During a period of time when diplomatic relations between the U.S. and Europe have soured, it’s refreshing to many who see private equity GPs and LPs are illustrating how Americans and Europeans can work together. Take for example the latest secondary fund to close in Europe. While it invests exclusively in European deals, half of its backing comes from U.S. LPs.
And the firm is French, no less. Paris-based ARCIS Group closed its European Secondary Development (EDS) Fund III with $213 million. The firm, which also has an office in London, almost doubled the size of its last fund. ARCIS started fund-raising during the second half of 2002 and held a first close in February 2003.
EDS Fund III has invested 10% of its capital so far, and its investments have been spread broadly across Western Europe. It targets “specialist investment opportunities” and secondary transactions up to $122 million in size. It buys secondary interests in both funds and companies.
The fund will have a 10-year life and a five-year investment period.
With it, ARCIS has doubled its number of U.S. LPs.
Mark Burch, a London-based partner with the firm, credits the firm’s success among U.S. limited partners to a wider marketing push. Burch, who joined ARCIS in 2002, led ING Barings private equity practice and worked in corporate finance.
The fund’s limited partners are evenly split between U.S. and European groups as well as between old and new LPs. ARCIS says its limited partners include pension funds, financial advisors, insurance companies, endowments, foundations and family offices. While the firm didn’t name any of its LPs, a source familiar with the fund says that EDS Fund III’s LPs include Danish fund-of-funds group Danske.
The firm did not disclose any information about the fee or carry structure of the fund, but a source familiar with the ARCIS Group told Venture Capital Journal that the fund adheres to a market standard structure for a secondary fund.
The announcement comes on the heels of two other significant European secondary fund closings. Paris-based AXA Private Equity announced in mid-March that it closed its secondary focused Fund-of-Funds II with $304 million. Swiss secondary investor Partners Group had a first closing on its premier secondary fund with $110 million.
ARCIS was founded in 1993 and currently manages more than $700 million in capital. The firm says it has purchased more than 450 secondary positions in more than 180 equity funds and advises U.S. secondary investor VCFA Group.
Paul Capital Holds First Close
Paul Capital Partners, which is seeking $800 million for Paul Capital Partners VIII, held a first close with $104 million, according to a document filed with the Securities and Exchange Commission in late April. The San Francisco-based secondary firm will dedicate the fund to purchasing limited partnership interests in buyout, mezzanine partnership and venture capital funds and portfolios.
Paul Capital Partners launched the fund last year and was planning for a final close by the end of the second quarter. The firm declined to comment on the filing, citing advice from legal counsel.
The document lists the Gordon E. and Betty I. Moore Foundation as a limited partner in the fund. Past limited partners in Paul Capital Partners funds include AT&T Investment Management Corp., BancBoston Investments, E.I. du Pont de Nemours & Co., Howard Hughes Medical Institute, J.F. Shea Co., QP Investments and Rice University.
The firm is looking to expand its limited partner base with a focus on state pensions.
Paul is raising its latest fund as the secondary market sees a flurry of fund-raising activity. Goldman Sachs is reportedly raising a secondary fund of more than $1 billion. Meanwhile, Landmark Partners is close to closing on $600 million and Pantheon Ventures is seeking $600 million. Secondary private equity investors raised more than $4.2 billion for new funds in 2003 and more than $5 billion in 2002, according to Thomson Venture Economics (publisher of Venture Capital Journal).
Coller Adds NY Partner
Coller Capital announced that it added Rudy Scarpa as a partner. Scarpa was most recently a principal with Thomas H. Lee Putman Ventures. He also served as a senior investment banker with the Merrill Lynch Private Equity Group.
Before joining Merrill Lynch, Scarpa worked as an attorney with Skadden Arps Slate Meagher & Flom in its Investment Products Group. He will be based in Coller Capital’s New York office.
Coller Capital was founded in 1990 and is headquartered in London. The firm’s latest fund, Coller International Partners IV, has $2.6 billion committed to it. In January, the firm announced it closed a deal to buy the $1.33 billion private equity portfolio of UK bank Abbey National.
W Capital Closes on $172M
Corporations and financial institutions that have been trying to sell their private equity portfolios on the secondary market might just have a new best friend in W Capital Partners.
The New York-based firm recently closed on $172 million and expects to have a final close soon for its new fund, WCP 2003, well above the $150 million it set out to raise last year.
Despite a market that is saturated with firms on the fund-raising trail, W Capital was oversubscribed on its new fund. The firm held a first close in January with $101.2 million, according to documents filed with the Securities and Exchange Commission.
Investors in the fund include the Public Employee Retirement System of Idaho, The Trustees of Columbia University in the City of New York and the California Public Employees’ Retirement System, Columbia University, the Fire and Police Pension Association of Colorado, the Rhode Island Employees’ Retirement System and Goldman Sachs’ VF Holdings.
What makes W Capital Partners unique is that its sole focus is in buying direct company investments. Most secondary firms prefer to devote the lion’s share of their investment activity to buying fund shares.
Through early May, W Capital has bought six private equity portfolios. The only one the firm has made public has been the March 2003 acquisition of all the direct investments in life sciences, communications and information technology of Tredegar (NYSE: TG). W Capital partnered with Goldman on the deal, with Goldman buying Tredegar’s private equity fund stakes.
Quebec Puts Innovatech on the Auction Block
The Economic and Regional Development Minister of Quebec announced in early April that the government would sell the portfolio of Societe Innovatech du Grand Montreal (Innovatech Montreal). The provincial government says that it will invite investors to submit proposals for the acquisition of the portfolio.
The portfolio of venture investments is valued between $120 million and $127 million. And the firm expects the sale to be closed by this fall.
Innovatech CEO Herbert Manseau says that U.S. and European secondary firms have contacted him to express interest in the portfolio.
Manseau hopes that a large, single buyer can purchase the portfolio. As an example, he points to 3i’s acquisition of a Finish fund that shares characteristics with Innovatech. In 2000, 3i acquired the portfolio of Finish firm SFK Finance.
However hopeful he may, the future of Manseau’s investment team is unclear. Manseau notes that if a large, single buyer purchases the entire portfolio, the chances of keeping the investment team intact are greater. But he acknowledges that the portfolio could be sold off in pieces to many buyers.
Currently, Quebec is reorganizing its involvement in venture capital. The government plans to remain active in venture capital by making investments in private equity funds rather than hold a portfolio of direct venture assets.
“What [the government] wants to do is step out of direct investments in venture capital,” Manseau says. “Their idea is to support the industry but in a way that will be more like the SBIC program in the U.S. or the fund-of-funds approach you find in Israel.”
Last year Quebec elected Jean Charest as its new premier. Government subsidy has been a centerpiece of the Quebec venture capital industry and has helped the province establish itself as the biotech hub of Canada. But Charest vowed to restrict government subsidies for businesses, because, he maintains, tax breaks creates funding shortages for hospitals and schools.
The new government thus froze all new investments from publicly backed venture funds. The funds were able to make follow-on investments and make good on its current commitments.
Quebec has invested $256 million into the Innovatech Montreal out of an earmarked $262 million. Innovatech was founded in 1992 and became a venture fund in 1998. It has invested in more than 220 portfolio companies in the life sciences, information technology and telecommunications sectors.
Dan Primack also contributed to this report.