European-based fund-of-funds firm CAM Private Equity is readying to launch an offering aimed at giving U.S. institutional investors access to the European private equity market. The new fund will invest in funds that target the European mid-market buyout space, which CAM defines as enterprises with transaction values below €500 million. The target fund size is $200 million and the minimum investment is $5 million.
Rolf Wickenkamp, founder and managing partner, expects the first close in Q1 of next year, with a final close by the end of the year. The fund will have management fees of 1% that will remain constant during the investment period, which is 12 years, and then decline. The performance fee is a 5% carried interest subject to a hurdle of 8% per year.
"The European private equity market is, in terms of development, behind the U.S., but that is why it is interesting," says Nicolas von der Schulenburg, investment director at CAM. "We think Europe is attractive because European companies really haven't been restructured as many times as in the U.S. In some parts of Europe, particularly continental Europe, the restructuring process has just begun."
Von der Schulenburg thinks U.S. investors should increase their exposure to European private equity, specifically European buyout firms, to increase their returns. "The returns in the European buyout segment have actually outperformed the United States. The outperformance is anywhere between 5-6%."
Von der Schulenburg predicts that 70-75% of investors in the new fund will be institutions, with the rest being high-net-worth individuals and family offices.
CAM plans to make between 10 and 20 commitments to different, individual funds. Geographically, it will represent the various levels of development of private equity in Europe, with around 70% of the investments in the UK, France, Germany and Scandinavia, followed by up to 20% of its investments in Spain, Italy and the Benelux region, and finally, a small portion —around 10% —invested in the recent EU accession states, such as Hungary, Poland and the Czech Republic.
Breaking Into The U.S. Market
The biggest obstacle that CAM may have to overcome in entering the U.S. market is making a name for itself on this side of the Atlantic.
"Although we have been investing in American funds, up until now we've really been active mostly on the investor side in Europe," says von der Schulenburg. He says that the advantage CAM has over U.S. private equity firms which invest in European buyout firms is that CAM specializes in this area and has accumulated decades of local knowledge.
"Most American investors probably already have some exposure to Europe. Typically, what they have are commitments to large buyout funds such as CVC, DC Partners, etc. These are the [European] peer group to a KKR or a Blackstone or a Carlyle, but they only pursue large buyout transactions," says van der Schulenburg. "Once you get to a Northern Italian buyout firm or a growth capital fund in Norway, I think most U.S. investors have a difficult time figuring out if it is an interesting opportunity. That's where a locally-based advisor or a fund of funds firm like ourselves, who knows the European market well and can navigate the market, is helpful."
Both Wickenkamp and von der Schulenburg admit that perceived obstacles in the European private equity space include the rigid labor laws of many countries.
"It is definitely true that is some countries such as Germany and France they have more rigid labor laws [than the U.S.], so, to put it bluntly, it's essentially more difficult to fire people," says von der Schulenburg. "But none the less, there are private equity firms that are active in these countries and they are able to restructure the companies. They have found a way to do it that is still very profitable."
CAM was founded in 1998 by managing partners Wickenkamp and Constantin von Dziembowski and has almost $2 billion AUM. The firm is headquarters in Cologne, Germany and has offices in Munich, Amsterdam, and Copenhagen. It recently set up shop in Greenwich, Conn., but is planning to move to midtown Manhattan shortly in order to serve its new U.S. clients.