Partners Group, the Swiss private equity house, has closed its latest investment vehicle at E660 million, exceeding its target by E160 million. Pearl Holding Limited is a Luxembourg-listed fund-of-funds rated AAA by S&P. It has risk protection provided by Swiss Re, at a cost of 1.8 per cent of commitments. The convertible bonds issued by Pearl provide investors with a guaranteed two per cent coupon.
The structure of Pearl was tailored to meet the requests of DGZ-Deka Bank, which provides fund management services to the highly regulated mutual funds of German institutions, including banks and insurance groups. These requirements included the listing, the Euro denomination, capital protection and a guaranteed income. The fund also overcomes the hurdles of high minimum investment amounts, difficult access to top quartile partnerships and lack of liquidity.
Steffen Meister, a partner at Partners Group, is pleased with the fund’s success in what he believes is the most difficult market for years. Meister says the group has already been approached by investment organisations from the US, Middle East and Europe, requesting another vehicle with a similar structure. Partners Group last launched a convertible bond vehicle in 1999 when Princess Private Equity raised $700 million.
Pearl reached its first close of E485 million in September 2000, without the fund being widely marketed outside DGZ-Deka Bank. After this, Merrill Lynch approached Partners Group. The bank acted as placement agent for the second round of selective road shows, which
was brought to a halt by the events of September 11. According to calculations made by Merrill Lynch, investors in Pearl could gain between 200 per cent and 300 per cent on the yield of standard triple-A convertible bond.
Pearl will invest in 80 funds, around 60 per cent of which will be buyout funds, 30 per cent venture funds and ten per cent special situation funds. Investments will also be geographically diversified; the majority of investments (60 per cent) will be in US funds while 35 per cent will be in European funds. The fund will also make direct investments and invest in secondary portfolios.
Due to the purchase, in December, of a $150 million share of Chase Manhattan’s secondary portfolio, Pearl’s buyout commitments include valuable pre-1997 vintage funds.
The fund’s VC component mainly dates from 2001, avoiding the poor performances of older funds. So far Pearl has made commitments to at least 30 funds (including Advent Private Equity Fund III, Amadeus II, Apax Europe V, Duke Street Capital Fund V, Index Ventures II, Industri Kapital 2000, Sofinnova Capital IV and the Third Cinven Fund). The fund has also made direct investments including CellZome, Glow Networks, Grupo Guascor, Participate, Phoqus and SubmitOrder.