36 110616adrealdealsvmfundraising
36 110616adrealdealsvmfundraising
36 110616adrealdealsvmfundraising
Now more than ever, some funds are raising quickly while
others limp towards their target. What can rms do to ensure
they are on the top table? WORDS VICKY MEEK ILLUSTRATIONS RICHARD WILKINSON
THE GREAT DIVIDE
WHEN ARGOS SODITIC OFFICIALLY LAUNCHED
its fundraising in May 2010, the plan was to close
at some point this year. We started at our annual
meeting in 2010, says the rms partner in charge
of fundraising, Guy Semmens. We thought we
might reach a rst close by December 2010 and
then the process would drag out through 2011.
In fact, the rm announced it had reached its
hard cap of 400m on Euroknights VI on 3
January 2011, easily passing its target of 360m.
Clearly, the fund wasnt just raised on the
back of a few weeks work; it was the result of
months and months of preparation. However,
Argos Soditic is in the happy position of being
one of the rms that have raised their latest
funds with relative ease in recent times along
with Astorg Partners (see case study, page 12),
Montagu Private Equity (see interview, page 15),
Inexion, Intera in Finland and CICLAD in France.
Meanwhile, there are others that have found
fundraising more than an uphill struggle Apax
France is still trying to reach a nal close after
launching in 2008, Gilde closed last year, but
only after a struggle, and the renewable energy
arm of HgCapital is believed to be taking a
while to end its efforts. Indeed, the average
time spent on the road for fundraising has risen
over the last two years to nearly 17 months for
mid-market houses and over 21 months for
mega funds, according to Preqin gures. That
compares with 10.6 months and 12.4 months,
respectively, over the longer term.
There appears to be a twin-track fundraising
market operating now. And, while there have
always been some funds that have raised more
quickly than others, the difference is much more
marked in todays market.
Performance policy
Strategy drift and poor recent performance will
count as large black marks against rms that
come out to raise their successor funds. But
there is more to it than sheer numbers. LPs are
really focusing on what you have done to make
money, says Semmens. If you invested in 2003
www.realdeals.eu.com REALDEALS 11
to 2004 and then exited in 2007, you almost
couldnt get it wrong. LPs have pretty much
discounted that period. What they want to see
is how youve made money in bad times as well
as good. They are looking in detail at portfolio
companies and what your value-creation strategy
has been for them.
The difference between those that succeed
and those that struggle in fundraising has a lot
to do with performance, says Antoine Drean,
chief executive and chairman of Triago. But
performance now is not just a gure reecting the
last ve to ten years its about how sustainable
the gure is. Some GPs have managed to produce
some fantastic results, but LPs realise that many of
these have done so through debt. The big question
for LPs is who will generate good returns. Only
20 per cent are able to generate great returns
over time the other 80 per cent will have
question marks over their future performance.
Its perhaps this focus on the future that
explains why some rms many far from
household names have been able to raise easily.
Intera is one such rm. Based in Finland, Intera
raised its second, 200m fund from ofcial launch
in January this year to nal close in April. We
had planned to reach a nal close in the summer,
but demand was so heavy that the fundraising
AVERAGE TIME SPENT ON THE ROAD FOR EUROPE-FOCUSED
BUYOUT FUNDS CLOSED IN 2005 Q2 2011
Fund type Average time spent on the road (months)
Small-market buyout 14.3
Mid-market buyout 10.6
Large-market buyout 6.4
Mega-market buyout 12.4
AVERAGE TIME SPENT ON THE ROAD FOR ALL BUYOUT
FUNDS CLOSED IN 2009 Q1 2011
Fund type Average time spent on the road (months)
Small-market buyout 20.9
Mid-market buyout 16.9
Large-market buyout 17.3
Mega-market buyout 21.5
was much quicker than wed expected, says
Intera managing director Tuomas Lang.
And the interesting point about Intera is that
it hasnt yet had any realisations from its rst
fund. The average holding period during the
fundraising process of our previous investments
was just a year, so it was natural that we wouldnt
have any exits to show, says Lang. Yet its one of
the unwritten rules of fundraising that you have
to have some good exits under your belt. So how
did Intera manage it?
The Nordic region is particularly popular with
LPs at the moment as the recent fundraisings of
Litorina and Valedo also demonstrate because it
FUNDRAISING
Source: Preqin
12 REALDEALS 16 June 2011
has escaped relatively unscathed from the nancial
crisis. But the success of these funds also appears
to be down to a desire among LPs to look at funds
that show the promise of being tomorrows big
winners. Intera is run by the most experienced
guy in Finland, says a placement agent. Finland
is one of the best-performing markets in Europe
and its very hard to access Finnish companies.
LPs, it seems, are working hard to uncover
Europes hidden gems. LPs are looking for funds
of the future, says Semmens. They want to get
in with the next generation of funds that they can
grow with and get extraordinary returns from.
Brand names used to matter a lot they used
to be a large part of the decision-making process,
says Drean. But they dont have the same appeal
now. Small is beautiful now as often its these funds
that can offer a differentiated investment strategy
LPs dont want to invest in me-too funds.
It seems there is a wide-scale shift as LPs
are no longer looking to re-up automatically. As
many as 91 per cent of European LP respondents
to Coller Capitals Winter 2010-2011 Barometer
had refused to re-up with at least one GP over
the previous 12 months; thats up from 63 per
cent two years ago. You had rms, such as
Candover and Cognetas, that were pin-up boys
for decades, says one GP. They had done
fantastically well since the 1990s, but they went
off-track. They thought they had found an easy
way to make money, but now they will struggle.
