New UK SME fund announces £70m first close

Harwood Private Capital has received £35m from British Business Investments and is aiming to post a final close by the end of the year.

Harwood Private Capital has announced a first closing of its debut HPC UK SME Fund on £70 million ($86 million; €79.2 million), including a £35 million commitment from British Business Investments, an investment arm of the UK government’s economic development bank, the British Business Bank. 

The firm is a joint venture between managing partner Haseeb Aziz and Harwood Capital Management, a specialist small-cap fund manager with £1.7 billion of assets under management. It is aiming to raise over £100 million at the final closing of the fund by the end of the year with a view to growing assets under management considerably in the coming years.

As well as BBI, the fund has also received commitments from Harwood Capital Management and institutional investors from the UK and Middle East.

Harwood Private Capital was launched last year after an agreement was struck between Aziz and Harwood. He had been looking to launch a new business, having left HIG Whitehorse, where he was head of private debt in Europe, at the end of 2016. Negotiations began in 2018 after Aziz had seen out a one-year non-compete clause.

Although Aziz was seeking independence, he saw the benefits of working alongside a firm like Harwood, which had existing public equities and private equity businesses, targeting similar sized UK SMEs. “They have superb infrastructure as well as a network and knowledge base that will be of immense value to us, our sourcing capabilities and our portfolio companies,” he told Private Debt Investor.

As well as HIG Whitehorse, Aziz had formerly worked in debt and mezzanine finance at Merrill Lynch and Hutton Collins. He is joined at Harwood in a three-person team by Jerry Wilson, who worked with Aziz at HIG Whitehorse having previously had a senior debt role at RBS, and Jonathan Wheeler, who was at European Capital and helped launch the firm’s UK fund. Aziz said the firm, having secured a first close, will make further hires in due course.

The fund will focus on investments of £3 million to £15 million in UK and Irish founder and family owned firms through non-sponsored transactions including growth, acquisitions, shareholder restructurings, re-financings and bridges to IPO. Bespoke financing solutions will include senior debt, subordinated debt and preferred equity.

As a firm which has made no investments in the current fund to date, Aziz believes Harwood will be deploying capital into the market at the right time. “We looked at a number of deals pre-covid but we didn’t do them,” said Aziz. “Some of the deals done in 2019 were fully levered and will be facing difficulties. They will absorb a lot of GPs’ time whereas we have no legacy portfolio and are fully focused on sourcing interesting new opportunities. With everything that’s happened, businesses are looking for capital and the quality of businesses we are looking at is getting better.” Aziz said the firm is aiming for “double-digit” net returns and felt there was a good opportunity to exceed investor expectations.

He added that the firm is sector-agnostic but takes a thesis-led approach and has been looking with interest at sectors such as business services, IT and dental. “We will look at leisure as well, but it will be slower to come back. Primarily, we’re looking for businesses with resilience.”

Catherine Lewis La Torre, chief executive officer of BBI, said: “UK SME Fund will provide a much needed alternative source of capital, and business support, particularly at a time when traditional lenders may overlook the type of opportunities that Harwood is well placed to identify and serve.”