Connection Capital, the specialist private client alternative investments business, saw its highest ever levels of demand from private investor clients for alternative asset investments last year, raising a record £77m of private capital across its direct private equity and debt transactions and third party managed alternative fund opportunities, in 2021.
- Alternative funds strategies and venture capital rise in popularity as private clients spread risk and target high returns
- 2022 set to be a bumper year for private capital fundraising across Europe
Connection Capital clients demonstrated plenty of appetite for direct private equity deals, which included supporting the MBO of fast-growing UK pharmacy group, Pickford’s Pharmacies, and investing in MatOrtho, a specialist UK manufacturer of orthopaedic implants.
Private client investors of Connection Capital were also more likely than in previous years to invest in alternative funds, suggesting a desire to spread risk more widely across a broader portfolio of assets. Two-thirds (66%) of the funds raised were committed to alternative asset funds and co-investments.
Venture capital (VC) has been a highly sought-after asset class, with more than a quarter (27%) of the funds raised being invested in venture opportunities. This included investments in:
- Two funds managed by international firm, Hambro Perks: a portfolio of unquoted stocks acquired from Invesco, and a VC fund specialising in secondary stakes in later-stage tech investments.
- A VC fund managed by top quartile VC fund manager, DN Capital, targeting future market-leaders in software, fintech, and online marketplaces
- A fund managed by Cambridge-based “deeptech” specialist, IQ Capital Partners, investing in areas such as cyber/data security, high-performance engineering, data analytics, fintech, healthtech and insuretech.
- A £ co-investment in Thought Machine, a fast-growing UK fintech business providing a cloud native core banking platform to established and challenger banks, alongside IQ Capital Partners.
Connection Capital also completed several successful exits: the IPO of portfolio company, Virgin Wines (generating a gross return of 7.6x) on the Alternative Investment Market (AIM); the sale of Carter Accommodation (generating a gross return of 4x), a leading portable accommodation hire business to a trade buyer, and the disposal of a portfolio of DPD logistics warehouses to Abrdn.
Claire Madden, Managing Partner at Connection Capital says, “2021 was a bumper year for fundraising, as private capital has pursued appealing alternative investment opportunities to enhance the resilience of their portfolios and reset their risk/reward profile for the current conditions.”
“Alternative funds and venture capital opportunities have proved particularly popular among our clients as private investors have sought to increase diversification and target outsize returns.”
“The fact that demand has been so high is a testament to the strength of the opportunities we’ve been able to offer across a range of direct and fund investments. But it’s also indicative of a wider market trend of increasing appetite in the private capital space as a whole. We expect the volume of investors seeking private market investments and the quantum being invested to continue to rise through 2022.”
2021: a record year for private capital fundraising across Europe.
2021 is likely to have set a new private capital fundraising record. Data from research company, Preqin, found that €159bn of capital was raised by Europe-based private capital fund managers in the first six months of the year alone, compared to €269bn raised in the whole of 2020, and €271bn in 2019 (the previous record).
Research last year by Connection Capital found private investors were far more bullish about the investment landscape for private opportunities than they were about public markets. A survey of clients revealed that almost two-thirds (64%) were optimistic about private equity and nearly half (46%) were optimistic about alternative funds, compared to just 34% who said the same about quoted equities.
Interest is not just growing among private investors, pension funds are also increasing their allocations to private assets, according to reports.
Performance is likely to be a key factor. The latest figures from the British Venture Capital Association (BVCA) show that investors would have earned 34% more from investing in Private Equity and VC funds since 1986 than if they had made equivalent investments in the FTSE All-Share Total Return Index.
The outlook ahead
Looking ahead to the outlook for direct private equity deals in 2022, Bernard Dale, Managing Partner says, “The priority for us remains our portfolio, which is generally in good shape. We had two very good exits in 2021, with the sale of Carter Accommodation Ltd at 4x investment, and the IPO of Virgin Wines at 7.6x, and we anticipate a few more of similar return multiples in 2022.”
“Connection Capital does not have a fad approach to investments and our main focus is the quality of business’ management teams. This will remain the case in 2022. We have a good pipeline of high-quality opportunities ahead, and with a few more competitors moving out of the £5-10m investment range in which we operate, we see the potential for us to increase our rate of completions of MBOs, cash out and growth capital investments.”
Lorna Robertson, Head of Funds, commented that: “2021 really demonstrated the growing appetite private investors have for truly alternative investment strategies and we are delighted to have been able to offer them access to such a wide range of strategies from specialist investment managers, which ordinarily may have been out of their reach. As well as continuing to invest with our existing managers in our portfolio, 2021 has been a year of developing new relationships and building a broader range of strategies with a more diverse group of fund managers, increasing the depth and breadth of our offering to our clients.
Looking ahead, I expect to continue to build on this client appetite momentum for interesting alternative funds throughout 2022, with an already full pipeline of new fund strategies for Q1. The focus will be on maximising opportunities, remaining cognisant of the macro trends, but always looking for the specialist angle and the attractive risk adjusted returns and diversification that continue to differentiate the fund strategies we offer here at Connection Capital.”
About Connection Capital
Connection Capital LLP is a Financial Conduct Authority authorised and regulated, specialist syndicator of investment funds from private professional investors into direct private equity, private debt and commercial property deals, as well as alternative asset funds. It currently has some £370 million of funds under management across a diverse portfolio.
Connection Capital provides a specialist managed service to help professional clients build up their own alternative asset portfolios. Private investors self-select which opportunities they want to take a stake in. Opportunities are identified and negotiated by Connection Capital, which also carries out all due diligence and manages the investment from completion through to exit, on its clients’ behalf.
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 Preqin Markets in Focus Alternative Assets in Europe 2021.
 Survey carried out among Connection Capital clients between 14 April and 30 May 2021. 203 out of around 1,200 clients took part. Connection Capital clients’ total estimated net worth is over £11bn.
 Private equity wire
 BVCA performance public report 2020