BC Partners offers carried-interest incentives for proprietary deals with Fund X

  • BC offers better carry to deal teams with proprietary deals
  • New fund expected to close around 6.7 bln euros
  • Fund IX netting 18 pct IRR through June 30

BC Partners changed the way it distributes carried interest to its deal team with its latest flagship buyout fund, offering a greater share of the fund’s profits to team members who lead proprietary deals, a StepStone Group due-diligence document obtained by Buyouts shows.

“Deal teams for proprietary deals sourced at low multiples will be allocated higher amounts of carried interest, while deal teams for intermediated deals will be allocated lower amounts of carried interest,” the memo, prepared for Connecticut Retirement Plans and Trust Funds, says.

BC European Capital X will also penalize the carry of deal teams whose investments generate losses, “which is intended to encourage prudent behavior and reduce investment risk,” according to the memo.

The firm’s partnership group recently constructed an executive committee tasked with, among other things, determining how carried interest from individual deals will be divvied up among the investment team, a source with knowledge of the fund said.

BC Partners in early 2018 is expected to hold a final close on around 6.7 billion euros ($7.95 billion), below its stated target of 7 billion euros, this source said. Private Equity International earlier this year reported a final close was imminent.

While several blue-chip limited partners are poised to commit to the fund, including Connecticut’s state pension and Teachers’ Retirement System of Louisiana, the due-diligence memo obtained by Buyouts noted a handful of significant concerns as the firm prepares its final close.

The memo, which endorsed the firm and recommended a commitment to Fund X, noted the aggregate track record of BC’s current managing partners falls short of that generated by retired or departed partners. The investments sourced by the firm’s current managing partnership group grossed a 1.8x multiple, in aggregate, compared with 2.2x for managing partners who retired or left post-2012.

The firm is led by Co-Chairmen Raymond Svider and Stefan Zuschke, who joined BC Partners in 1992 and 1993 respectively, along with eight other managing partners. BC Partners has a roster of 61 professionals on its investment team, the memo says.

More than 10 managing partners and senior partners have left the firm since 2012. Managing Partners Stefano Quadrio CurzioFrancesco Loredan and Andre Francois-Poncet retired after long careers at the firm, and Andrew Newingtonleft in 2013 and later joined Actis as its chief operating officer.

But the memo also notes that many of the investments made by the firm’s previous generation of leadership occurred prior to the global financial crisis, which had a chilling effect on many track records.

The firm’s recent track record has been dogged by pre-crisis investments made through its eighth flagship fund, which raised 5.5 billion euros in 2005.

BC Partners used roughly 40 percent of that vehicle to invest in consumer/retail businesses that were hurt by the economic downturn, according to the memo. The vehicle was netting a 1.3x multiple and 6 percent internal rate of return through June 30.

The firm has done a better job of sourcing proprietary deals through its most recent fund, a 6.5 billion euro 2011 vintage, the memo shows. That’s reflected in the vehicle’s investment performance, which was marked as netting a 1.6x multiple and 18 percent IRR as of June 30.

BC Partners was founded in 1986 and specializes in European buyouts.

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