Star rises to E581m close of first fund

Star Capital Partners’ low-risk capital outsourcing fund and its co-investing limited partners are targeting transactions worth several billion Euros.

European private equity firm Star Capital Partners has exceeded the funding target of its first fund. The Star Fund, which will invest in capital assets and capital-intensive businesses in transportation, energy, oil & gas and telecommunications, has raised E581m, surpassing its original E500m target.

The fund has received backing from a dozen investors, including Royal Bank of Scotland, Santander Central Hispano and One Equity Partners. Each limited partner in the fund has secured co-investment rights, enabling Star to finance very large transactions beyond the normal scope for a fund of this size. According to a source familiar with the situation, the fund is currently looking at a number of opportunities including two transactions with a value of around E3bn each.

Star's investment approach is described as outsourcing, where the firm aims to acquire underexploited capital sitting on a vendor's balance sheet, leverage the asset and build an independent business around it. The vendor will typically retain a majority stake, which helps Star to lock in the ensuing cashflows. The strategy is explicitly risk-averse. Star expects to generate an internal rate of return for investors of around 20 per cent.   

Tony Mallin, chief executive of Star Capital, attributes the fund’s success to a change in perception amongst investors: 'People have recognised over the past two years that private equity is an asset class where you have a wide range of specialisation and in certain areas strong correlation with the public market, particularly technology and start-ups. Investors realised that diversification within a private equity portfolio is very important.'

According to Mallin, the key elements of Star’s strategy are mature cashflows and low correlation with public equity markets. 'The idea and concept had been long in the making. Star was set up two years ago at the height of the boom in the knowledge that that would be a short-lived phenomemon.'

'When we started fundraising, people thought looking at anything offering less than 100 per cent return wasn't worth it, but in the spring of 2001 there was a marked change in sentiment towards our strategy, and people started to call us. We could have raised more but decided to draw a line in the sand and concentrate on making investments.' '

The fund has completed one investment to date, the E120m acquisition is TotalFinaElf Connect and TotalFinaElf Pipelines.  

Clifford Chance, led by Jason Glover, provided legal advice for the fund raising.