to market last May and will close on its €4 billion hard-cap, it joins a number of European players who have amassed significant pools of capital for the region.
Nordic Capital and IK Investment Partners closed out 2013 with successful fundraises, Permira closed its fifth global buyout fund on €5.3 billion in June 2014 and a month later Nordic-focused Altor raised €2 billion for its sixth fund. Equally notable are ECI Partners and Inflexion, which both raised their UK-focused funds in just five months, and PAI Partners, which shattered its own €3 billion hard-cap to close PAI Europe VI on €3.3 billion in March 2015.
No question: Europe is well and truly back on the map, as Bridgepoint managing partner William Jackson tells PEI.
“I’m not suggesting that it’s flavour of the month, because that’s just not the case. But it’s certainly become an area where people recognise that, having probably under-allocated for much of the last five years, they now need to appropriately allocate.”
And it’s not just European LPs that are getting in on it. Jackson has noticed a change in sentiment among American investors too in the last 18 months, driven by a combination of high asset prices in their domestic market and some recent high-profile European exits. Fundraising for the region has also benefited from lacklustre returns coming out of emerging markets.
“If you invest in Europe or the US, you’re investing in mature businesses with management teams that are proven, in legal structures that are robust, in capital markets that are liquid. Many of those features – which are key to generating private equity returns – don’t exist in emerging markets. That doesn’t mean to say they won’t produce good returns over time, but today there is no evidence that you’re getting the risk premium necessary to justify the exposure.”
Slightly smaller than its previous fund, Bridgepoint settled on the €4 billion figure for Fund V based on the firm’s investment pace for the past seven or eight years, which has been between €750 million and €1 billion per year.
“We looked at how much capital we put to work in each year since the crisis, which is a good proxy for the size of our market and what we can do, and took the view that investing a fund over a three to four year investment period is what we should all be doing in the industry.”
The committed capital includes a GP commitment of €100 million, which Bridgepoint makes to every one of its funds. “[That is] a large amount of money and a very serious commitment to the fund,” Jackson says. “I think it’s absolutely critical to the industry that there is alignment.”
The majority of the LP base is made up of returning investors – boosted, no doubt, by Bridgepoint’s record year of returning capital, sending €2.8 billion back to LPs since January 2014 – with average recommitment up around 35 percent, Jackson says.
“It reflects one of the trends in the industry which is for people to focus down their portfolio on the managers they want to back and do bigger commitment sizes to those managers.”
Another market trend playing an increasingly prominent role in Bridgepoint’s strategy is co-investment. GPs in Fund IV co-invested around €900 million alongside that vehicle, prompting the firm to keep the issue at the front of its mind when putting together the LP base for the latest fund.