Pomona Closes Fund IV, Eyes European Secondaries

US-based secondaries specialist Pomona Capital in mid-January closed Pomona Capital IV on $203 million (euro 180 million) and announced the establishment of a European office in London.

Since its launch in 1994 with funds of $45 million, Pomona Capital has grown its capital under management tenfold. The group’s primary focus is the purchase of interests in quality private equity funds from limited partners seeking pre-term liquidity, but it also manages a $50 million fund-of-funds, raised in 1997, which takes primary partnership positions. The vehicle has invested in ten funds to date, the majority of them managed by groups where Pomona is an existing secondaries investor.

Although Pomona has to date focused principally on interests in US partnerships, recognising the greater development and maturity of the US market, the group has also acquired a handful of positions in non-US funds. Now, recognising an increase in the number of European limiteds selling US and European fund interests, Pomona is positioning itself to address this growing market segment.

Brian Wright, formerly with Hambros Bank and Schroder Ventures, has returned to the UK to establish the London office after a spell with Pomona in New York. The European secondaries market is developing in parallel with the spectacular recent growth and increasing maturity of private equity in the region. “Consequently, Pomona recognises the need to build an infrastructure to ensure it can carry out the same quality of due diligence here in Europe that it does in the US”, Brian Wright explained. “I’m here initially to survey the market and identify what is required to cover all bases, and to increase European awareness of the Pomona name and products”.

Pomona launched its fourth fund in mid-1998 with an original goal of $175 million, but strong appetite, particularly from existing investors, took the vehicle over target. Even at its increased size, Pomona encountered “more interest than it could accommodate”, according to chief executive office Michael Granoff.

Investors in the current fund, 90% of whom have participated in previous Pomona vehicles, include the Massachusetts Institute of Technology, BancBoston, the Baupost Group, the Rothschild family, Memorial Drive Trust, Syracuse University, Wilmington Trust, Bank Worms, Michael Steinhardt, Gilbert de Botton and Warren Hellman.

Prior Pomona Capital funds have acquired interests in more than 50 funds, among them vehicles managed by Blackstone Group, Clayton, Dubilier & Rice, Warburg Pincus, Sevin Rosen, Kleiner Perkins Caulfield & Byers, TA Associates, OakTree Capital management and Mayfield Partners.

The 20% of Pomona Capital IV invested to date has acquired interests in US funds from groups including Apollo Advisors, Blackstone Group and Bruckman, Rosser & Sherrill, but its ultimate portfolio is also likely to contain positions in premier European partnerships.

As well as developing a European business, Pomona is seeking to broaden its geographic reach into the Asian market, with a principal focus on Japan. Last year, Marshall Parke, a former associate of Lexington Partners and the founder of Manistee, a Thai investment bank, joined Pomona as a director to source investment opportunities in the region.

Pomona plans to raise a second fund-of-funds from primary investments during 1999, which will have the capability to invest in European, as well as in US, vehicles.

ProVen Broadens Focus To Exploit Healthcare Niche

Venture funds focusing on the Mid-Western US are few and far between, in stark contrast to the concentration of capital targeting early-stage technology businesses on the East and West coasts.

Prompted by the relative dearth of funding sources in the Mid-West, together with the thriving healthcare sector in the region, ProVen Private Equity of the UK has teamed with strategic partner GMA Capital of Detroit to launch The Investcare Products Fund, which is targeting $100 million (euro 90 million) for investment in Mid-Western healthcare businesses.

At the beginning of February, The Investcare Products Fund was well on the way to its target, having closed $45 million. Director Malcolm Moss said ProVen is “reasonably confident” of taking the fund to its target level by the end of April.

“The fund has been well received here”, said Malcolm Moss. “We chose the Mid-West because there is such a shortage of venture capital here despite the fact that Michigan, where our US office is located, is the eighth largest state in economic terms and is currently enjoying a boom, with one of the lowest unemployment rates in the US”. Although there are seven other funds based locally, none specialises in healthcare, so the ProVen fund is positioned to benefit from better deal flow and less competition than it would encounter elsewhere, Malcolm Moss said.

The Investcare Products Fund will provide later-stage growth capital, concentrating on companies that are, or soon will be, profitable. Malcolm Moss said the fund will focus on three specific areas of interest: infomedics, outsourcing and medical devices. Infomedics – the application of information technology for healthcare providers – encompasses software design to wireless technology, remote scanning and information access systems. The infomedics sector offers considerable potential for growth because hospitals and other healthcare providers, which have tended to be relatively slow adopters of IT, are now facing cost squeezes and are therefore looking for more efficient ways to handle information.

The greater emphasis on cost control among medical institutions is also driving development of the outsourcing sector as hospitals increasingly subcontract services – ranging from laundry and catering to radiology – to external providers.

For its medical devices investments, ProVen expects the fund to benefit from its proximity to the University of Michigan, a leading-edge research centre in a number of medical fields, particularly oncology, and an active supporter of the formation of spin-out enterprises.

GMA Capital, which has operated in the region since 1988, has built an extensive network of contacts and enjoys strong proprietary deal flow. Malcolm Moss pointed to GMA’s track record in negotiating realisations as a further advantage of the strategic partnership.

Marketing for the Investcare Products Fund has so far focused principally on its target investment region. Approximately half the first closing total was committed by the Oakwood and Botsford hospitals and a further 15% to 20% came from private investors, Malcolm Moss said. Two unnamed institutional investors have also signed up for the fund, and ProVen reports strong continuing interest in the ten-year-life vehicle.

ProVen set up its US office following its own buyout from Guinness Mahon Holdings in the spring of 1998. ProVen is best known for its Global Rights Development Funds and their interest in the intellectual property rights of, among others, Thomas the Tank Engine and Basil Brush. Although The Investcare Products Fund is the first medical fund raised by the current team, they are experienced in managing healthcare investments, having inherited a portfolio containing several 1980s medical sector investments from an earlier Guinness Mahon team. Malcolm Moss also has a healthcare background, having joined Guinness Mahon from Baxter in 1989. “We initially focused on media investments, but it has always been our intention to raise funds in areas where we have the expertise to exploit niche opportunities”, Malcolm Moss explained.