Swiss Re to test market with E400m FoF

The reinsurance group has committed E200m to a multi-strategy vehicle at a time when the private equity fund of fund market is expected to enter a period of consolidation.

Swiss Re, one of the world's largest reinsurers, is raising a new private equity fund, Swiss Re Private Equity Partners II, a E400m fund-of-funds vehicle.

 

The new fund will have a cornerstone investment of E200m from its Swiss parent with the balance to be raised from third party institutional investors.

 

The firm is confident of hitting its target and is planning a first close at E200m at the end of the year with a final close to come at the end of 2003. A multi-portfolio structure is proposed. Investors still hungry for exposure to the asset class will be able to choose between four portfolios: US venture capital funds, a US balanced portfolio of buyout, special situation and mezzanine funds as well as European versions of both products.

 

A source close to the fund said the investment by Swiss Re demonstrated the reinsurance group’s continued commitment to private equity at a time when many insurance companies and banks are reconsidering their exposure to the asset class.

 

The poor performance of many private equity funds, invested at the top of the market, and the stringent capital adequacy requirements of Basle II have forced banks like Deutsche Bank to look to an early exit from their investment portfolios. Meanwhile numerous insurance companies have put the brakes on their private equity investment programmes amid deteriorating capital reserves and weakening solvency ratios.

 

Swiss Re’s fundraising will be an important measure of the investment community’s long-term appetite, especially as many are predicting consolidation in the fund-of-funds market. Some big names are expected to struggle and fade away in a rationalisation of an oversupplied and underperforming marketplace.

 

The group already manages Swiss Re Private Equity Partners I, a global fund of funds which has commitments of $950m to 61 partnerships. It also runs a portfolio of strategic partnership interests, which in March 2002 amounted to 13 fund investments worth $390m. A further $120m are allocated to funds operating in Asia, South America and Eastern Europe. 

 

In 1999, Swiss Re underwrote an insurance wrap for Princess Private Equity, an innovative E700m private equity product structured by Partners Group as a AAA-rated, zero-coupon convertible bond.