True believers

Permanent capital listings received a much needed boost as Marfin Investment Group raised €5.19bn for private equity investments with relative ease, and Boussard & Gavaudan was able to increase the size of its €300m follow-on offer to €530m on solid demand from many new investors.

The trend towards hedge fund listings finally got under way in the US too, where Och-Ziff filed for a US$2bn flotation that will make it the first US hedge fund to go public (see US boxed story).

Last week’s upbeat tone was a welcome change from the previous week, when the market appeared to be in turmoil as sub-prime woes continued to take their toll. Carlyle Group was forced to cut the range and delay its Amsterdam flotation of Carlyle Capital Investment, although last week the fund raised its reduced US$300m and went on to trade at a 5% premium to its US$19 issue price.

Of more concern was the decision by Caliber Global Investment to liquidate its London-listed vehicle that had been trading at just 60% of NAV, proving that permanent capital can have a very short lifespan.

Bankers covering the permanent capital space say that the challenge is not to find listing candidates, but to find the ones that will work. Managers are obviously keen to raise permanent capital, but even those with a pedigree such as Carlyle can struggle to find interest in the public market.

“The challenge for us is finding the deals that will work,” said Quentin Nason, a managing director in ECM at Deutsche Bank. “The manager has to be best in class, but there are some excellent managers that are simply better suited to the private market. There is different cash available for public and private deals.”

The success of Marfin, which was rumoured to have found demand totalling €9bn, is based on several factors that mark it out from other private equity offerings. The area of focus is Greece and the Balkans, which few other funds have looked at, giving a great advantage to entrepreneur Andreas Vgenopoulos.

“In Western Europe and the US everything is auctioned, so private equity firms have no competitive advantage. Here is a guy operating in a market where who you know is important and he has the connections to buy off-market,” said one banker involved, hence the reticence about naming any potential targets.

There is another significant factor that seen investors flock to buy the 775m shares available at €6.70. Other than a 1% fee paid to Marfin Popular Bank for using its infrastructure, there are no management fees. In place of fees are stock options that are exercisable at €10. Local exuberance has left the shares trading at €10.02, to give a company with assets of about €200m a market capitalisation of €560m. The stock price should adjust once the new shares begin trading on July 19.

With Vgenopoulos promising to invest 80% of his €15.6bn war chest within six months, the J-Curve effect should be minimised. In a book of well over 100 accounts there were multiple orders of €100m. Buying was also boosted by Vgenopoulos investing €50m of his own money and the CEO investing a further €20m. Dubai Financial had committed to take €500m before the deal launched.

Unlike other fund issues, private banking money was dwarfed by institutional money. The bank rights issue structure also meant German investors could participate in private equity listings for the first time. Punitive tax arrangements have excluded them from Amsterdam-listed vehicles.

Local demand was also significant, with the leads surprised at just how much interest one man could create. Allocations were due to be announced on Friday afternoon. Deutsche Bank and Merrill Lynch were joint global co-ordinators and were joined by Citi as a joint bookrunner. Dubai Financial, Investment Bank of Greece and Keefe Bruyette & Woods were co-leads.

Much like the KKR fund’s €5bn IPO, Marfin is unlikely to be equalled in the short term, and most funds are being discouraged from such ambitious transactions. But for the rest of the pack, a strategy for success has started to emerge and was last week evidenced by Boussard & Gavaudan’s successful return to the equity markets following its November 2006 hedge fund IPO.

Following a strong performance since its €440m flotation, B&G returned for a €300m follow-on, which finally closed at €530m on a solid book of demand, crucially with more than half of the orders coming from new investors. IPO managers BNP Paribas and Lehman Brothers were joined by joint bookrunner UBS on the transaction.

“Boussard is one of the true success stories in this market for a combination of structural reasons, but ultimately it has a track record. It has gone out and done what it said it would do and investors are happy to come back for more,” said one lead manager on the transaction.

And rival bankers were equally impressed with the outcome. “To get that sort of ticket, and mostly from new investors, should be viewed as a huge success for the fund, for investors and for the market as a whole,” said a fund specialist at a European house.

Since its initial offer, the fund has seen NAV increase by 15% and the stock has traded at an average 0.89% premium to NAV – though as much as 4% earlier this year – while other fund stocks have languished below NAV. While BH Macro was trading at a premium to NAV of 1% in US dollars and 0.6% in sterling, MW Tops continues to struggle, with its dollar tranche seen at a 2.7% discount to NAV last week.

Another private equity success saw private equity fund Conversus trade up 12.5% last week after the Amsterdam IPO that closed three times covered on June 29. The success bodes well for the listing of Lehman Private Equity through lead managers ABN AMRO Rothschild, Lehman Brothers and UBS.

The US$500m transaction is currently marketing at US$10 per share and although the deal has some way to go before being fully covered, the lead managers have found strong interest in the transaction with more than 100 one-on-ones already completed across Europe. Books are due to close as we go to press.