4th June 2020
Since a large part of the world entered lockdown earlier this year, the general consensus is that fund managers have been busy reviewing existing portfolios. Based on this analysis they have been implementing appropriate changes to both investments and their own operating platforms. As a result, Limited Partners (LPs) stopped underwriting new commitments, fund managers pressed pause on new investments, and the focus was quite rightly on future cash flows.
However, many managers that were already mid-fundraise have maintained momentum. Our analysis shows that they broadly fell into two groups. 1) Best in class new managers who were very near to first close and where LP due diligence was largely complete. 2) Best in class existing managers. Being “best in class” might seem obvious but a common theme in both subsets was that there were no legacy issues with existing portfolios, either because they were new businesses, or because they had bought wisely in earlier funds and therefore had the bandwidth to progress as normal, or even accelerate timetables.
Recent examples we have worked on include, Yoo Capital which held a first close of YCFII, giving them £200mn of new capital to deploy, predominantly in central London real estate. We also held closes for two Luxembourg real estate funds managed by a Boston based sponsor, as well as a first close for one of their US domiciled feeders. Meanwhile in Jersey, Paloma Capital hit their hard cap to invest in urban logistics in the UK.
In private equity, we have seen sector specific funds continue to raise successfully, with several closes going ahead in the past few weeks. Technology and healthcare are obvious benefactors of the existing environment. In early May, we worked with a London based sponsor to close their latest Luxembourg fund, which invests in growth stage technology and tech enabled business in Europe. Elsewhere in Luxembourg, we held a first close for another fund managed out of London, which will invest in industrial companies, primary in the UK. In Guernsey, Eos Venture Partners closed with fresh capital to invest globally in early and growth stage insurance technology. In the UK, Balance Legal Capital held a final close for their first multi-investor litigation fund. And on the other side of the pond in the US, we have closed several new funds including Activant Capital, who successfully raised $257mn to invest in high-growth companies in the e-commerce infrastructure and payments sectors.
Looking forward, our view from the market is that almost 50% of LPs are now tentatively open for business, especially for family offices but also in the pensions and insurance sector. This is a contrast to March, when 75% of LPs were pausing their investment programmes as they sought to rebalance portfolios and conduct thorough risk analyses on their allocations. We expect to see “distress” based strategies gain popularity, alongside a rise in credit funds, although it may take some time for this distress to translate into realisable opportunities. Despite remote working becoming the norm, it seems we are still not yet at the point of new investments getting underwritten without a physical meeting.
In summary, it certainly feels that there has been a mind-set shift over the past few weeks, and people are beginning to look ahead at where the opportunities may lie. We remain optimistic about the private funds industry, and we, like many others, expect to see an increase in activity levels in the second half of the year as lockdown restrictions begin to ease.
Langham Hall is an award-winning provider of Fund Administration, Depositary and AIFMD services to global fund managers. To hear more about how we can help, whatever the requirements, please get in touch with a member of our team.