The CPP Investment Board, the Canadian body that invests funds not needed by the Canada Pension Plan to pay current pensions, has made another foray into European private equity with a E150m commitment to Terra Firma’s buyout fund that is targeting a total of E3bn. This is Guy Hands' inaugural fund after splitting from Nomura Principal Finance last year, where he and his team were responsible for some spectacular realisations from often complex investments that exploited securitisation opportunities.
Recent reports have suggested that the fund raising has proved more protracted than originally planned, prompting some to suggest that investors were proving wary of buying into a fund that relied on Hands' investment track record. Another more substantive factor may be that there are several mammoth European private equity funds in the market at present: Doughty Hanson are targeting E3bn, Charterhouse have just had a first close at E1.4bn but are hoping to raise a total of E3.5bn and Nordic Capital are also looking for several billion Euros. Numerous propsective investors are also wrestling with their allocations at present as a result of public stock market turmoil and so are proving slower to commit.
CPP, which looks to commit around ten per cent of its total assets to private equity, has made a number of sizeable commitments to European private equity this year. In April this year, CPP announced commitments of E100m and E75m to Candover (now closed at E2.4bn) and Coller Capital (set to close soon) and also committed E100m to French buyout firm PAI's latest fund (recently closed at E1.8bn).
To date, CPP has committed C$4.1bn (E2.62bn) to 27 limited partnerships managed by 23 private equity firms. The commitments will be drawn down over the next several years. As of March 31, 2002, C$458m, or approximately 3.2 percent of the CPP Investment Board’s total assets, has been invested in private equity.
The commitment will come as welcome news to Terra Firma, which is looking to hold a first closing within the next two months. Sources close to the firm say that Terra Firma Capital Partners II has to date attracted E800m in commitments, with the CPP commitment representing the firm’s largest third party contribution. The fund will also receive up to E300m of its funds from Hands' former employer Nomura.
A first closing had originally been scheduled for June, although a spokesperson for Terra Firma said that this is now likely to take place in autumn. “The fund will hold a first closing later this year and we are confident that the E3 bn target will be reached by mid-2003.”