Hamilton Lane takes back-seat as investors question role

Standard Life Investments held an August first close for European Strategic Partners (ESP), the euro1 billion-target fund-of-funds vehicle it launched last November.

The format of ESP has been somewhat refined since initial plans for the fund were announced last spring, highlighting the increasingly sophisticated approach investing institutions – particularly in Europe – are bringing to bear in their private equity activities.

The fund was the first fruit of a strategic partnership between Standard Life and Hamilton Lane Advisors of the US, a leading global private equity manager and investment advisor. Initially, Standard Life Investments (Private Equity) and Hamilton Lane were to have had equal representation on ESP’s investment committee.

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, SLI Private Equity and Hamilton Lane refined the product to meet market requirements. The ESP committee will now comprise Jonny Maxwell, head of SLI Private Equity, together with directors David Currie, formerly of the Abu Dhabi Investment Authority, and Peter McKellar, who will join SLI Private Equity in October (story, page TK). Hamilton Lane, meanwhile, will continue to provide SLI Private Equity with operational advice and support on a fee basis.

Les Brun stressed the constructive approach both houses had brought to the reshaping of the project thanks to their shared objective of making ESP as successful as possible’, sentiments with which Jonny Maxwell concurred.

The new operational basis for ESP seems to make good sense: the SLI Private Equity principals between them have deployed around euro 1 billion in primarily European fund investments, building up considerably more experience in the region than the US-focused Hamilton Lane. Hamilton Lane, meanwhile, has far greater experience of the systems and processes that third-party investors expect of a manager.

Jonny Maxwell said market feedback had prompted SLI to make other adjustments to the fund offering, including changing the structure from dollar- to euro-denominated; limiting investment in Category B’ markets – broadly, Eastern Europe and the NIS markets – to no more than 5% of the fund rather than the 10% originally stipulated; and entirely ruling out non-European investments, which previously could have absorbed up to 10% of the fund. The unusually large allocation for direct investments, which may comprise a maximum of 40% of the fund, remains unchanged.

The euro 475 million first closing total includes a euro 375 million commitment from Standard Life, which is participating as an ordinary LP. Eight other investors from France, Germany, Scandinavia, the UK and the US are already signed up, and Maxwell predicts that ESP will double its level of third-party commitments in the near future as other institutions complete the formalities.

European capital currently predominates in the third-party component of ESP, notwithstanding the trend for US groups to boost their non-domestic asset allocations. Jonny Maxwell attributed this primarily to European institutions’ greater awareness of the opportunities offered by local management teams within Europe.

SLI Private Equity expects to finalise its first fund commitment, to a pan-European vehicle, and to complete its first direct investment, imminently and Maxwell reports that another direct and three further fund investments are in the pipeline.

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