– Foreign & Colonial broadens appeal

Foreign & Colonial Ventures Capital Partners V has closed on GBP183 million ($295 million), marking a triumphant return to the LP fund market for UK mid-market specialist Foreign & Colonial Ventures (FCV).

At the end of last year, FCV set out to raise GBP100 million ($170 million) for the classic’ development capital and smaller buyout fund. Because one of the firm’s key objectives was to expand its investor base beyond a traditional constituency dominated by UK institutions and investment trusts, FCV appointed Helix Associates as placement agent. The decision appears to have paid handsome dividends. Director Rod Richards reports that the fund attracted enough investor interest to have closed on more than GBP300 million ($489 million), had FCV felt confident of deploying a vehicle of that size. Equally satisfactory from FCV’s point of view is the composition of the fund’s investor group. Capital came in roughly equal measure from UK, continental European and US investors, although FCV had previously raised little money in the US and none at all on the Continent. Named investors include Goldman Sachs, Liberty Mutual and the State of Wisconsin from the US; AGF, Swiss Re and Banque Vontobel from continental Europe; and Abbey National, Commercial Union, Equitable Life and the Wellcome Foundation from the UK.

F&C Enterprise Trust (FACET), an FCV-managed investment trust, has allocated around GBP80 million ($130 million) for investment in a 30:70 ratio alongside the new fund, taking the total pool to GBP260 million ($419 million).

FCV defines the middle market’ a little more narrowly than most of its peers: the new fund is targeting firms with a maximum capitalisation of GBP50 million ($80 million), but will concentrate primarily on deals in the GBP20 million ($33 million) and under range.

“We reckon it’s easier to make money on deals below GBP20 million,” says Richards. “Going much above that level, the market is very competitive. “

FCV Capital Partners V can theoretically deploy as much as 25 per cent of its capital outside the UK but Richards says that in practice, FCV expects to invest no more than 15 per cent on the Continent. Continental investment opportunities are more likely to come through existing channels – FCV has a long-standing relationship with CCF Charterhouse in France, and may also see deal flow from Hypobank, Foreign & Colonial’s German parent – than to be sourced proactively, he adds.

Historically in the UK, larger buyout funds have delivered better returns than development capital/small MBO vehicles. FCV, however, has a track record of delivering larger deal’ performance from a mid-market portfolio. The group has generated a 44 per cent IRR on all its investments since 1990, while realised transactions have delivered a 53 per cent IRR during the same period. FCV is currently investing between GBP50 million ($80 million) and GBP60 million ($98 million) per annum, a rate that Richards says could well increase as the group begins to deploy the new fund.

In parallel with the launch of the new fund, FCV has negotiated a new agreement with its parent, which Richards says guarantees the management’s autonomy’ as well as delivering a remuneration package in line with market standards.