Raising a fund over the last two years has been hard for everyone, but raising a fund just months after the bottom fell out of the financial world with the collapse of Lehman Brothers takes some real effort.
But that is exactly what UK mid-market firm ECI did back in December. Despite the global banking sector collapsing all around them, ECI launched fund number nine in September and closed it just three months later, collecting £437m, beating their £400m target.
It also surpassed ECI 8, the 2005 fund which closed on £255m, with an overwhelming majority of investors returning for the latest offering.
Steve Tudge, managing director of the London-based house said: “The success of fund raising for ECI 9 has surpassed our expectations given the challenging conditions of the past three months. We are delighted that over 90% of the ECI 9 capital has been committed by existing ECI investors showing the loyalty of our investor base, some of whom will now have invested in the last six successive ECI funds since 1990.”
In total, funding was received from 28 investors, split between the US (37% of capital), UK (37%) and Continental Europe (22%) with two Asian LPs (4%), and dominated by pension funds and fund-of-funds, with commitments also coming from insurance companies, endowments and family offices. According to ECI, over a million UK pensioners are represented by funds directly investing in ECI funds.
Investors include Alliance Trust Equity Partners, which contributed £20m, the Greater Manchester Pension Fund, which has committed £8m, the California State Teachers’ Retirement System (CalSTRS), which invested around £9m and Princess Private Equity, the listed investment firm owned by Swiss fund-of-funds Partners Group.
ECI 9 will continue the strategy of previous funds, investing in UK buyouts, buy-ins and development capital transactions with an enterprise value range of between £10m and £150m. Whilst the firm is a generalist investor, it has particular interest in IT services, support services, consumer and leisure, manufacturing and healthcare.
Andrew Bentley, a partner at placement agent Campbell Lutyens, said of the fund raising: “ECI stands out because it ran its fund raising absolutely to time and raised exactly what it said it needed, in probably the most difficult quarter anyone can imagine,” adding that the well-balanced portfolios were not dominated by consumer-facing businesses nor highly geared. “They offer a well-constructed portfolio and have not taken undue risks,” he added.
The ECI 9 fund raising effort was led by Tudge, fellow managing director Sean Whelan, and investor relations director Jeremy Lytle. Lytle, who joined the firm in 2007, said the fund raising became much more of an uphill struggle after Lehman crashed. “We were always looking for a December close, but we did have calls from a number of high-quality investors who had backed us in the past who couldn’t meet the capital calls, and that was quite a surprise.
Overall, people were taking longer to make decisions, so it was difficult, and even though we were aware we benefited from annual asset allocations, some LPs said, point blank, they could not invest. More and more we were relieved that we closed it when we did as 2009 has been a very difficult year for fund raising.”
There are a number of reasons Lytle gives to account for the success of ECI 9 – the strong performance of ECI 7, the experience and stability of the team, the preference amongst their investors for mid-market funds over larger buyouts – but perhaps the key is focus and modesty.
“We have been focused on the mid-market for over 30 years,” explains Lytle, “and we stayed in the mid-market, even when it looked unfashionable, and now it’s back in vogue. Investors were giving us credit for sticking to what we know – we know the companies, we know the advisers, and they favoured us for not getting greedy. We could easily have doubled or tripled the size of our previous funds, but made a conscious decision not to.”
The fund has yet to make its first investment, but is due to do so early in the New Year.
Headquarters: London, UK
Other offices: Manchester, UK
Investment professionals: 21
Name of fund raised: ECI 9
Amount raised: £437m
Fund raising length: Three months
Investment focus: Management buyouts, buyins and development capital deals in the UK with companies valued between £10m to £150m. Sector specialisation in software and IT services, support services, consumer and leisure, manufacturing and healthcare.
WHY THE FIRM WON:
• Raised £437m in three months at the tail end of 2008, exceeding its target despite raising in the immediate aftermath of the collapse of Lehman Brothers
• More than 90% was raised from existing investors
• Closed on time
• Stuck to its principles in raising a fund that continues to focus on the UK mid-market
ECI 9 (ECI)
European Equity Partners V (CVC)
The Silverfleet Capital Partners Fund (Silverfleet Capital)
AnaCap Financial Partners III (AnaCap Financial Partners)
First Reserve Fund XII (First Reserve)