NEW YORK – Capital Z Partners Ltd. in January wrapped a $1.5 billion fund-of-funds the firm will use to help establish groups raising private equity and hedge funds around the world.
Capital Z, like a growing number of L.P.s, believes the private equity world is becoming global and the time is now ripe to establish relationships with G.P.s in emerging markets. The fund-of-funds manager accomplishes this by acquiring both a stake in a firm and an interest in the group’s partnership.
Growing Global Interest
L.P.s have shown an interest over the last several years in investing in funds-of-funds such as Capital Z that commit to partnerships in several foreign markets. For example, L.P.s committed more than $2 billion last year to HarbourVest International Private Equity Partners III, L.P. and in 1997 limiteds committed $1 billion to AIG Global Emerging Markets Private Equity Fund.
The Capital Z fund-of-funds will invest in United States partnerships, but also in Asia, Latin America and Central Europe-focused vehicles. It will invest in about 40 vehicles, split between private equity funds and hedge funds. However, because private equity funds are larger, Capital Z Investments, L.P. will commit about $1 billion to private equity vehicles, with the remainder going to hedge funds.
Taking Active Role
Capital Z will invest only in situations where it can own part of the firm and obtain veto rights over all investments.
“We typically would ask for and receive veto rights, and it is not unfair for an anchor sponsor to expect that,” said Laurence Cheng, a partner at Capital Z.
Chase Capital Partners, which invests in fledgling groups in foreign lands, uses a similar approach and also exercises veto rights over all of a firm’s deals, sources said. Partners at Chase Capital would not comment about veto rights, but confirmed the private equity firm works closely with the groups it backs in emerging markets.
In working with the firms it sponsors, Capital Z will approve all deals and budgets, Mr. Cheng said. He added that Capital Z is looking for long-term relationships with the firms it sponsors.
So far, the vehicle, launched early last year, has committed about 30% of its capital. Its largest commitment was $100 million to Capital Z Asia Partners, L.P., a buyout fund managed by Gary Lawrence, the former managing director at Lehman Brothers who focused on investments in Asia, that is seeking $350 million.
The fund-of-funds is managed by Partner Scott Delman, a former executive director at Foreign & Colonial Emerging Markets in London, who managed its private equity portfolio; and Mr. Cheng, who was president and CEO of Zurich Investment Management Ltd., an asset manager for institutional clients.
Last year, Zurich Insurance Group helped form Capital Z and became its chief backer, although it does not take a direct hand in managing the fund-of-funds or Capital Z’s buyout fund. Mr. Cheng declined to reveal how much of the $1.5 billion the group raised came from Zurich and said the group raised a significant amount of capital from sources unrelated to the bank.