SVG Capital and Aberdeen Asset Management will create a new fund of funds business, named Aberdeen SVG Private Equity.
London-listed SVG Capital has agreed to sell a 50.1 percent stake of SVG Advisers (SVGA), a subsidiary of the firm with various funds, to Aberdeen Asset Management for £17.5 million(€20.4 million, $27 million), SVG said in its full year results.
SVGA has £4 billion of assets under management which includes the SVG Capital private equity portfolio. Following the sale, SVGA will be integrated with Aberdeen’s own private equity fund of funds business which manages £0.7 billion in assets, according to a separate statement.
The fundraising market for private equity remains challenging, Andrew Sykes, SVG’s recently appointed chairman said in the statement. “In light of this, during the year we conducted a strategic review of the business and it became clear that if we wanted to grow SVG Advisers, it would need to partner with another asset management business that had a significant distribution platform,” he said.
The partnership “will enable SVG Advisers to grow its investment platform and enter new markets faster, at lower cost and with more diversification than it could currently achieve on its own”, he said.
In light of this, during the year we conducted a strategic review of the business and it became clear that if we wanted to grow SVG Advisers, it would need to partner with another asset management business that had a significant distribution platform
“SVGA’s considerable experience and track record, combined with Aberdeen’s own asset management expertise and global distribution network will position us well to meet demand from investors seeking exposure to private equity. Institutional investors are increasingly looking towards alternative asset classes, including private equity, to diversify their portfolios and offer additional sources of alpha,” Martin Gilbert, chief executive of Aberdeen Asset Management, said in the statement.
As part of the deal, Aberdeen has the option to acquire the remaining 49.9 percent stake after three years. The price would be based on a valuation of the business at the time with a minimum price of £20 million and a maximum price of £35 million. The new business will be led by Lynn Fordham who will also continue to be chief executive of SVG Capital. The transaction is subjected to regulatory approval and is expected to complete in the first half of this year.
SVG’s NAV per share increased during the year by 16 percent to 391.2p, which was driven by a 13.5 percent total return from the investment portfolio. SVG’s investment portfolio was “highly cash generative during the year”, the firm said. At the end of the year SVG had a cash balance of £269.4 million, outweighing its gross debt of £240.7 million.
SVG also said in its full-year results it has made a €100 million commitment to Cinven’s fifth fund, which is currently in the market targeting €5 billion. In December 2011, SVG announced a strategy overhaul and said it wanted to diversify beyond its core relationship with UK-based buyout firm Permira.
This year results were however still very much influenced by the performance of Permira’s Fund IV. Last year, SVG had total investment proceeds of £303.1 million. The main factor was the divestment of Galaxy Entertainment Group by Permira IV, which generated £160.3 million during the year. This sale generated a 2.8x return and an IRR of 25 percent, Permira told LPs in a quarterly update.
In addition, the partial realisation of TDC generated £19 million and the partial realisation of Legico returned £17.9 million to SVG. Additionally, the dividend recapitalisation of iglo Group generated approximately €300 million for Permira and £13.9 million for SVG. The valuation of Permira IV was up 26 percent on the year.
SVG also received £62.2 million through secondary sales, of which it will receive a further £35.2 million in 2013 and 2014.