LP News, March 2010

Fresh Capital for U.K.’s Cleantech VCs

The U.K. venture market got a jolt of good news in late January, with the announcement that the British government has helped establish a new environmentally-focused fund of funds.

The Hermes Private Equity Environmental Innovation Fund (HPEEIF), which has held a first close on £125 million, will focus primarily on venture capital and growth equity managers—even first-time managers with the right credentials. The fund of funds will seek further funding from investors over the next year, hoping to raise up to £200 million.

The HPEEIF, managed by Hermes Private Equity, will commit to low-carbon and clean technology funds and directly co-invest in companies. The initiative aims to invest in seven to 10 funds and make four to eight direct investments.

The majority of funds targeted by the vehicle will be managed by venture capital and growth equity managers. Most funds will be in the range of £100 million to £300 million.

“This reflects the nature of the cleantech market and where we see attractive opportunities,” says Delaney Brown, associate director of Hermes Private Equity, who will manage the fund alongside CEO Susan Flynn. “We expect most of them will be later stage, although they might make early stage investments opportunistically.”

Brown says the fund will back first-time managers as appropriate. What is important is that the individuals have previously worked together in some capacity or have experience making venture investments in cleantech companies, he says.

HPEEIF is the first of two vehicles to launch under the U.K. Innovation Investment Fund (UKIIF) initiative, which was announced last June by U.K. Prime Minister Gordon Brown.

HPEEIF has pooled £50 million of funding from UKIIF alongside commitments of £75 million from private sector investors.

Hermes Private Equity is owned by Hermes Fund Managers, one of the largest institutional fund managers in the United Kingdom, with over £30 billion under management. Hermes Fund Managers is owned by the BT Pension Scheme, the U.K.’s largest pension scheme. —Angela Sormani

Bank to Boost VC Commitments

The European Bank for Reconstruction and Development (EBRD) is looking to increase its total private equity commitments by up to a third this year compared to last year.

The bank committed to seven private equity and venture capital funds for a total amount of €180 million in 2009.

Venture capital accounts for a small piece of the pie. Just 1.5% of the bank’s private equity allocation was committed to venture capital funds, as of last June, and the percentage is expected to be about the same this year.

Over time, the plan is to increase commitments to Eastern European venture capital funds out of a total private equity commitment of €2.5 billion.

EBRD is interested in most fund types, from venture capital to growth and expansion, single-country funds, regional funds and is also supportive of first-time funds. It does not invest in large buyout funds.

The New European Venture Equity Fund, aka Neveq Fund, in Bulgaria is one example of the type of venture fund currently in the bank’s portfolio.

The bank is also considering an investment in 3TS CEE Fund III, a proposed €200 million fund managed by 3TS Capital Partners, a venture capital/private equity firm that focuses on Eastern and Central Europe. EBRD is mulling a commitment of up to €40 million for the fund. —Angela Sormani

IFC to Ramp up PE Commitments

International Finance Corp. (IFC), the private sector arm of the World Bank, plans to increase its commitment to private equity and venture capital this year, according to private equity research from Prequin.

IFC will continue to focus on emerging markets funds in the regions of Africa, Central Europe, Central Asia, Latin America and Southeast Asia. It invests in most fund types, with a particular focus on growth and venture capital funds.

IFC’s overall investment portfolio is worth approximately $22 billion, 10.8% of which is allocated to the lower spectrum of private equity.

At the end of January, IFC announced it would commit $7.5 million to Luxembourg-based Fanisi Venture Capital Fund, which plans to focus on startups and small and medium enterprises in Kenya, Rwanda, Tanzania and Uganda, where job creation is largely driven by small enterprises.

Fanisi, established with the assistance of Norwegian Investment Fund for Developing Countries, has raised $40 million so far and expects to reach its goal of $55 million within the next 12 months. Norfund is an investor in Fanisi and a shareholder in the fund’s management company, which is majority-owned by Amani Capital Ltd., which is based in Nairobi. —Angela Sormani

Sweden’s AP1 Wants to Boost PE Allocation

Sweden’s largest pension manager, Första AP-fonden, also known as AP1, is set to back its first Asian fund this year as part of a larger effort to boost its private equity allocation.

The pension fund, which currently has an actual allocation to private equity of just over 1%, will seek to commit between SEK 2.2 billion ($300 million) and SEK 2.5 billion to the asset class during the course of this year. Its goal is to gradually increase its private equity allocation to 5 percent.

AP1 will cautiously invest in private equity during the next 12 months, diversifying its portfolio by vintage year, fund type and geography. In particular, the fund will seek investments in secondary vehicles and distressed private equity, among others, and will also consider first-time funds.

AP1 currently has just over SEK 2 billion invested in private equity funds (1% of its funds under management) and around SEK 10 billion committed (5% of its funds under management). Its allocation is currently split equally between European and U.S. private equity funds.

The fund’s alternative investments include real estate holdings, participations in private equity (with VC accounting for about 10% of its PE holdings) and hedge funds and opportunistic investments.

Total investments in alternatives as of June 2009 reached SEK 9.2 billion and accounted for 5.1% of net assets. The fund’s participation in private equity funds consists of direct fund holdings in the Nordic market and three customized mandates in the international market with its partners—international asset manager Hamilton Lane, Swiss asset management group LGT Partners and U.S.-based fund manager WP Global Partners. —Angela Sormani

Absolute Private Equity Ceases New Commitments

Swiss listed private equity fund-of-funds Absolute Private Equity is the latest European listed vehicle to cease new commitments until it sees a significant improvement in its share price in relation to its net asset value. The vehicle has announced it will not make any new commitments this year.

Absolute Private Equity primarily invests in U.S., European and other international buyout and venture capital funds. As of June 30, Absolute Private Equity had capital commitments totalling $1.39 billion, of which 75.4% had been funded. Distributions totalled $754 million, or 75.9% of committed capital.

As of March 31, 2009, the portfolio held 498 investments through its underlying funds. The fund-of-funds is well-diversified, with 42.2% of funds based in North America and 39.1% in Europe.

The fund has a mixed portfolio of U.S. and European buyout and venture funds including names such as Apax Europe VII; Blackstone Capital Partners IV and V, DLJ Venture Partners II, Providence Equity Partners VI; Terra firma Capital Partners III, TPG Biotechnology Partners III and TPG Partners V. —Angela Sormani