European LP Briefs, October 2011

Advantage Over

London-based buyout house Advantage Capital Partners will reportedly shut down after failing to raise a fresh fund.

The firm is said to be in the process of winding down its portfolio.

Although a thinning-out of the private equity market has been widely forecast due to a difficult fundraising climate, Advantage’s problems stem from a high-profile dispute with cornerstone investor Robert Adair.

In 2009 Adair sought to reverse his agreement to commit £37 million ($58 million) to Advantage’s second fund, having only provided £17 million ($27 million), and later stopped paying his monthly management fee.

In January 2011, Advantage won a seven-figure out-of-court settlement from Adair, though that only proved sufficient to satisfy minimum capital requirements for a short period.

Advantage was established in 2001 when it raised a £40 million ($63 million) buyout fund.

Bank Backing for Funds Falters

New research has confirmed that banks are scaling back their private equity activities.

European private equity funds from 2007 to 2008 sourced 14% of their capital from banks, but this figure dropped to 12% from 2009 to 2011, according to data from Preqin.

“Banks will remain a significant part of the private equity investment universe, but strengthening capital requirements and the restrictions on private equity investments will force more banks to alter their investment strategies, and may compel private equity firms to seek capital elsewhere,” a Preqin spokesperson said.

Further falls in bank investment are expected following the sales of significant private equity fund interests this year, as well as the spin-off of several banks’ proprietary PE arms.

In August, Germany’s HSH Nordbank sold €620 million ($870 million) of fund interests to AXA Private Equity and LGT Capital Partners, while Citigroup offloaded $1.7 billion of private equity stakes in June.

In 2010 banks invested a total of $105 billion—9% of all capital invested in private equity that year, but in 2008 they invested a total of $115 billion.

Record Exits Tempt Investors but Transparency Concerns Linger

One in four investors plan to increase their private equity allocations in the next year, according to survey of about 400 institutional investors, consultants and fund managers.

Most investors said they were looking for a return, encouraged by record private equity exits in the second quarter of 2011 of $120 billion, up from $82 billion the year before.

However, half of those surveyed said that they would target the sector principally for diversification.

In a report based on the figures, investment manager SEI said that limited partners now expect more transparency in fees and reporting from general partners in return for their money.

“Managers have reason to be encouraged by investors’ renewed enthusiasm for private equity. However, in exchange, more is expected of them,” says Ross Ellis, head of the SEI knowledge partnership.

SEI, which compiled the report with financial strategy planner Greenwich Associates, has dubbed the present period the “era of the investor.”

Partners in Paris

Swiss fund-of-funds manager Partners Group has supported heavy investment in France with a new office in Paris.

“France is an established market for Partners Group, which offers additional potential,” said Gilbert de La Ferrière, head of the Paris office, in a statement.

He added that the new location would strengthen relationships with customers in the region, which include a number of institutional investors.

The firm has €800 million ($1.1 billion) invested in France across its private market activities, which include 10 direct private equity investments.

Funds in its portfolio include those of Paris-based venture firm Sofinnova Partners.

Although Partners also covers private infrastructure, real estate and debt, its focus is private equity funds. The firm has €20 billion ($28 billion) under management across all sectors.

Paris becomes Partners’ sixth European office.