Capital Venture Partners (Capvent) has launched its second fund-of-funds, Capvent Global Private Equity II, which will invest in private equity funds no larger than $300 million. The Zurich-based manager is looking to raise $400 million.
The decision to focus on funds in the range of $50 million to $300 million is based on research carried out by the firm suggesting multi-billion funds are no longer the best bet for high returns. Recently, at EVCA’s annual investors conference in Geneva, David Swensen, chief investment officer at Yale University, also spoke of what he sees as the increasing complacency of the larger funds. He cited the size of management fees on mega-funds as a negative influence, as they are now so large that there is little incentive for general partners to earn carry on investments. Swenson fears the investment managers of these funds will instead opt for “safe” later stage investments, which are less likely to produce lucrative returns and will not jeopardise management fees.
The new fund-of-funds’ investment target is a diverse range of experienced buyout and venture funds, focused by sector and geography. Capvent feels this group of funds has been neglected by investors and intermediaries as private equity allocations have risen, meaning small funds were below the radar of investors or else such comparatively small commitments were not viewed as efficient. Varun Sood, Capvent director, says: “Investment in private equity is all about diversification in order to obtain consistent results. This product is meant mainly for sophisticated institutional investors who already have exposure to private equity, and would need further diversification and opportunities to add value in the face of uncertainties linked to their investments in larger funds.”
Sood, who will soon be opening the firm’s London office, believes super-sized buyout funds face a number of problems. Uninvested capital is mounting up while exits for investments that have been made are not forthcoming. Investors are also beginning to question the ability of fund managers, some of which have strayed from their key competencies, to run funds that are many multiples the size of their previous fund.