In September Catalyst Fund Management & Research celebrated its fifth birthday, launched its second financial services fund and was joined by Tim Farazmand and Stewart Binnie.
Farazmand was a key member of Royal Bank Private Equity’s team, which had been significantly built up following the bank’s acquisition of NatWest and the sale of that private equity portfolio to Coller Capital (managed by Bridgepoint Capital.) Farazmand joined Royal Bank Development Capital (RBDC) in 1994 from 3i. His remit was to be part of the core team setting up RBDC’s London office. Farazmand says he is “relishing the challenge” that Catalyst presents and is looking forward to getting on the fund raising trail with Rod Schwartz, Catalyst’s founder. Schwartz looks after the fund raising, investor relations and research side of the business and Farazmand takes over from Alice Todhunter as chief investment officer.
The fund raising process for financial services fund II got under way in the spring of 2001 but by last autumn it was placed on hold when Todhunter left the firm for purely personal reasons.
The fund raising market has not improved since last autumn but Schwartz is reasonably optimistic given the firm’s predominance of institutions that committed to the first fund for strategic as well as return reasons. For the most part those strategic investors were financial institutions and Schwartz hopes to widen that net to incorporate some strategic technology investors since the first financial services fund was weighted in favour of technology solutions for the financial services industry.
Fund I, which is 20 per cent uninvested, put its capital to work predominantly in early stage investments. Farazmand, who won the British Venture Capital Association sponsored MBO of the year 2001 award for his investment in igroup, a UK provider of non-conforming mortgages, expects to put his later stage and buyout expertise to work on the new fund. This may extend to the first fund, which with GBP8 million to spend could make a further two investments.
Schwartz says of investment prospects for the new fund: “In the next three or four years a lot of the mergers that have taken place are going to unravel because a lot of banks and insurance companies are suffering digestion.” It’s unlikely that Catalyst, with a target of between GBP40 million and GBP70 million for fund II, would be interested in large spin-offs, although Farazmand does not rule out co-investing alongside an LBO house.
Schwartz is also conscious that the competition for investing in this space in Europe has fallen away as markets have becoming increasingly tough over recent months. Once such closure was Schroder Finance Partners, which was run by Stewart Binnie out of London. It is the same Stewart Binnie that will chair the advisory board for Catalyst’s financial services fund II. Following Schroder Finance Partners’ closure Binnie was briefly involved in a financial services focused fund in Spain – see EVCJ March 2002, p9.