SVG Advisers, the UK listed private equity funds’ investor, has announced that SVG Diamond II has successfully raised €500m through a
Collateralised Fund Obligation (CFO) of private equity funds, comprising €325m of investment-grade bonds and preferred equity shares representing commitments of €175m.
The provision of investment-grade bonds has enabled international fixed income investors that wish to gain exposure to the private equity asset class to invest at various levels of credit risk. For SVG Advisers, SVG Capital’s fund management business, the latest closing takes the total of third-party funds under management and commitments to €2.4bn.
The predecessor was the first-ever managed cash arbitrage CDO to be backed by private equity funds. The vehicle was groundbreaking because it overcame the uncertainty of the timing and size of cashflow traditionally associated with private equity. Previous CDOs backed by private equity – such as Deutsche Bank’s US$264m-equivalent
Silver Leaf CFO from 2003 – were static deals designed to remove private equity holdings from the originator’s balance sheet for regulatory capital purposes.
SVG Capital’s holding represents 6.1% of the net assets and is valued at £37m (taking into account IPEVC valuation guidelines).
SVG Diamond II issued four tranches of bonds, denominated in euros and US dollars, which have been rated by the three major rating agencies in the AAA, AA, A and BBB categories. The CFO will be focused predominantly on buyouts and will have an over-commitment facility of 140% (allowing a target investment capacity of €700m).
At closing, SVG Diamond II had agreements in place to acquire a portfolio of 14 funds with a value of €62m. The CFO expects to purchase further secondary interests and make a number of primary commitments to private equity funds investing in Western Europe and the US. The arranger for SVG Diamond II was Nomura.