HSBC Boosts Partnership Scheme to GBP700 Million

HSBC Private Equity has secured its membership of the “billion-dollar-plus” club of European private equity players following an enlarged allocation from its parent bank and a “significant” commitment from an unnamed major US corporate pension fund.

The US pension’s commitment boosted the HSBC Private Equity Partnership Scheme, a co-investment pool initiated in 1994, to GBP700 million (ecu 1.04 billion). HSBC Group, which matches external commitments pound for pound under the scheme, has increased its initial allocation by GBP100 million to GBP350 million. Three institutional clients came into the scheme at its launch. Since then, HSBC Private Equity has steadily added new clients, with the aim of building a strong, long-term funding base. The signing of the US institution brings the total participants to seven. HSBC Private Equity director Vince O’Brien who, together with managing director Ian Forrest, has handled the fund raising, expressed satisfaction at “the good mix of investors” the group has signed up. These include three large pension funds – two in the UK and one on the Continent – one European, one Middle Eastern corporation, a major UK insurer, as well as the US pension.

Rather than being structured as a single fixed life LP, the Partnership Scheme has a five-year commitment period with a review after three years for each individual participant. The beauty of such a structure is that it obviates the need for periodic, concentrated fund-raising exercises – not so arduous in the current climate, but a soul-destroying task at the time the scheme was launched – enabling the private equity manager to concentrate instead on building long-term relationships with a smaller group of major clients, and to add to its client base from time to time as appropriate.

Since the inception of the scheme three years ago, HSBC Private Equity has maintained a spend rate of around GBP100 million per annum. Going forward, the group is targeting an investment rate of between GBP100 million and GBP150 million a year. At the three-year review point, the original participants in the scheme, satisfied both with the rate of investment and HSBC Private Equity’s performance, have decided to take their commitments evergreen: their share of realisation proceeds will henceforth be reinvested so long as their net cash exposure does not exceed their original combined commitment of GBP167 million. Vince O’Brien said that so far, GBP150 million of their commitments had been spent, 80% of which has been returned and is now available for reinvestment.

HSBC Private Equity invests throughout Western Europe, with its current markets of choice on the Continent, according to Vince O’Brien, being Germany, France, Italy and Scandinavia. Outside the UK, it concentrates solely on larger deals such as the CHFr 159 million (ecu 100 million) buyout of Schaffner Electronik and the FFr 630 million (ecu 95 million) buyout of Manoir Industries. In the UK, it is active both in the mid-sized and larger deals markets: its latest investment was the o145 million recapitalisation of AM Paper.

Next year, HSBC Private Equity will celebrate its 30th anniversary. Managing director Ian Forrest commented that the expansion of the co-investment scheme marked an important milestone in the group’s development and added “HSBC Private Equity’s “strong European presence, combined with our long-term funding base and backing of the HSBC Group, ensures that we are excellently placed for the future”.