There has been a marked change among some funds looking to raise capital in recent weeks, according to one fund expert in Europe.
Adam Calman, principal and head of Europe at consultants The Townsend Group said some groups had been able to acquire assets – whether debt or equity investments – at values that have since risen. They then offer investors a chance to invest in the fund at cost-plus-carry giving investors an immediate “value uplift”.
The advantage, said Calman, in acquiring pre-specified assets is it gives investors an immediate “positive spike” in the net asset value upon the first valuation of assets in the fund. It also offsets the effects of the J Curve, so-called because typically in an opportunistic fund, returns do not come until a few years into the lifetime of the vehicle.
Calman said fund managers allowing LPs to share in the valuation uplift of assets already held on a GP’s balance sheet was in keeping with the current swing of the “pendulum” to seeded vehicles versus blind pool funds.
“We would certainly like to see such situations and are happy to pay a carry charge, but this charge should equate to the sponsors’ actual cost of capital, not the hurdle rate, as was often the case in the last cycle,” he said.
Calman added it was typically only larger sponsors who could offer investors such “uplifts” because smaller groups would not have the capital to warehouse assets. “The bigger groups are also aware that in attracting capital in this way, they are able to build platform success and grab market share in a tough environment, ahead of their smaller competitors,” he added.
He said investors still needed to be cautious, but offering this style of “inducement” might go some way to repairing the faith and confidence in management teams.
“GPs need to be more creative about how they display their funds to investors because the standard PowerPoint and PPM only go so far in terms of differentiation,” he said.