Truell seeks £500m for third-party fund – Exclusive

Disruptive Capital Finance, the family office chaired by Edi Truell, plans to close an £80m ‘top-up’ fund next month and start raising fresh capital.

Disruptive Capital Finance, the family office which has thus far invested on a deal-by-deal basis and alongside co-investors, is set to hold a first and final close on its first third-party capital fund next month, chairman Edi Truell told Private Equity International.

The fund, described by Truell as an £80 million “top-up” fund, will invest exclusively in DCF’s existing portfolio of companies, which are expanding globally and require additional capital to keep growing.

The current DCF portfolio of assets has grown from £80 million this time last year – which at that time was purely Truell family capital – to £190 million, both through organic growth and through £75 million of expansion capital collected from co-investors.

Additionally, DCF is seeking £500 million for a new primary vehicle to invest in new deals. Truell said he is hoping to hold a first close on that fund in November.

Truell is asking those investors who wish to commit to the top-up fund to also make a commitment to the primary vehicle, and expects that all investors in the former will also invest in the latter.

“I’m saying to people ‘if you want to be preferred in the secondary deal, would you like to write down how much you’d like to put in the primary deal?’ Stapling, essentially, the secondary fund to the primary fund,” he said.

“We are giving them a real sweetheart deal on the secondary. It’s a lovely, ready-made portfolio, you can see it, and God willing it’s going to make lots of money from here. I can’t be more aligned, I’ve got most of the family money in it. We’ve got a great track record, and then we’ve got a nice pipeline of future deals, and they can begin to see that pipeline of future add-ons for the portfolio.”

Unlike the majority of private equity vehicles in the market today, both funds will charge a management fee of just 1 percent, and only on invested capital, with 20 percent carried interest after a hurdle of 7 percent is met. The primary fund will have a standard five-year investment period and 10-year fund life, while the top-up fund will have a three-year investment period and a total fund life of seven years.

“One of the problems of having been on the other side of the fence as a limited partner, particularly at London Pension Fund, is I was ranting about private equity fees,” Truell said. “Now I would love to get 2-and-20 on committed capital, and sadly it’s not congruent with what I was saying before. So the fee terms are very generous for secondary investments.”

In order to begin fundraising, DCF had first to register under the Alternative Investment Fund Managers’ Directive, and then broaden out the team. In the last year the team has grown from four to 12, including six investment partners.

Also in the DCF portfolio is the Annuity Infrastructure Club, a global infrastructure fund manager run by founder and CEO Graeme Bevans, previously head of infrastructure at CPPIB.

“We put another dozen people together for that infrastructure investing team, and that team between them have done $68 billion worth of infrastructure investing,” Truell said.

Truell said one of the reasons behind his decision to raise a third-party fund is “it’s about as much effort to do a deal-by-deal fundraising as it is to do a fund”, and that a fund will help DCF improve its execution rate.

“You lose the deal tension, you lose the momentum, you lose that pricing edge,” he said of the time delay inherent in deal-by-deal investing.

“We’ve lost one or two deals where the vendor has said they’re not prepared to wait.”

The primary fund will still look to its investors to co-invest alongside it, Truell said, as the intention is to build out platform companies which “will finish up as multi-hundred million pound companies”, and would therefore become “disproportionately large” within a fund.

DCF’s existing investments include e-invoice company Tungsten Corporation, which listed on AIM in 2013, Imagine Publishing, which has just merged with media group Future, vehicle software company Tantalum Corporation, AIM-listed Media Tech Pharma, the Pensions Insurance Corporation (PIC) co-founded by Truell and his brother Danny Truell, and Atlantic Superconnection, which is developing a power sharing project between the UK and Iceland.

The difference between DCF and other private equity houses in the UK market is it’s “playing in places that other people won’t”, Truell said.

“You will very rarely find a venture capitalist in the UK that’s prepared to put £30 million into a deal. You’ll very rarely find a private equity firm that’s actually prepared to back a new technology. What I’m trying to do is stitch these together.”