Prime Edge Capital, the collaterised private equity obligation launched earlier this year has achieved a second and final close at EURO175 million. There are already plans in the pipeline for a Prime Edge II product, which will focus on US investments.
Prime Edge is a cross between a traditional high yield collaterised debt obligation (CDO) and a private equity fund-of-funds. The product offers institutional private equity investors and bond investors exposure to a diversified pool of private equity funds with a diversified level of risk.
Thomas Kubr of investment boutique Capital Dynamics says the firm has been pleased with the response from investors to what is essentially a virgin product in difficult market conditions. The majority of investments have come from banks and pension funds across Europe and Asia and the investment vehicle is capable of committing a total of EURO280 million, through the reinvestment of initial proceeds.
The net proceeds from the EURO175 million secured notes issuance are being committed to between 35 and 40 funds. Typical investment size is between EURO5 million and EURO10 million. A joint venture between Capital Dynamics, acting as lead manager, RMF (Rainer Marc Frey) and Hamilton Lane Advisors is managing the investment selection and risk management process for the fund. Since its first closing last summer, Prime Edge has committed EURO91.4 million to 12 private equity partnerships. Kubr says: “The investments are going to plan. They are all European-based managers and we have a good mix of venture and buyout funds.”
Prime Edge is the first ever stand-alone bond rating from Standard and Poor’s for a private equity portfolio. The product has carved its own niche in the expanding CDO market. The fundamental difference between Prime Edge and CDO offerings such as Duke Street’s EURO750 million Duchess I CDO, is that the CDO funds are investing in debt products such as senior debt and mezzanine loans, while Prime Edge’s portfolio is equity investments. As yet, no other product of this kind exists in Europe, although Kubr says he expects to see similar products cropping up in the future.