Capital Dynamics is reaching into the United Kingdom with its recent acquisition of Westport Private Equity. The transaction also establishes Capital Dynamics, which already has toeholds in the United States and Switzerland, as a clear leader among European fund-of-funds.
No deal terms were disclosed. But prior to the sale, Westport had about $2.5 billion of capital under management while Capital Dynamics managed about $2.8 billion in assets.
“We’re hoping this sends a certain signal to the market,” says Thomas Kubr, chief executive of advisory firm. “We’ve built a significant business on the continent and in North America, and expanding into the U.K. was always part of our strategic plan.”
Capital Dynamics acquired Westport from Man Group. Through the purchase, Capital Dynamics received just north of 70% of Westport, and Man Group will retain the balance. Eventually Capital Dynamics will gain full control, and has mapped out a two-year plan in which it will buy the remaining 30% from Man Group.
Westport represents a fit for Capital Dynamics with relatively little overlap. Westport’s network in the U.K. among pension funds, endowments and banks complements Capital Dynamics’ exposure to the insurance industry.
Among the more notable LPs Westport has served are the Greater Manchester Pension Fund, Merseyside Pension Fund, Bank of England, Caisse des Depots, Manor AG and the European Investment Fund. Capital Dynamics, meanwhile, has pursued mandates from such names as AIG and Prudential Financial.
Also, at a time when relationships can take precedence over anything else, the combined company now has associations with over 150 different fund managers, and the deal almost doubles Capital Dynamics’ size to a total of $5 billion of invested capital.
In describing the firm’s allocation, Kubr said the vast majority of the capital that goes through Capital Dynamics finds its way into the funds of buyout investors. He specifies that between 70% and 85% of the capital goes to LBO firms while the balance is split between mezzanine and venture capital. However, he did note that this allocation always depends on the desires and requirements of the entity whose portfolio they’re advising.
With the funds-of-funds market as crowded as it has ever been, a number of players in the space have made moves to separate themselves from the pack. Hamilton Lane, for one, merged with hedge fund advisory group The Richcourt Group at the end of last year, while Russell Investment Group recently acquired Pantheon Ventures; and Lehman Bros. purchased The Crossroads Group in 2003.
Even as Capital Dynamics and other gatekeepers grow in size and influence, don’t expect this power to necessarily go to their heads. “Yes, we have a substantially larger base, but I don’t think we’re of the size where we can wield power enough to cut fund terms or anything like that,” Kubr says. “Besides, we’re not interested in a power game. We have good relationships and we wouldn’t want to hurt that.”