By Ascanio Rossini
The race to become Europe’s first $100bn private-equity firm is accelerating as the recent fundraising boom shows. Europe’s largest investment firms, including Ardian, Partners Group and CVC Capital Partners, are closing in on $100bn in AuM after raising some of their largest-ever funds in recent years and launching new investment strategies in areas such as infrastructure, credit and real estate. Their rapid growth from single-fund PE shops to multi-strategy asset managers comes as the asset class has matured from a cottage industry 20 years ago to one attracting hundreds of billions of dollars annually from some of the world’s largest institutional investors.
The rapid growth of these firms also raises questions about whether firms are expanding their teams and building out the infrastructure sufficiently to keep pace with their growing assets. Money flooding into the asset class in Europe is concentrating in the hands of fewer firms, much like the U.S. market. New York-based Blackstone, for example, manages nearly $500bn, ranking it as the largest firm by assets.
Paris-based Ardian, established in 1996 as the captive private-equity arm of French insurance conglomerate AXA, leads the pack of European managers closing in on the $100bn mark.
Ardian now manages $82bn on behalf of its investors (more than double of what it managed in 2013), but is seeking an additional $25bn in new cash across its various investment strategies, including a flagship buyout fund and a global secondary fund, as well as vehicles focused on North American buyouts, private debt and European infrastructure.
Meanwhile, Ardian’s Swiss rival Partners Group, Europe’s largest listed private-equity firm, has turned itself into a fundraising machine after switching its investment focus a decade ago from backing private-equity funds to making direct investments. The Swiss firm now manages $78bn.
London-based CVC, the former owner of Formula One, is another candidate that could join the $100bn club, although perhaps a bit later than the others. The firm managed some $69bn in assets as of Sept. 30 after collecting €16bn in 2017 for the largest buyout fund ever raised by a European private-equity manager.
Increasing assets under management by moving into new markets means PE firms stand to enrich themselves by boosting the fees they receive from investors. Buyout shops typically make cash by taking a slice of profits from successful investments as well as by charging a 2% fee on the money they manage. The decision to move into different investment strategies has prompted a mixed reaction from some investors. Some see it as an opportunity to put large sums of money to work with a manager they know and trust; others as an excuse to increase the money they make in fees.
To keep pace with the growth in assets, many of the largest European firms are expanding into new geographies and ramping up the number of staff they employ. Partners Group for example, employs more than 1,000 executives globally; nearly double the 560 workers Ardian has on its payroll.
Investment firms, including Neuberger Berman’s Dyal Capital Partners and Goldman Sachs’ Petershill unit, buy stakes to gain a cut of the fees firms charge and the profits from their deals.
Bridgepoint, which has recently moved into credit and manages small-cap funds, became one of the first major buyout shops in Europe to strike such a deal when it sold a chunk of itself to Dyal Capital in August.
The continuing flood of capital flowing toward Europe’s buyout giants comes with a risk. Firms will have to be careful to ensure they don’t raise more money than they can prudently spend, as dry powder in Europe reached a record of €220bn as of Q4 2018, pushing asset prices up to an all-time high in 2018.
“This is the kind of environment—marked by too much money chasing too few deals – in which investors should emphasise caution” said Howard Marks (OakTree Capital co-founder).