The amount of money pouring into private equity is a concern for CVC’s investor relations head
Speaking at the British Private Equity and Venture Capital Association’s annual conference on October 6, Marc St. John, a partner and head of investor relations at CVC Capital Partners, told a panel discussion that private equity fees will also need to come down.
“It’s a very expensive asset class, every time we raise a fund we have to justify the returns. And if we can’t do that – and as I said, a lot of GPs have had difficulty with that following the financial crisis – you are going to have lower your prices.”
St. John expressed concern about the vast amounts of money that investors are trying to invest in private equity, which he called “scary”.
On October 5, FN reported that Apax Partners was nearing a final close on its new global buyout fund at a $ 9 billion upper limit. A person familiar with the matter said Apax IX was around $ 2 billion oversubscribed.
A host of other big names have found themselves in similar positions this year. In March, Advent International raised $ 13 billion for its latest fund after exceeding a $ 12 billion target. The firm had over $ 20 billion in demand, FN reported at the time. Meanwhile, London-based Cinven, which closed its latest fund on €7 billion in June, could have raised twice its target.
While not referring to a specific firm, St. John said: “Where is the capital going to go?”
He pointed to CVC’s Strategic Opportunities Fund, which holds companies for longer and targets lower returns than a typical private equity fund, as an example of how the firm was trying to manage money in this environment.
The fund raised $ 5 billion from only five investors, which St. John said had approached the firm saying “I have more capital and I don’t know what to do with it and I can’t find enough managers. Can you do something with this?’”
He added: “We raised the [upper limit] cap twice. And we still had [people] knocking on the door [wanting to give us more money].”
CVC is expected to start raising its next flagship buyout fund early in 2017.
St. John said: “What scares me is the fund we are going to raise in the next six months. I met people who put $ 150 million in our last fund who will want to put in $ 500 million. Or people who I have never even [met who say] we want to put $ 500 million in your fund.”