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10 REALDEALS 16 June 2011

Now more than ever, some funds are raising quickly while
others limp towards their target. What can rms do to ensure
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 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
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
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
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
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.
We asked a handful of placement agents for their view
on how to succeed in todays polarised fundraising market.
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.
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.
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.
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.
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.

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14 REALDEALS 16 June 2011
Fundraising generally involves an army of people heres their role in todays market.
The lawyers
Come out to todays market with the wrong
terms and conditions and GPs will soon nd
that doors are shut in their face. Keeping
in contact with lawyers is vital these days.
Our role as lawyers involves not just putting
in terms, but understanding what LPs are
looking for and structuring terms around this,
says Michael Halford, partner at SJ Berwin.
It can really help to go out with the right
documentation at the outset. LPs see it as a
positive if they feel a GP has acknowledged
the fact that the market has changed.
They are involved throughout the process,
helping negotiate with LPs and managing some
of their requests. We get heavily involved in
the GP-LP negotiations that is a large part
of the fundraising process for lawyers, says
Halford. We help manage the strategy for this
to ensure a fund reaches an effective closing,
as well as helping manage some of the
information requests that come in from LPs.
Also used for fund structuring, tax advice
and other issues, such as side letters.
The placement agent
For some, placement agents are not essential
as they prefer to handle fundraising
themselves. But for others, they are highly
valued in the process. Their role has evolved
signicantly over the last decade, changing
from a source of LP contacts to adviser on
all points from team issues and due diligence
through to positioning a fund in the market.
A good placement agent will determine
a rms fundraising strategy. They will know
which LPs to target, how to target them
most effectively, which buttons to press with
individuals within an institution, how a GP
compares with others in his market (something
GPs are notoriously poor at understanding
themselves) and how a rm should get into
shape even before fundraising such as
dealing with succession issues and carry
structures. Having good advisers onboard is
key, says Vince OBrien, director at Montagu
Private Equity. A good placement will not
only provide technical support in preparing
all the analysis required, but will also be able
to feed back what the market is looking for.
Some also stress the advantage of having
a third party involved in the process. An LP
may be more open with the concerns they may
have about a fund and provide more honest
feedback to a placement agent than they
would when talking to the GP in question.
IR professional
Once the preserve of only the largest private
equity houses, the IR function has become an
integral feature of all but the very smallest.
Responsible for reporting to LPs and
answering questions on an ongoing basis, the
IR department really springs into action during
fundraising. Any IR professional worth their
salt will have spent the interim time between
fundraisings identifying new LPs and building
relationships with them. They, together with
a placement agent (if one is being used) and
the senior management of the rm, will also
need to put together an effective fundraising
strategy, prepare all documentation and ensure
the fund has a good story to tell. Preparation
work is key to successful fundraising, says
OBrien. Firms need to be ready for every
possible question and eventuality. One of the
reasons we scored well was because we had
good, early preparatory work done before
launching. Only then should they hit the road.
The IR person will probably attend all
initial meetings with LPs and these are the
ones that really count. The rst meeting is
everything, says a GP. You have to make a
great impression. If you come across as
arrogant or your pitch is boring, you wont
get far. You only get one shot at this. But
thereafter, the IR person will need to eld any
further questions and manage the process,
ensuring the fund gains momentum and that
the right people meet LPs at the right stage.
Deal teams
In private, most would admit that the last thing
they want to do is be dragged across the world
to a series of LP meetings. Yet LPs do need
to meet the people who will be doing the deals,
understand the personalities involved and
gain real insight into the rms strategy. At the
same time, however, the deal team shouldnt
be intricately involved in the fundraising it
takes valuable time away from the business
of sourcing and completing deals. There are
a massive amount of meetings involved in a
fundraising and this can easily eat into the
calendars of your deal-doing executives, says
OBrien. Its very important for LPs to be able
to meet the investment teams and you have to
ensure they understand that meeting LPs is a
priority, but part of the fundraising job is to try
to minimise the time they spend away from the
investment business. Within those constraints
we try to give investors the fullest access
possible, particularly where an investor is
considered a good prospect.
The deal guys do need to get in front of
the LPs, says Guy Semmens, partner in charge
of fundraising at Argos Soditic. And its even
more important for smaller teams, although
its harder for them. But one way of reducing
the time involved is to invite LPs to the rms
ofces, and this is what Argos Soditic did.
Its still a massive drain on resources, but its
more manageable than having people traipse
over to North America or Asia, for example.
Even doing this, though, we did notice a
reduction in our deal pace during fundraising.
Fund Manager Target size Status Manager country
BC European Cap IX BC Partners 6bn First close UK
Cinven V Cinven 5bn Raising UK
EQT VI EQT Partners 4.25bn Raising Sweden
Lion Capital Fund III Lion Capital 2bn First close UK
Barclays Private Equity European Fund IV Barclays Private Equity 1.5bn Raising UK
Waterland Private Equity Fund V Waterland 1bn Raising Netherlands
Chequers Capital XVI Chequers Capital 800m Raising France
Alpha Private Equity Fund 6 Groupe Alpha 700m Raising UK
Apax France VIII Apax France 700m Second close France
Whitesmith Private Equity Investors Goldsmith Capital Partners 700m Raising Cayman Islands
HgCapital TMT Fund HgCapital 400m Raising UK
Qualium I QUALIUM Investissement 500m First close France
Source: Preqin REALDEALS 15
How did the fundraising experience for
Montagu IV compare with last time around?
