Private investors increase exposure to 17Capital’s private equity finance fund strategy amid surge in General Partner demand for liquidity solutions.
- Opportunity set for 17Capital’s strategy has increased exponentially as a result of Covid-19
- Connection Capital clients have committed €9m to 17Capital Fund 5 having previously invested in 17Capital’s third and fourth funds
Private investors have been given another, well-timed opportunity to access the latest private equity liquidity fund managed by market-leading manager 17Capital, through Connection Capital, the specialist private client investment business.
In total, Connection Capital clients committed €9million to the €1.8billion-target 17Capital Fund 5 over the course of 12 months since the opportunity was first opened to them in March 2020, shortly after the pandemic hit the UK. Clients were able to invest in multiples of £25,000 through Connection Capital’s innovative syndicated investment model. The minimum investment for institutional investors participating in the fund is €5m.
17Capital’s ‘preferred equity’ strategy provides financing solutions to high quality private equity sponsors with mature portfolios that require liquidity, without the sponsor having to sell holdings and lose the potential upside. 17Capital provides this finance in exchange for a contracted level of return and in some cases, a share of any upside. The strategy is capable of generating attractive mezzanine-style returns, but for a risk level that is akin to that of senior debt. It has proven very attractive to private investors who have recognised the quality of the opportunities available to 17Capital as a result of the liquidity constraints affecting owners of private equity portfolios.
Connection Capital explains that if private equity sponsors’ portfolios contain upside, then a secondary sale at par or at a discount to release liquidity will not be an attractive option. However, neither is borrowing against the portfolio, as debt typically has a repayment profile which may not suit the dynamics of the underlying portfolio. 17Capital’s strategy offers an appealing alternative.
17Capital’s strategy is even more relevant in the current climate, as market dislocation caused by the Covid-19 pandemic has increased demand for liquidity among private equity investors and managers as portfolio exits are delayed.
2020 saw record private equity liquidity deal-flow of $19bn as the pandemic exacerbated the need for such solutions, of which 17Capital was at the forefront, deploying $1.5bn. 17Capital expects heightened market activity to continue for some time.
17Capital: from post-financial crisis pioneer to market-leader
17Capital is a market-leader in this space, having pioneered this strategy in 2008, since when it has invested in more than 60 geographically-diverse transactions in Europe and the US, with no capital losses. Connection Capital clients have previously participated in 17Capital Funds 3 and 4, both of which are performing well.
Operating in a growing market, which has expanded alongside the growth of the US and European private equity markets in recent years, 17Capital targets fast deployment of capital and early liquidity for investors, focusing on portfolios capable of returning capital within two to three years.
The contractual nature of a high proportion of 17Capital’s cashflows means that returns are uncorrelated to traditional equity and fixed income markets, and due to the maturity of the portfolios into which it invests, upside returns are typically consistent and reliable. In addition, because 17Capital has priority over all cashflows generated from each portfolio to cover its capital and there is a high level of asset cover with each transaction, downside risk is minimised.
Claire Madden, Managing Partner at Connection Capital, comments,“This was the first investment opportunity we offered to our clients after Covid-19 hit last year and the strategy is exceptionally timely.”
“The impact of the pandemic has created a groundswell of demand for liquidity from private equity investors, just as it did following the financial crisis in 2008. By providing capital with a priority return, 17Capital offers a compelling option for private equity investors to monetise their portfolios without the need to forego upside.”
“Private investors clearly see the potential here for attractive risk-adjusted returns, whose uncorrelated nature should help insulate their own portfolios against mainstream market volatility.”
“This opportunity gives our clients access to a diverse portfolio of mature, high-quality private equity investments with a shorter timeframe to realisation than you get with a traditional private equity fund, with deals underwritten at low LTVs and occupying a senior position in the capital structure.”
“It’s a niche but growing asset class that has shown resilience over the market cycle, so we’re delighted to give private investors another chance to participate in this kind of institutional-grade fund.”