Re-ups have now become more like new
commitments, adds Armando DAmico,
managing partner at Acanthus Advisers. LPs are
looking much more closely at each opportunity.
Getting in early
This, together with the desire to maintain
momentum, is why larger groups, such as BC
Partners and EQT Partners, have opted to offer
early-bird discounts on fees to investors that come
in at rst closing stage. There is a bit of a chicken-
and-egg situation in that, once a fund reaches
rst close, it is able to get to nal close much
more easily, but then investors often want to see
who is in the rst close before committing, says
Michael Halford, partner at SJ Berwin. Its one
of the reasons were seeing early-bird discounts.
We will see more early-bird discounts, says
Drean. Momentum has always been important,
but its more so now. LPs dont have the same
amount to commit to larger funds
and so they are having to go
to many more investors
getting more than 100m
from an investor is
very challenging.
Offering a
discount may
ASTORG HOW DID THEY DO IT?
In one of the most successful fundraisings of
recent times, Astorg Partners closed its fth
fund at 1.05bn earlier this year, well ahead of
its original 800m target. So how did the rm
manage to generate so much interest at a time
when LPs are not only being highly selective,
but also taking their time making decisions?
For a start, fundraising is no longer an
activity that takes place every four years.
Astorg worked at priming existing LPs and
getting to know new ones well before it came
out on the road. [Managing partner] Thierry
Timsit has been on a charm offensive over the
last two years or so, says a placement agent.
He made sure that he targeted and knew the
LPs that were likely to invest in his fund. It also
helped that he was able to tell an Anglo-Saxon
story, which is something some of the other
French country funds have struggled with.
Timsit says the success was the result of a
number of factors, one of which was a review
of the rms LP base. We took the view that
we needed to re-evaluate our investor base,
he says. We were proactive in reaching out
to the end-user money because we wanted to
attract investors that dont face fundraising risk
as funds of funds do. We could also see that
some investors, such as insurance companies
and banks, faced with increasing regulation,
would invest less in private equity. So the rm
looked further aeld and, for the rst time,
managed to raise capital from Asian investors,
which account for 18 per cent of the investor
numbers. Of the 44 LPs that committed to
Astorg V, 25 were new to the rm.
The rm also managed some good exits
prior to ofcially launching the fundraising
in September 2010. The Trescal sale to 3i and
TCR Capital in September 2010 was believed
to have produced a good return, and the exit
of Geoservices to Schlumberger earlier in
the year has been described as stellar.
Astorg has also stayed true to its roots. The
latest fund is a little above the 800m raised
for Astorg IV in 2007 and, although much
higher than the 300m raised for Astorg III,
deal sizes have not crept up signicantly as
the rm remains in the 100m to 500m
bracket. In our third fund, we tended to share
investments with families and other GPs to do
larger deals, says Timsit. The mid-market is
also currently a hot area for LPs, many of which
are weary of larger funds. There is a stronger
appetite for mid-market funds worldwide.
Finally, Astorg timed the market right.
One of the reasons we were quick was
that we tactically decided to go out in 2010,
while others were more cautious, says Timsit.
Had we not done this, we might have taken
12 to 18 months to raise.
PLACEMENT AGENTS VIEW
We asked a handful of placement agents for their view
on how to succeed in todays polarised fundraising market.
A FUNDRAISING STRATEGY Fundraising is
not just about sending out memos and it has
never been a numbers game, says Antoine
Drean of Triago. Talk to the opinion leaders
among the LPs to nd out what they really want
and identify new investors to target so that
you have a wide base of potential investors.
THE RIGHT RELATIONSHIPS GPs need to
have the right relationships with the right LPs
not just their existing LP base, says James
Coleman at Probitas. Of our clients last year,
just 40 per cent of their capital came from
existing LPs. A lot of work needs to be done
in forging and fostering new relationships, but
in a targeted way. Its all very well having an
open-door policy with LPs, but the conversion
rate on this kind of strategy is very low.
A GOOD, VERIFIABLE STORY Even if recent
performance hasnt been stellar, if you can
tell the right story in the right way, you should
be able to raise, says Coleman. But many
GPs struggle with this because they dont
necessarily know the audience well enough and
nd it hard to know what each LP is looking
for. You need to take a step back and work
out what the story you are telling will look like
to the person on the other side of the table.
A POINT OF DIFFERENCE Its amazing
how poorly some GPs present their strategy,
says Armando DAmico of Acanthus Advisers.
You need a USP in todays market and you
need to explain exactly how you source deals
and add value. Aim to give LPs a really good
sense of what kind of deals you do.
THE RIGHT ATTITUDE LPs want to see GPs
that really believe in their fund and want to
work in partnership. You need to have good
reporting and responsive investor relations
processes, says DAmico. You can afford to
be a bit messy for fund I or II, but beyond that,
you need to be slick. You also need to have a
constant dialogue you cant just come out
with a terms sheet and ask investors to sign.
GP commitments are also important,
adds Kanika Kumar at Acanthus. LPs used
to look for the standard one per cent, but
now they are looking for ten per cent or more.
The key is what the GP can actually afford.
FUNDRAISING
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