It was denitely more challenging than
last time. Many LPs have smaller amounts
to commit than in the past, but we were
reassured by the fact that there is still a
strong interest in European mid-market
funds. I think that if you have a good story
then you will get strong interest. But I also
think we were probably fortunate in our
timing. We didnt time our fundraising
strategically we simply went out when
we needed to raise, but it meant that we
were out a year before many others and so
avoided the potential bottleneck that is being
predicted over the coming 12 to 24 months.
To what extent did you attempt to target
new investors to Montagu to make up for
the smaller allocations?
We are always keen to widen our investor
base. Of the investors in our fund, just over
half by number were new to Montagu, and
accounted for over 40 per cent by value.
Fortunately, our re-up rate from existing
investors was pretty good at 60 per cent
by number. The ones who didnt make it this
time were, on the whole, either at the smaller
end of the scale or had allocation constraints.
We also sought to get as global and
diverse an investor base as possible. In the
end, we attracted a very balanced mix of
investors from Continental Europe, North
America, the Middle East and Asia Pacic.
Identifying new investors is a constant
process many of them will have been rst
contacted up to four years ago, with contacts
and meetings spread over the intervening
years. Plus, our connections with HSBC
helped us with sourcing private investors.
How did you run the
process differently this
time round to deal with
the tough conditions
funds now face?
You learn all the time with
fundraising and this time,
anticipating tougher conditions,
Id say the process was more rigorously
planned. The time spent between preparing
and actual launch was much longer we
worked on areas such as due diligence for a
year before formally launching the fund to
ensure that the materials we had prepared
were able to answer all the possible questions
LPs would have. The big issues were dealt
with upfront. The days of waiting four years
before going out on the road have long gone.
Pre-marketing for the next fund starts as
soon as the previous one has been closed.
We all know that LP requests for
information have become much greater.
What seem to be their key concerns?
There is a lot of emphasis on team dynamics
and investment strategy rather than a focus
solely on numbers. LPs have become highly
professional and there is a pretty clear
understanding of what they need on the
data side. But after what Europe has
experienced in recent years, LPs have to
be convinced that the way a GP invests
is sustainable, that it really works and that
the key people they are backing to make
it work will be there for the duration.
What, if anything, surprised you about
the process?
One concern we hadnt faced before
was the question, among non-European
investors, of how stable the environment
really is in Europe. Viewed from afar, the
sight of protests on the streets of Athens
and London, for example, had a much bigger
impact on the perception of Europe as a
place to invest than we expected. Wed
argue that our focus on the stronger
economies of Northern Europe, with their
strong commercial base, would provide a
backdrop of stability and, hopefully, growth
over the next ve years. Whats more,
mid-market companies in Europe are
often global market players and should be
relatively attractive investment propositions
given that they are headquartered in major
economies, where the rule of law, nancial
controls and regulatory controls are strong.
Montagu Private Equity has
reached a nal close of its
fourth fund at 2.5bn. Real
Deals talked to director Vince
OBrien about the process
and some of the peculiarities
of todays fundraising market.
Montagu Private Equity
be a way of getting the larger LPs onboard
quickly. It doesnt change the GP accounts
much, but it does change the fundraising.
As some of the stragglers have discovered,
lose momentum in todays market and youre
in for a very long ride. If you get it right and
gain momentum you can raise quickly, says
DAmico. But some funds never quite manage
that because they dont have exits to show or
because there are concerns about the teams
size or skill sets. The problem is that rumours
spread in the LP community, so if you dont tick
all the boxes for some LPs, others will be reluctant
to commit and it turns into a vicious circle.
And this is possibly more true at the mid-
market level than at the larger end, where
there are more investors to call on. For larger
funds, the prize is attracting Middle Eastern and
Asian LPs to take up some of the slack left by
European and US LPs, says James Coleman,
managing director at Probitas Partners. Yet
at the smaller end, its tougher because this
part of the market tends to be dominated by
the European funds of funds. If youre raising
a larger fund and your core base of investors
is less able or willing to invest this time around,
there are more doors to knock on; mid-market,
country-specic funds have a harder time of
it if the obvious LPs arent biting there is no
Plan B. That is one of the reasons why we are
seeing a dichotomy at this level.
Indeed, fundraising risk was one of the key LP
concerns that Semmens came up against during
the Euroknights VI fundraising. Getting people
towards rst close is tough, he says. When we
rst went out, we found some investors saying
that they would look at it, but wouldnt invest
until after the rst close. They dont want to be
in a fund that would only be a quarter of the size
it should be and they want to ensure that the
other LPs are to their satisfaction. Unfortunately
for these investors, the fund reached nal close
without their commitment.
The big question, however, is how the
fundraising market will develop from here. We
will see many more funds come out over the
coming two years DAmico estimates that
there will be 50bn sought in Europe in the
mid-market alone.
This is just the beginning of a polarised
market, says Drean. Weve seen some good
funds out, but the ones with question marks
have yet to come out. They have been waiting
for better conditions.
Or, as Halford says: Post-crisis, we have seen a
number of mid-market and large funds with good
track records have some success in fundraising.
But the real proof of how tough the market is
will come when we see a lot of the larger funds
come out over the next 12 to 24
months. It will be interesting
to see how these get
on and what kinds
of nancial terms
are agreed on.
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