ESP Finds First Closing, After Re-Tooling Format –

Standard Life Investments early this month held a first closing for European Strategic Partners (ESP), the fund-of-funds it launched last November with a euro 1 billion ($1.05 billion) target.

The euro 475 million first closing total includes a euro 375 million commitment from parent company Standard Life, which is participating as an ordinary limited partner. Eight other investors from France, Germany, Scandinavia, the U.K. and the U.S. also have signed on, according to Jonny Maxwell, head of Standard Life Investments’ private equity group.

However, the format for ESP has undergone changes since initial plans for the fund-of-funds were announced last spring.

The vehicle was the first fruit of a strategic partnership between Standard Life Assurance Co. and Hamilton Lane Advisors of the U.S., a leading global private equity manager and investment adviser (BUYOUTS March 23, 1998, p. 4). Initially, Standard Life Investments and Hamilton Lane were to have had equal representation on ESP’s investment committee.

Investors Urge Revision of Approach

A number of European institutions, however, “were unclear as to what Hamilton Lane was bringing to the party where European fund investments were concerned,” Hamilton Lane chairman Leslie Brun explained. Reflecting these concerns, Standard Life Investments and Hamilton Lane refined the product to meet market requirements.

The ESP committee now will comprise Maxwell, together with directors David Currie, formerly of the Abu Dhabi Investment Authority, and Peter McKellar, who will join Standard Life Investments’ private equity group in October. Hamilton Lane, meanwhile, will continue to provide operational advice and support on a fee basis.

The new operational basis for ESP seems to make good sense: the SLI Private Equity principals between them have deployed around euro 1 billion, primarily through investments in European funds, building up considerably more experience in the region than U.S.-focused Hamilton Lane. Hamilton Lane, meanwhile, has more experience managing capital for third-party investors.

Standard Life’s Maxwell said market feedback had prompted his group to make other adjustments to the vehicle including changing it to a euro-denominated structure from a dollar-denominated structure and limiting investments in Eastern Europe and the NIS markets to 5% of the fund rather than the original cap of 10%. The group also has entirely ruled out non-European investments, which previously could have comprised as much as 10% of the fund. The unusually large allocation for direct investments, which may comprise a maximum of 40% of the fund, remains unchanged.

SLI Private Equity expects to finalize its first fund commitment and to complete its first direct investment in the next month, Maxwell said, adding that another direct and three further fund investments are in the pipeline.

Pending the closing of ESP, Standard Life has put new private equity investment activity on hold and concentrated on realizations. During its 10-year lifetime, ESP will be the sole channel for Standard Life’s new private equity investments.