European LP Briefs, May 2010

Norwegian Fund Eyes PE

The giant Norwegian Government Pension Fund Global is considering its first foray into private equity, part of a continuing movement by sovereign wealth funds into the asset class.

Norges Bank Investment Management, Norway’s central bank and manager of the Government Pension Fund Global, is assessing opportunities for the fund to invest in private equity and infrastructure within a new investment program aimed at environment-related opportunities.

It will issue its recommendations this fall. With about NOK2.6 trillion ($457 billion) under management as of Dec. 31, the sovereign wealth fund manages one of the largest pools of capital in Europe.

The Norwegian Ministry of Finance last year outlined plans for the establishment of the environmental program, saying that about $680 million would be invested in environment-related opportunities this year. The total amount allocated to the program is predicted to reach as much as $3.4 billion over the next five years.

Sovereign wealth funds are a growing source of capital for private equity funds. Total assets under management of all sovereign wealth funds stand at an estimated $3.5 trillion, representing a 9% increase from one year ago, according to “The 2010 Sovereign Wealth Fund Review,” which was published in March by alternative asset data provider Preqin.

Along with the Government Pension Fund Global, Emirates Investment Authority, the first sovereign wealth fund for all seven states of the United Arab Emirates, anticipates making an allocation to private equity at some point. Bahrain Mumtalakat Holding Co., which currently only makes direct investments, has also been considering an allocation to private equity funds.

Of those sovereign wealth funds that invest in private equity, 92% have a preference for buyout funds, according to Preqin. Examples in the Preqin report include SAFE Investment Co.’s $2.5 billion commitment to U.S. buyout fund TPG Partners VI and China Investment Corp.’s $3.2 billion commitment to CIC-JC Flowers Financial Assets. —Angela SormaniSkandia Targets 10% PE Allocation

Skandia Life Insurance Co. is looking to reach its private equity target allocation, which amounts to 10% of its total assets, by 2013, Roger Johanson, head of private equity at Skandia, told VCJ.

The actual allocation at the Nordic life insurance company, which manages $35 billion in assets, stands at 3.7%, or $1.3 billion, well under the $3.5 billion target. Europe accounts for nearly half (or 46%) of its fund commitments, followed by the United States with 43%, the Nordic market with 8% and Asia with 3 percent.

European venture fund managers backed by the life insurer include Health Cap, Sofinnova Ventures, TVM Life Science and Wellington Partners Venture Capital. In the United States, Skandia has committed to 22 funds, including those managed by FTV Capital, Insight Venture Partners, Mayfield Fund, Menlo Ventures, MPM BioCapital and New Enterprise Associates. —Angela Sormani

NPRF Allocation Under Review

Ireland’s National Pensions Reserve Fund, which did not make any new private equity fund commitments last year, is reviewing its asset allocation strategy. A decision about its PE target is expected in June.

The current target allocation of the $30 billion national pension fund stands at 8%, but its actual PE allocation was 2.4% as of Sept. 30.

About 67% of the fund’s portfolio is in buyout funds, 13% in venture capital funds and 20% in fund managers specializing in other investment categories, including special situations funds, distressed debt and turnaround vehicles. NPRF is aiming to reach a 15% target for venture funds, according to alternative asset data provider Preqin.

The fund has previously committed to such venture funds as Abingworth Bioventures V and Abingworth Bioventures V Co-investment Fund (which invests in the United States and Europe); Frazier Healthcare VI (U.S.); Montagu Newhall Fund III and Montagu Newhall IV (U.S.); Oak Investment Partners XII (U.S.); Seroba Kernel Life Sciences Fund II (Ireland); Summit Partners Europe and Ulster Bank Diageo Venture Fund (Ireland). —Angela SormaniHermes and Gartmore Merge

London-based private equity funds of funds manager Gartmore Private Equity, a division of Gartmore Investment Management, merged last month with Hermes Private Equity, a division of fund manager Hermes. The combined business, called Hermes GPE, has about $6.3 billion under management.

Alan MacKay, formerly a partner at 3i, was tapped to be CEO of Hermes GPE. He notes that the merger creates an enlarged private equity specialist with considerable investment talent. “There are huge opportunities in private equity for proven teams that offer responsible investment management,” he says.

London-based Hermes GPE is nearing a final close on a cleantech fund of funds called the UK Innovation Investment Fund. The cleantech fund will target early stage venture investments and expansion stage companies. In the new Hermes GPE allocation structure, less than 10% is dedicated to technology funds, mostly comprising late stage venture and expansion stage.

Mackay says he envisages strengthening Hermes GPE expertise in technology, not necessarily in venture, although additional technology expertise may come from a proven and successful venture background. —Angela SormaniPrincess Preps for Commitments

Listed fund-of-funds manager Princess Private Equity Holding Ltd. has boosted its liquidity levels with a new three-year credit facility and the sale of its listed private equity investments during 2009, setting the stage for fresh commitments to U.S. and European private equity funds.

The board of directors has signed a new three-year credit facility set at €40 million ($53.9 million), with the potential to increase it to €90 million. The purpose of the new credit facility is to meet the funding obligations under Princess’s commitment strategy, following the expiration of the previous credit facility on Dec. 31. As of that date, Princess had drawn down €20 million under the credit facility.

Brian Human, chairman of Princess’s board of directors, said in a prepared statement: “With the new extended credit facility in place and unfunded commitments reduced, Princess is well positioned to capitalize on attractive investment opportunities and to benefit from the re-opening of the exit window for its existing portfolio companies.”

The board also is considering a restructuring of the Princess fund of funds, which trades at a significant discount to NAV, although details aren’t expected to be revealed until a second-quarter board meeting at the earliest. One option under consideration is a change in the capital structure to provide shareholders with the ability to buy and sell shares at NAV on a monthly or quarterly basis.

Princess’s buyout fund allocation increased slightly last year to 64% of its portfolio. Its commitments to venture funds accounted for 21% of the portfolio, down from 24% at the end of 2008.

In terms of geography, Princess’s allocation to Asia and the rest of the world grew to 10% last year, up from 7% in 2008. North America remained unchanged at 57% and Europe was down to 33% from 36 percent.—Angela Sormani