F&C achieves first close on European private equity fund of funds

F&C Investments has successfully launched a new private equity fund of funds with a European mid market focus, providing further evidence of the group's strategic drive into more specialist investment areas.

The new fund, F&C European Capital Partners LP, has just held a first close at €112m (£77m) and it is expected that a final close will be held later this year with total commitments in excess of €200m. Initial investors in the fund have come mainly from the UK and the Netherlands but F&C, which has a strong presence across Europe, expects this to broaden further. The latest launch builds on the success of the F&C Private Equity Trust plc, a £140m listed fund of private equity funds, also managed by the team.

The fund is managed from F&C's Edinburgh office which has been developed as the group's centre of excellence for private equity funds of funds since the transfer of a specialist team from Martin Currie to F&C in June 2005. The five-strong team, which is headed up by Hamish Mair and includes Neil Sneddon and Richard Nairn, has a strong track record in the private equity fund of funds market with an Internal Rate of Return (IRR) of almost 30% over the last six years in its European investments.

Hamish Mair, Head of Private Equity Funds at F&C, explained the rationale for focusing on the European mid market: "The European mid market, which is defined as private companies with enterprise values of between €50 and €500m, is a very broad and inefficient tier of an expanding asset class. There are literally thousands of companies in this size bracket across Europe that could benefit from private equity finance."

"Through F&C European Capital Partners LP we will access a wide range of opportunities via a number of locally based experts and others who operate on a Pan European basis. We will also be backing several emerging manager groups. We have found that the alignment of interest between private equity managers and investors is especially strong with emerging groups.'

Mair explained that F&C European Capital Partners LP will have a portfolio of upwards of 20 funds covering buy-outs and mezzanine. It will also invest up to 30% directly into private companies, mainly in deals led by European private equity specialists known to F&C.

Commenting on the developing portfolio, Mair notes: "We have seen a strong pipeline of good quality funds and co-investment opportunities. We expect the fund to be fully committed well within the three year investment period. It is noticeable that the pricing of private equity deals in the mid market continues to offer good prospects of excellent long term returns'.

The fund has an innovative structure incorporating a feeder fund that invests into listed private equity vehicles providing investors with immediate exposure to the private equity market. As the underlying fund and co-investment portfolio builds up the listed portfolio will be gradually sold down. This structure has proved popular with investors who find the multiple draw downs of a conventional LP structure cumbersome. Unusually the fund is also able enhance returns through the selective use of borrowings with the ability to gear up to 30% of total portfolio value.