PEI 300: Six firms making waves

The firms from across the PEI 300 that hit the headlines - for good or bad - this year.

Eurazeo

48 | Paris

For Paris-listed Eurazeo diversification across products and geographies is critical for shareholder returns

“If you put yourself in the shoes of a shareholder of Eurazeo, you don’t want to be just a French buyout firm focused on one activity,” Marc Frappier, managing partner and head of Eurazeo Capital, tells PEI. “You diversify your asset base, diversify your geographic exposure so you have more consistent returns for your LPs, or ultimately in our case, for our shareholders.”

Acquiring stakes in other private equity firms has helped Eurazeo expand its geographical and product portfolios. Earlier this year, the firm picked up a 25 percent stake in Madrid-based MCH Private Equity to boost its presence in Spain. In 2017, it acquired a 30 percent stake in US-based Rhône Group to strengthen its transatlantic presence.

An additional €7 billion of firepower was added to Eurazeo’s arsenal last year when it acquired French fund of funds manager Idinvest Partners. It also gave the firm expertise in private debt, venture and growth capital.

Eurazeo made a big push into the US mid-market in 2016, opening a New York office. Its newest investment division Eurazeo Brands, launched in 2017, operates out of the city and focuses on consumer and retail companies across beauty fashion, home, leisure, wellness and food. Its Rhône Group stake, meanwhile, gives the French manager a foothold in the real estate market through Rhône’s joint venture with WeWork.

Now it is picking up its activity in Asia. In April, sovereign wealth fund China Investment Corporation chose the firm to manage an up to €1.5 billion China Growth Fund backing French and European companies that want to invest in China. As Frappier says: “Scaling our business means that if we want to pool growth [investing] and international [investing] that means we have a team on the ground.”

China Everbright Limited

95 | Hong Kong

Hong Kong’s China Everbright shot up the ranking to break into the top 100

The asset manager – a subsidiary of state-owned conglomerate China Everbright Group – climbed 171 places after raising around $5.2 billion over the past five years. It manages 32 primary market vehicles and four funds of funds.

China Everbright plans to increase its US dollar assets under management after domestic regulation dampened yuan-denominated fundraising last year. The firm will raise the percentage of its foreign asset allocation and boost its dollar-denominated funds to maintain stable AUM growth this year, according to an annual results presentation in April.

“We definitely are looking into a bigger number of USD fundraisings,” chief financial officer Richard Tang told PEI in April. The firm is strengthening its institutional client relationship department and is in talks with fundraising consultants and intermediaries.

Its heightened appetite for dollars comes after China tightened rules on asset management firms in April last year to crack down on domestic shadow banking and overleveraging. Yuan-denominated vehicles fell to just 7 percent of new Chinese fundraises last year, according to PitchBook’s Private Equity in China report.

The asset manager is also increasing its focus on cross-border inbound and outbound investments. The firm completed several notable deals overseas last year, acquiring Norway-based Boreal Holdings via its global infrastructure fund and helping an existing portfolio company, US manufacturer Burke Porter, expand into China by building a factory. The group’s real estate business EBA Investments made its first overseas investment into US asset manager Arrow RE in April last year.

Abraaj

129 | Dubai

The fallen emerging markets investor raised $3.29bn in the five years to March

Not many firms have captured the industry’s attention like The Abraaj Group has over the last year, and for all the wrong reasons. As this issue goes to press, the firm’s founder Arif Naqvi faces extradition to the US over charges including misappropriating funds and securities and wire fraud, while former executives Mustafa Abdel-Wadood and Sev Vettivetpillai also face charges.

Yet the firm’s capital-raising efforts over the last five years cannot be overlooked. Abraaj dropped 60 places in this year’s PEI 300, having raised $3.29 billion across five commingled funds and one separately managed account.

Two of these vehicles have been sold off already. The largest is the 2015-vintage $1 billion Growth Markets Health Fund – the very fund at the centre of fraud allegations against the firm. According to the Securities and Exchange Commission’s civil complaint filed in April, $230 million from the Health fund was misappropriated, beginning in December 2016. In early May, TPG said its growth platform had agreed to acquire the fund, renaming it Evercare Health Fund. Members of the health fund’s LPAC said in a statement they remained “deeply committed” to the fund and its mission.

In mid-April, Colony Capital said it had closed the acquisition of Abraaj’s Latin America private equity platform, including its $300 million Latin America Fund II.  Vehicles that remain unsold are the $526 million Abraaj Turkey Fund, which US asset management firm Franklin Templeton was reported to be in talks to acquire as of mid-May, while emerging markets specialist Actis is understood to have been in talks to acquire five of Abraaj’s Africa funds – including the $990 million Africa Fund III and the $375 million North Africa Fund II.

