Terra Firma Capital Partners II, the first independent fund raised by Guy Hands since leaving Nomura’s Principal Finance Group, has held a first closing at EURO1 billion. It’s taken Hands over a year (news broke towards the end of Q2 2001) to secure a first close despite an early EURO300 million commitment from Nomura. As previously noted in EVCJ the fund raising was expected to be complicated by the fact that Hands’ private equity investment model was not dissimilar from the structure he has in place at Nomura’s Principal Finance Group. This was in addition to a harsh fund raising climate.
In fact it was not just the heavy cost structure that raised eyebrows but that the remuneration structure enjoyed at Nomura was also replicated within Terra Firma. This has undoubtedly caused many potential LPs to fail the fund at the tick box stage since the theory goes that the fund’s carry should be used to keep the investment team together. This would go some way to explaining the delays experienced in the fund raising process, given that Hands has a high profile and strong track record. That said, the fact that so much capital has been committed suggests the rest of the team probably enjoys similar compensation to that experienced while they were employed by Nomura.
It may also have been unfortunate timing that many banks – likely to both appreciate and understand Hand’s style – were in the main moving to scale back their private equity exposure since Terra Firma began fund raising in earnest.