It’s one in, one out on the fund-of-funds scene at the moment, with AIG Private Equity winding up and Deutsche Bank rolling in with the €1.3bn acquisition of Sal. Oppenheim.
As of June 30, Sal. Oppenheim Group had approximately €5bn in assets under management in its funds-of-funds business, out of €135bn in total client assets. As of the same date, the private equity group in Deutsche Bank’s own Private Wealth Management division, with 20 professionals in New York, Singapore, and Zurich, managing more than US$3bn.
The acquisition of the group, including holding company Sal. Oppenheim Private Equity Partners SA, is expected to close in Q1 2010, subject to approval by the respective regulatory and anti-trust authorities. Decisions concerning new management structures and governance will be made and communicated in due course.
Stefan Krause, CFO of Deutsche Bank, explained in a public analyst call following the announcement of the deal that he sees a very good fit between the two private equity businesses, as well as potential for further development of Deutsche Bank’s private equity platform.
Back in the fray
The transaction marks a significant boost to Deutsche Bank’s private equity business following a pull-back. From 2002 to 2006, the bank reduced its private equity exposure significantly as part of a restructuring to focus on its core businesses.
According to the bank’s 2006 annual report, private equity assets under management fell in 2002 from €4.9bn in direct investments and €1.8bn in fund investments to €300m in direct investments and €200m in fund investments in 2006.
An attempt by Deutsche Bank to boost its efforts in advisory work by taking a minority stake in Aldus Equity in early 2007 ended badly this year when the founder of the firm pleaded guilty to participating in a kickback scheme involving the New York State Common Retirement Fund. Deutsche Bank ended up selling its stake back to the firm.
The private equity group of Deutsche Bank’s Private Wealth Management division raises money from wealthy individuals and select institutional investors. The programme is designed to offer access to top-tier private equity fund managers across various geographies, industry sectors, investment styles and vintages, as well as to direct co-investment opportunities.
Leaving it all behind
Swiss Exchange-listed APEN, which changed its name from AIG Private Equity in June this year, is the latest listed funds-of-funds casualty in Europe to announce a long-term winding down of activities.
The business has ceased all new investment commitments, other than funding capital calls from existing funds and follow-on investments in current direct investments. It is likely that the remaining holdings will be sold on the secondary market.
APEN was originally set up in 1999 by AIG Private Bank Ltd. (a subsidiary of AIG Inc. at the time) to invest in and manage a diversified portfolio of private equity funds and privately held operating companies. The business listed on the SIX Swiss Exchange in October 1999. Total assets under management currently amount to approximately CHF533.6m (US$529.3m) in 60 private equity funds and 18 direct investments.
Over the last nine months, APEN has reduced its outstanding unfunded commitments from approximately US$670m to US$350m through the complete or partial sale of a number of its international portfolio funds. The business intends to further reduce these unfunded commitments over the next 12 months through further sales.
In July, APEN signed contracts with various buyers for the sale of holdings in some of its international funds including Advent International VI, Ares III, Affinity Asia Pacific Fund III, Apollo VII, Carlyle V, Charlesbank Equity Partners VI, FountainVest China Growth Capital Fund, Mid Europa III, Olympus Growth V, Sovereign Capital II, Terra Firma Investments III, and Towerbrook Capital Partners III. In total, these divestitures freed the company of CHF152.5m of unfunded commitments.
Among some of the more prominent international third-party fund holdings that remain in APEN’s current portfolio are Carlyle Europe Partners II and III; Carlyle Japan Partners II, CVC Capital Partners Asia Pacific II and III, CVC European Equity Partners, Cognetas, EQT V, Lexington Capital Partners IV and VI and Sovereign Capital II.
“We had liquidity issues because of an over-commitment strategy and lack of distributions,” said Conradin Schneider, vice-president investor relations of APEN, explaining what has led to the ultimate winding down of the business. “Our whole strategy is now driven by value creation.”
As part of a further restructuring of its business, APEN on October 27 secured total financing of US$225m from Fortress Credit Corp., an affiliate of Fortress Investment Group and a Swiss bank. The transaction will provide the business with additional funds to finance future capital calls, repay its existing credit facility and reshape the portfolio to reduce undrawn fund commitments.
APEN’s Swiss competitor shaPE Capital AG is another listed fund-of-funds that has also recently announced the implementation of a realization strategy designed to return the value of its portfolio to shareholders with the eventual plan to delist the company over a 10 to 12-year period.