BGH Capital

192 | Melbourne

First-time manager BGH raised Australia’s largest debut fund, closing on almost $2bn last year

Melbourne-headquartered BGH Capital made its debut in the PEI 300 this year. The first-time manager caught a lot of people in the industry by surprise, having raised the biggest debut fund focused on Australia and New Zealand in May 2018, closing on A$2.6 billion ($1.9 billion; €1.6 billion).

BGH Capital Fund I is also the second-largest fund raised in the country. Longstanding firm Pacific Equity Partners (187) closed on A$4 billion for its fourth vehicle in 2008, PEI data show.

BGH was founded by TPG head of Asia Ben Gray in 2017 along with ex-TPG partner Simon Harle and ex-Macquarie Capital Australia chief Robin Bishop. It began fundraising in October that year with a A$2 billion target and A$2.5 billion hard-cap, and held a first close on more than A$2.3 billion in February 2018. New York State Teachers’ Retirement System, Washington State Investment Board and San Francisco Employees’ Retirement System are investors in the fund, PEI data show.

Its strategy: invest in mid-market companies, while maintaining the scale required to execute larger buyouts and flexibility to pursue smaller growth deals. Along with the its Aussie buyout peers PEP and Quadrant Private Equity (163), BGH will compete in the same space as pan-Asian firms Affinity Equity Partners and Baring Private Equity Asia, as well as global heavyweights KKR (3), TPG (12) and Bain Capital (6). BGH has so far struck one deal from its mega-fund since final close, the takeover of education company Navitas in a deal valuing the company at A$2.3 billion. The deal, sealed by BGH alongside AustralianSuper, is also the biggest transaction by a domestic buyout fund.

Fondo FSI

247 | Milan

Italian private equity firms are something of a rarity in the PEI 300; only two made it into the rankings this year

Fondo FSI, a spin-out from Italian sovereign wealth fund Fondo Strategico Italiano, is the largest of these. The Milan-headquartered growth equity firm closed its first fund on €1.4 billion in February – the largest amount ever raised for a debut Italy-focused vehicle and Europe’s third-largest debut fund targeting a single country since at least 2008.

The close saw Fondo FSI enter the PEI 300 at 247. The fund attracted capital from the likes of Kuwait Investment Authority, Singapore’s government investor Temasek and France’s Tikehau Capital. Italian institutional investors committed 39 percent of the capital, with international institutions providing 23 percent.

“Limited partners were concerned about Italy’s economy being impacted by large government debt, which can be a negative factor to some sectors,” chief executive Maurizio Tamagnini told Private Equity International in February. These concerns were “less relevant” to FSI’s fundraise because 70 percent of the portfolio’s revenue, for example, comes from outside the country through export-led business, he noted.

Fund I may seem like a lot of capital for Italy, given that it is already the country’s third-largest in history, but FSI appears to have had little trouble sourcing deals. It has already deployed approximately 25 percent of the vehicle across four investments and one bolt-on.  These were acquired at valuations below the average for European leveraged buyouts, investor director Marco Tugnolo told PEI. The firm has expanded its team accordingly, including the appointment of Carlo Moser, a former partner at Italian private equity firm Investitori Associati, as investment director in Q4 2018. FSI now has 34 staff operating from its Milan office.

NewView Capital

268 | Burlingame, CA

NewView Capital, which spun out of VC giant New Enterprise Associates, is a direct secondaries firm with a five-year fundraising total of $1.35bn

Most spin-outs involve an element of friction, a sense that a captive team has grown too big for its boots and wants to strike out on its own. This wasn’t the case with NewView Capital.

In December, Goldman Sachs, Hamilton Lane (101) and 18 other investors put up $1.4 billion to purchase 31 direct stakes held in four different funds managed by New Enterprise Associates (70), the world’s largest venture capital firm. At the same time, a team led by general partner Ravi Viswanathan span out of NEA to form NewView, which would manage the acquired assets.

The move was driven by necessity; for a long time NEA has struggled with unrealised investments, in the hundreds, sister publication Secondaries Investor wrote at the time. Many of these businesses could be a great success with more care and capital, two things your typical venture firm is not designed to provide beyond a certain point. NewView Capital is effectively a direct secondaries firm, buying portfolios of private companies from NEA and managing them to exit. According to a source, if successful, the firm will continue in the same vein, buying stakes in companies owned by VC firms that want liquidity as well as portfolio investments “orphaned” by the departure of a sponsor from a firm.

“There’s no reason why you can’t replicate this model with venture fund II, III and IV, eventually across different managers,” says one secondaries source with close knowledge of the deal. “I think it’s their intention to do more transactions like this. They may not be as big, but I think there are opportunities because other funds are struggling with the same problem.”