Electra moves up the risk curve

After raising its latest fund in just three months, Electra Partners’ Nigel McConnell talks to IFR Buyouts about institutional demand and the need to take on more risk in order to maintain returns.

For established teams with a strong track record, the fundraising market has returned to pre-technology crash levels, as witnessed by Electra’s recent experience. “We put the prospectus out in May and effectively closed our fund at the end of July, with 80% of the money coming from existing investors,” says McConnell. “The LPs in our first fund wanted €1bn, so we went to talk to about 10 other investors for the rest of the capital. It was quite simple really, the new institutions were people we had talked to when we were raising Fund I.”

McConnell contrasts the experience of raising capital for what he considers to be a “niche” investor against the fundraising process adopted by the mega-buyout funds. “It is a very different strategy to the larger funds that are constantly trying to develop new pools of capital,” he says.

“When you are a niche firm like us, you can target the clients that you want to approach. We want people that feel most comfortable with the business that we are in, and we didn’t want to do a mail shot around to people, get vastly over-allocated and then have to turn down some very good investors. All of our existing investors got the allocation that they wanted.”

In contrast to the criticism levelled at some of the larger groups, the fund size for Electra’s latest venture was strictly limited, says McConnell. “The €1.25bn limit was a self-imposed hard cap, in the last fund we invested in 14 companies, with this one we want to invest in 12 companies over a period of four years, we did not want to lose any of our investment discipline by raising a much larger fund.”

McConnell says that increased competition across the European market means that the group will have to target more aggressive situations if it is to maintain its returns.

“We have tried to do more risky situations with the first fund and we will look to be even more aggressive and active with this one,” he says. “Because of the amount of players around, if you are going to compete in auctions for nice clean deals, the hit rate is such that you have to have one hell of a lot of deals in the hopper just to spend your money. We want to do a limited amount of deals that most in the market would shy away from, we want to tighten up our sector focus and give our investors the exposure that they want.”