The race to become Europe’s first $100bn private equity firm is accelerating as the recent fundraising boom shows little sign of abating.
Some of the largest European investment firms, including Ardian, Partners Group and CVC Capital Partners, are closing in on $100bn in assets under management after raising some of their largest-ever funds in recent years and launching new investment strategies in areas such as infrastructure, credit and real estate.
Their rapid growth from single-fund private equity shops to multistrategy asset managers comes as the asset class has matured from a cottage industry 20 years ago to one attracting hundreds of billions of dollars annually from some of the world’s largest institutional investors.
But the rapid growth of these firms in recent years also raises questions about whether firms are expanding their teams and building out the infrastructure sufficiently to keep pace with their ballooning assets. It also prompts concerns over whether such growth threatens future returns.
Money flooding into the asset class in Europe is concentrating in the hands of fewer firms, much like the US market. New York-based Blackstone Group, for example, manages nearly $500bn, ranking it as the largest firm by assets.
“You have this overriding theme among investors of more to fewer,” said Adam Turtle, co-founder of placement agent Rede Partners. “We see this market as a kill-or-be-killed one. There is plenty of liquidity around, but it isn’t a case of a rising tide floats all boats.”
Paris-based Ardian, established in 1996 as the captive private equity arm of French insurance conglomerate Axa, leads the pack of European managers closing in on the $100bn mark.
Twenty years after completing its first deal, the firm manages $82bn on behalf of its investors — a figure that has more than doubled since 2013.
Ardian is seeking an additional $25bn in new cash across its various investment strategies, including a flagship buyout fund and a global secondary fund, as well as separate vehicles focused on North American buyouts, private debt and European infrastructure, said people familiar with the matter.
Meanwhile, Ardian’s Swiss rival Partners Group, Europe’s largest listed private equity firm, has turned itself into a fundraising machine after switching its investment focus a decade ago from backing private equity funds to making direct investments.
The firm, which manages some $78bn, predicts it will collect as much as €14bn ($15.9bn) from its backers in 2018, according to its annual results presentation. The cash raised in 2018 doesn’t include any of the firm’s flagship strategies, some of which are likely to return to market in 2019, said people familiar with the matter.
London-based CVC, the former backer of motor-racing operator Formula One, is another candidate that could join the $100bn club, although perhaps a bit later than the others. The firm managed some $69bn in assets as of September 30 after collecting €16bn in 2017 for the largest buyout fund ever raised by a European private equity manager.
CVC is seeking $1.5bn for its sophomore growth fund; another €5bn for a fund that can hold assets for longer than 10 years; and at least $4bn for a fund to buy Asian companies, said people familiar with the matter.
Increasing assets under management by moving into new markets means private equity firms stand to enrich themselves by boosting the fees they receive from investors.
Buyout shops typically make cash by taking a slice of profits from successful investments as well as by charging a 2% fee on the money they manage.
The decision to move into different investment strategies has prompted a mixed reaction from some investors. Some see it as an opportunity to put large sums of money to work with a manager they know and trust; others as an excuse to increase the money they make in fees.
“Managers diversifying into other types of strategy is partly a function of the surplus of investor capital,” said Christiian Marriott, a partner who heads investor relations at Equistone Partners Europe.
“The question that LPs [limited partners, or investors in private equity funds] will be asking is whether a manager has the infrastructure and expertise in place that provides a competitive edge and justifies moving into a new strategy for reasons other than simply growing their assets.”
Source: FN London
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