European LP briefs, October 2013

Nordic pledge takes TCDRS up to European target

A $20 billion state pension fund in Texas rounded off a summer of European private equity shopping with a €40 million ($53 million) commitment to Nordic Capital Fund VIII.

This followed July commitments of €40 million to London-based CVC Capital Partners’ sixth fund and €22 million ($29 million) to HIG Europe Capital Partners II.

Texas County & District Retirement System (TCDRS) is now closing in on a target allocation of 1.5% of fund assets to non-United States buyout funds, having been at 1.4% in June.

Its investment is a welcome boost to Stockholm-based Nordic Capital, which has reportedly asked investors to extend its final close deadline from August to February 2014.

The firm, which invests mainly in Scandinavia and German-speaking countries, is seeking €3 billion ($4 billion)—down from €4 billion originally—for its eighth buyout fund.

Prior to its Nordic, CVC and HIG investments, TCDRS had 7.1% of its portfolio in private equity; its global target is a 10% allocation.

PE under consideration for world’s largest SWF

The two parties in Norway’s new coalition government have indicated that they might allow the country’s $740 billion sovereign wealth fund (SWF) to invest in private equity and infrastructure for the first time.

A spokesman for the Conservatives told Reuters in August that his party would “consider both private equity and infrastructure investments abroad.”

Norway’s Government Pension Fund is by some estimates the world’s largest SWF, but it is only currently permitted to invest in foreign equities, bonds and property.

However, even if investment rules are loosened, the fund would most likely branch out into infrastructure before it invests in private equity. Other options include splitting the SWF up into three specialized parts.

“When it comes to infrastructure, I don’t mind the fund doing that,” Ketil Solvik-Olsen, the Progress Party’s finance spokesman, told Reuters.

Dutch PE ignored

Dutch pension funds invest only a small fraction of their private equity allocations in domestic managers, according to new data from the Netherlands central bank.

As of March 2013, pension schemes had invested about €3 billion ($4 billion) in Dutch private equity, compared to €49 billion ($65 billion) in Europe and the rest of the world, despite a government campaign to encourage more inward investment.

That translates to roughly 5% of their private equity allocations, compared to the 14% of their full investment portfolios that was committed to the Netherlands.

Dutch residential mortgages are quickly becoming the most popular type of local investment from pension funds, which have poured €13 billion ($17 billion) into the sector, more than their Dutch share, private equity and hedge fund allocations combined.

LPs demand personal touch

Limited partners’ appetite for private equity solutions shows no sign of abating as increasing numbers invest in non-traditional fund structures.

Separate account mandates, where a GP manages an LP commitment as a segregated, individual fund-of-funds, are now used by almost a fifth of investors, almost three times as many as last year, according to researcher Preqin.

Advantages of separate accounts include portfolio flexibility, closer relationships with fund managers and, in some cases, lower fees. Most LPs who use the fund structure say they will stick with it from now on.

Direct co-investments alongside GPs are also very popular, and a third of LPs now engage in the practice.

The spurt of new bilateral dealings appears to bringing managers and their investors closer together, as Preqin reports falling numbers of LPs dissatisfied with their GP relationships.

An ongoing area of tension, however, is management fees, the most readily cited complaint from investors about their fund managers.