Schroder Ventures launches $1bn private equity fund

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The Independent Online
Schroder Ventures yesterday launched Europe's first ever $1bn private equity fund in an attempt to attract American institutions into the European venture capital market. Half the money came from North America, with main investors including California PERS, the biggest state pension fund in the US, and the General Motors pension fund.

Peter Smitham, chairman of Schroder Ventures, said the fund would attempt to cash in on a wave of corporate and industrial restructuring sweeping through continental Europe. He said: "Corporations all around Europe are re-evaluating their strategies and focusing on core skills. The new fund with its flexibility to invest anywhere in Europe is ideally placed to help."

He denied that the creation of a pan-European fund was a tacit admission the venture capital market in the UK had become too competitive for attractive returns to be possible. Recent deals, such as the sale to Investcorp of Granada's Welcome Break chain, have shown private equity investors prepared to pay increasingly high prices to secure deals in a market where vendors have become more aware of the real value of their unwanted subsidiaries.

The Schroder fund replaces the firm's existing country specific investments in a move that was seen by rivals yesterday as playing to the current fashion in the US for pan-European investment opportunities. Other US investors among the 34 funds involved in the $1bn capital raising included Metropolitan Life. The World Bank is an investor as are PGGM, the Dutch health sector pension fund, and ABP, that country's civil service pension fund.

Charles Sherwood, a partner at Schroder Ventures, said the size of the fund meant large deals could be considered, using perhaps $150m of equity and a further $350m of debt. No specific deals were announced and the fund is expected to be fully invested over a period of five years.

Schroders concentrates on so-called difficult deals, companies that require intensive management attention to create the high returns required by investors to compensate for the risks inherent in venture capital. Past investments have included the acquisition of tea manufacturer Tetley from Allied Domecq and the purchase of Parker Pen from Manpower.

The European fund will also focus on family businesses in countries such as Germany where relatively undeveloped stock markets give business owners fewer opportunities to cash in their stakes. The unfolding privatisation process is expected to throw up opportunities, while the trend towards globalisation should mean increasing numbers of companies will be looking to shed divisions that are seen as unable to compete on an international stage.

Schroders said investors had been attracted by its net return of 25 per cent a year since it was formed in 1985. That compared, the firm said, with an 14 per cent return on the stock markets in the various European countries in which it operates.