Terra Firma fundraise hits the skids

Investors want to see how the firm performs on a deal-by-deal basis before they will consider committing to a blind-pool vehicle, PEI understands.

Terra Firma Capital Partners’ attempts to raise its first private equity fund in more than a decade have met with scepticism from investors, who want to see it rack up a demonstrable track record.

Although the firm has not paused the fundraising process and will continue to explore a blind-pool fund structure, limited partners want to see how the firm performs on a deal-by-deal basis before committing to any such vehicle, a source with knowledge of the firm told Private Equity International.

Sky News reported that the firm had decided against a fundraise on 3 December.

Terra Firma declined to comment on fundraising.

Investor concerns largely stem from the underwhelming performance of Terra Firma Capital Partners III, a €5.4 billion 2006-vintage, and its high-profile investment loss on music group EMI. The fund had generated a 0.47x investment multiple and -9.55 percent internal rate of return as of 30 June, according to Montana Board of Investments. The pension does not say whether this is net or gross.

Fund II had generated a 1.87x TVPI and 14.2 percent net IRR as of 30 June 2016, per North Carolina Retirement Systems figures.

Terra Firma’s efforts to raise €3 billion for a successor fund will not have been helped by a string of senior departures over the past 18 months. Earlier this month, head of portfolio businesses Justin King decided to step back from his day-to-day role and has since taken up a position on the board of UK retail giant Marks & Spencer. He will remain a senior advisor to the firm, according to a statement.

Managing director David Hobbs, who led strategy across its portfolio businesses and new deals, chief operating officer Trudy Cooke and investment executive Michele Russo also departed in 2018. Terra Firma appointed Vivek Ahuja, former deputy CFO at Standard Chartered, as CFO and former Lloyds Banking Group managing director Mark Elliott as head of support capital in January.

The firm has completed a number of deal-by-deal investments while on the fundraising trail. It recently acquired Finnish building company Pamarco through its Terra Firma Special Opportunities Fund IV alongside pan-European manager Metric Capital and Hong Kong’s Sun Hung Kai & Co.

Mercurial founder Guy Hands has been putting up 10 percent of capital for each new deal to demonstrate alignment with investors, the source noted.

Terra Firma is not the only UK firm struggling to stand out in the present fundraising environment. DH Private Equity Partners called time earlier this year after failing to get its €1 billion fundraise off the ground. Lyceum Capital Partners pulled a fundraise in January, citing Brexit headwinds, among other factors. It has since repositioned itself and relaunched with funding secured as Horizon Capital.