PERMANENT CAPITAL PLAY

KKR is about to test the market's appetite for listed LBO funds.

Everyone is going to want one – a listed private equity fund that is, especially if the $1.5 billion (€1.2 billion) structure that KKR is getting ready to float on Euronext proves successful.

“Permanent capital” in the form of a listed evergreen structure has long been on the wish list of many private equity groups. Its obvious appeal lies in the fact that once raised, money can be invested again and again. From the fundraiser's point of view, this is clearly more efficient than capital being deployed and then distributed back to source after just one go, which is what the rules of a limited partnership require. And because limited partner commitments won't always be won as easily as in today's private equity-mad environment, having a permanent pool in place in leaner times should bestow significant advantages.

Permanent capital would also enable managers to hold assets longer. Views do differ on whether this really is desirable: many LPs like the fact that GPs are required to work towards exits after a certain period. But there is also the argument that some of the great private equity successes of the past could have been greater still had the manager been able to hold them a bit longer. Either way, permanent capital has the potential to alter this particular dynamic in the manager-client relationship. Time will tell who stands to gain.

Listing a private equity fund, by the way, seems more sensible than floating a private equity management company. The latter, often touted as a possible exit mechanism for the founders of the industry's leading firms at the end of their careers, would in effect securitise a partnership's future profits. Depending on how the proceeds are distributed, this could do little to excite the younger partners in the firm – and to what extent the long-term objectives of managers and investors would remain aligned seems questionable, too. By comparison, the IPO of an individual investment vehicle as a means to fund deals rather than lifestyles appears more compelling for all concerned.

On a fund basis, more permanent private equity capital is bound to happen. In addition to giving managers greater funding options, it will have the additional advantage of committing some high profile groups to the industry's transparency agenda. At a time when private equity owners of businesses are coming to accept that they have responsibilities to stakeholders other than just their clients, this is to be welcomed also.

WEST PRIVATE EQUITY REBRANDS AS LYCEUM CAPITAL
Dutch LP AlpInvest Partners and France's AXA Private Equity are believed to have paid in excess of €100 million ($123 million) to acquire German bank WestLB's position in London-based mid-market investor West Private Equity's debut fund, WPE Fund 2000. As part of the transaction, WPE's management, headed up by CEO Philip Buscombe, has agreed to acquire the management company of the firm, which will be re-branded Lyceum Capital following regulatory approval. AlpInvest Partners and AXA Private Equity have also committed to a new fund to be raised and managed by Lyceum Capital. WPE Fund 2000 was reportedly 90 percent invested in January of this year.

APEP FOF ALMOST DOUBLES TARGET
Allianz Private Equity Partners (APEP) has held a third closing of its debut APEP Dachfonds & Co fund of funds on €750 million ($906 million). Managing director Christian Mayert said that no hard cap has yet been officially announced for the vehicle. Launching a dedicated fund of funds vehicle was a “natural process for our business” he added, having previously invested from the balance sheet or special purpose vehicles. APEP Dachfonds & Co has received €185 million to date from within the Allianz Group with the rest of the commitments coming from German institutional and private investors.

LMS VENTURE ARM TO SPIN OFF AS LEO CAPITAL
Publicly listed business and property investment firm London Merchant Securities (LMS) is to spin off and seek a public listing for its venture capital arm. The new company, expected to start trading on the UK's Alternative Investment Market by 12 June, will be named Leo Capital. LMS said it will continue to own its property division and will remain listed. The de-merger will be subject to a shareholder vote. LMS said the different market focus, capital requirements and expected future growth characteristics of the property and venture capital divisions of LMS are better served as independent businesses.

GSC PARTNERS CLOSES €1BN EUROPEAN MEZZ FUND
New Jersey-based GSC Partners has completed a €1 billion ($1.2 billion) fundraising for its second European mezzanine fund, GSC European Mezzanine Fund II. The firm said a number of investors from the firm's debut mezzanine vehicle committed to the new fund. In addition, over 20 new investors joined Fund II's LP base. Fund I closed with €765 million of equity capital in October 2001, with an additional €300 million credit facility added in early 2002. Carl Crosetto, managing director at GSC Partners, said the new fund had a similar split between equity and credit.

three oxford colleges launch £100m investment pool
Oxford Investment Management (Oxim) has been launched to manage assets owned by Oxford University's Christ Church, St Catherine's and Balliol colleges. Oxim will have an initial pool of £100 million (€143 million; $176 million) to invest, some of which will be committed to private equity funds. Oxim has set aside 7.5 percent of the fund to private equity and another 7.5 percent to property. The strategy for the remaining 85 percent will be to simply identify outperforming fund managers rather than allocate set amounts to different types of assets.

PRIMARY CAPITAL RAISES £200M FOR FUND III
London-based mid-market investor Primary Capital has held a final close of its third fund at a hard cap of £200 million (€287 million; $348 million), twice the size of its previous vehicle. Primary Capital began marketing Primary III in October last year and reached a first close of around £140 million in December, according to director Graham Heddle. The firm will look to do three to four deals per year on average, principally in the UK, but also with a focus on continental Europe, particularly Germany.

STRONG DEMAND FOR APAX FRANCE VEHICLE
A new co-investment vehicle established by the French subsidiary of global private equity firm Apax Partners raised gross proceeds of just over €114 million ($141 million) from its 1.5 times oversubscribed IPO on Euronext Paris. Apax France said that, in response to the high level of demand, the number of new shares issued in Amboise Investissement was hiked from a planned 8.5 million to 9.35 million. French investors (excluding partners of Apax and members of the Amboise board) represented almost 50 percent of institutional demand for the offering, while UK investors accounted for over 40 percent.

3I TO RETURN £500M TO SHAREHOLDERS
London-listed private equity firm 3i has announced its intention to hand back at least £500 million to shareholders ahead of posting its full-year results. 3i said realisations totaled £1.82 billion (€2.6 billion; $3.2 billion) in the 11 months ended 28 February, compared to proceeds of £1.15 billion in the equivalent period last year. 3i invested £1.18 billion, compared to £843 million in the equivalent period last year. 3i said its board intends to make a further return of cash to shareholders of not less than £500 million.

BUCHANAN LAUNCHES €150M FUND
Buchanan Capital Partners (BCP), the recently formed private equity arm of German financial group Buchanan Capital Group, has launched a €150 million ($180 million) private equity fund targeted at family-run businesses. Frank Henkelmann, partner at BCP, said the Buchanan Unternehmer-Fonds has a target of €150 million, which the firm expects to reach by the end of this year. The fund has a slightly longer than normal life cycle of 12 years and Henkelmann added that holding periods for portfolio companies can be up to eight years.