Leading from the middle

European mid-market funds are tapping into a desire on the parts of limited partners around the globe for exposure to smaller, niche funds with operational expertise.

Paris-based Chequers Capital closed its 16th fund on its €850 million hard-cap on 31 May after only three months in the market. Waterland Private Equity, a Dutch firm focusing on Northern European buildups, is expected to close on its €1.1 billion fifth fund by the end of June, having started its road show only a few months prior. Both funds, placed by MVision Private Equity Advisors, attracted new limited partners as well as garnering strong support from existing investors.

Track records were, unsurprisingly, key factors in garnering LP support. Waterland posted a 1.71x return and a 32 percent internal rate of return on its 2006 third fund, according to an industry source. Its first and second funds recorded multiples of 2.42x and 2.75x and IRRs of 29 percent and 62 percent, respectively. Meanwhile, Chequers’ most recent 2006 vintage was showing an IRR of negative 8 percent with a .86x return, but its 2002 vintage generated a 1.84x return and a 28.1percent IRR, according to a source.

Chequers and Waterland may also have benefitted from the fact they launched funds as LPs began moving away from mega-buyout strategies. For example, the California Public Employees’ Retirement System, regarded as a bellwether investor, has indicated it wants to focus more on mid-market exposure. Consultant Cambridge Associates also recently advised its clients, which include endowments and pensions, to commit to private equity funds with specialised strategies, in particular strategies in the mid-market.

Both Waterland and Chequers fit those descriptions. In Waterland’s case, it has a niche focus on investments that relate to ageing populations, sustainability, leisure, luxury as well as outsourcing and efficiency. Chequers’ specialty, meanwhile, has more to do with geography: the firm invests almost entirely in French companies.

The two mid-market firms’ fundraising success coincides with a recent improvement in Europe’s overall fundraising performance after a lacklustre 2009 and 2010. About €6.4 billion was committed in the first quarter alone, according to placement agency Probitas Partners. While the figure is not even close to being on-par with 2008’s €63.9 billion peak, it certainly outpaces 2010 – when commitments totaled €14.9 billion on the year.