A London investment group is aiming to avoid overexposure to frothy conditions in Europe's leveraged loan market - and benefit should it overheat.

One of the more notable features of the European leveraged loan market in recent years has been the upsurge of collateralised loan obligation (CLO) funds seeking to buy up positions in the financing structures supporting buyout deals. Along with other types of institutional investment entities, such as hedge funds, CLOs have helped push liquidity for large European private equity transactions to unprecedented heights.

In this environment, it might seem that London-based Park Square Capital is simply pouring more fuel on an already roaring fire with its new €1.25 billion ($1.69 billion) Credit Opportunities Fund, a leveraged credit fund that will take positions mainly in the senior debt layer of deals (complementing Park Square's debut mezzanine fund, which closed on just over €1 billion in 2004, and which invests mostly in junior strips).

But Park Square founder and managing partner Robin Doumar argues that, while his firm's fund resembles CLO funds, it has significant differences – most notably in terms of its flexibility and its investment time horizon. He points out that CLO funds typically can only invest a small amount in, for example, any one deal or any one sector. They are, in other words, “extremely prescriptive”. In addition, the “vast majority” have to invest their capital within six months of having raised it from investors (the so-called “ramp up” period). This inability to invest concentrated amounts, together with a tight investment horizon, means “they have tremendous pressure to invest quickly,” says Doumar.

By contrast, Park Square says it has agreed with its Canadian investors – Caisse de depot et Placement du Quebec, Ontario Teachers Pension Plan and an unnamed group – to invest its cash over a seven-year period. It will also put the emphasis, he says, on analysis and credit selection.

Over a seven-year period, there's a strong chance that the investment phase will absorb a turning of the buyout cycle – and that Park Square will therefore find itself in a position to benefit. “This fund is positioned to navigate well in existing market conditions, but could produce some very interesting results if things turned more difficult,” says Doumar.

European buyout firm Doughty Hanson has closed its fifth fund on €3 billion ($4 billion) after just six months of fundraising. The firm's employees, led by founders Nigel Doughty and Richard Hanson, have committed €150 million of the total. All but one of the LPs from the previous fund re-invested. One investor said that the firm could comfortably have raised €4 billion but that this would have breached the fund's hard cap. Stephen Marquadt, managing director at the firm, said: “Investors liked the team's discipline and its focus on the mid-market as so many funds have moved on to bigger deals.” The new fund, Doughty Hanson V, will target mid-market European companies with an enterprise value of between €250 million and €1 billion. Investors include Allianz Private Equity, HarbourVest Partners, Partners Group and Pantheon Ventures. For Doughty, the closing marks an improvement in fortunes: Fund IV closed in January 2005 on just €1.6 billion after a long and difficult marketing process.

Graphite Capital, the UK mid-market private equity firm, has raised its seventh fund, Graphite Capital Partners VII, with total commitments of £475 million. In addition, it also raised a co-investment fund of £80 million to invest alongside the main fund in selected larger transactions. Graphite will continue to focus on the UK mid-market and invest in transactions with an enterprise value of £20 million to £200 million. The fund has 39 investors with the largest commitments coming from the UK (39 percent), continental Europe (36 percent) and the US/Japan (25 percent). Graphite has had a series of successful realisations recently including the disposals of retailer Maplin Electronics and restaurant chain Wagamama, both of which generated 10 times cost.

Equita, the private equity business of Harald Quandt, has closed its third fund on €315 million ($427 million) – ahead of its €250 million target. The fund raised €133 million before its first close in late 2005. Fundraising was re-started in mid 2006. 60 percent of the capital committed came from entrepreneurs – in line with the firm's aim to back German family-owned companies that are sometimes hostile to private equity. Equita's first fund closed on €120 million in 1992 and second fund on €211 million in 2000.

European Venture Partners, a provider of venture debt products, has re-branded itself as Kreos Capital and closed its third fund on €200 million ($271 million). The fund offers individual fundings of up to €16 million through both venture loans and venture leases to European and Israeli venturebacked companies. Raoul Stein, partner at Kreos, says: “The name Kreos Capital was chosen because ‘kreos’ is Greek for ‘debt’.” Investors in the firm's previous funds include Merrill Lynch, Deutsche Bank and the European Investment Fund. The previous fund, Kreos II, was raised in 2004, and has so far committed €160 million to 70 deals. Founded in 1998 as Europe's first venture debt provider, Kreos provides companies with debt financing and growth capital from inception to pre-IPO, typically in the €750,000 to €15 million bracket. It has completed nearly 200 deals and committed more than €400 million since inception. The firm has offices in London, Stockholm and Israel.

London-based Coller Capital has raised the world's biggest secondaries fund to date with $4.5 billion (€3.3 billion) of commitments. Credit Suisse acted as placement agent. Demand from investors was so strong that Coller increased its original hard cap from $3.8 billion. The firm said that it could have raised as much as $5.6 billion. The fund, Coller International Partners V, which is 25 percent invested, recently bought a $1 billion portfolio from Shell Technology Ventures. 41 percent of investors in the fund are from the US and 34 percent from Europe. One of Coller's biggest backers is CalPERS, the Californian pension fund, which made a substantial commitment to the fund. Coller was founded in 1990 by Jeremy Coller and has about $8 billion under management. Earlier this year, Goldman Sachs Private Equity Group closed its GS Vintage IV secondaries fund on $3 billion.

Mithras Capital, a newly established fund of funds, has held a first close of its debut fund on £120 million (€175 million; $238 million). The firm aims to hold a final close during the next six months with a hard cap of £250 million. The fund will invest in no more than ten private equity funds, two of which will be US-based and the others European. Mithras was created from the merger of Mithras Investment Trust, a listed trust managed by Legal & General Ventures, and Tandem Private Equity, the Gillian Brown-led fund of funds. Brown, who previously worked at Hermes Private Equity, is now managing partner of Mithras Capital.

Bear Stearns Private Equity and Bank of Scotland Corporate have created a joint mezzanine venture to invest €233 million ($316 million) in a portfolio of eight European mezzanine funds. The venture will be 50 percent owned by each firm. Troy Duncan, managing director at Bear Stearns, said: “The dynamics in the mezzanine industry mean that senior side covenants are less restrictive than they have been in the past because of the vibrant distressed debt market.”

European Capital, an affiliate of US-listed American Capital Strategies, has floated, raising €125 million ($169 million). Founded in 2005, European Capital invests in individual buyouts of between €50 million and €125 million and offers mezzanine financing of up to €250 million. American Capital's flotation in 1997 generated a 600 percent return for investors. European Capital's recent deals include Whitworths in October 2006 and Farrow & Ball in July 2006. The firm is the latest buyout firm to go public after US alternative asset management firms Fortress Investment Group and The Blackstone Group.

SVG Advisers, the asset management business of SVG Capital, has closed SVG Diamond III, its latest structured private equity fund of funds on €700 million, €200 million ahead of its original target. Sam Robinson, a director at SVG, said: “It definitely helped that the previous two products were performing to plan, even though Diamond II is just a year old.” The fund, SVG Diamond III, will target large and midmarket buyouts in Europe and will have an over-commitment facility of up to 140 percent, allowing a target investment capacity of €980 million. The fund brings SVG Advisers' funds under management to €4.1 billion.