Hamilton Lane raises ‘not your average’ fund of funds

The listed asset manager has pooled capital from nine Finnish LPs to invest in secondaries and large US and European buyout funds over a two-year period.

Hamilton Lane has raised more than $70 million for a separately managed account that will make secondaries acquisitions and commit to US and European large-cap buyout funds.

The firm worked in partnership with fundraising and advisory firm Scala Fund Advisory, an independent partnership within the CapMan Group, to raise the capital from nine Finnish institutions and family offices.

Through discussions with investors Scala identified interest among Finnish institutions for investments in leading US and European large buyout funds, according to a joint statement.

“There are more and more new investors [entering] the asset class because it’s difficult to get predictable returns from the other asset classes,” Scala managing partner Jerome Bouix told sister publication Private Equity International, adding that these new investors rarely have access to leading large buyout funds, typically because they are not large enough.

“We identified the interest and then we started looking for ideal partners, and we were happy to find Hamilton Lane interested in this. And then together we got the investors over the line.”

The vehicle, which is domiciled in Luxembourg, will have a 30 percent allocation to secondaries, primarily to “mitigate the J-curve and get off to a strong start, but also to increase diversification across managers and geographies,” David Planvig, director of business development for the Nordic region at Hamilton Lane, told PEI.

The remainder will be invested into funds above $1 billion or €1 billion. Planvig said the expectation is for 75 percent of the fund to be allocated to North America with the remainder in Western Europe, but there is flexibility on this.

The fund has a two-year investment period and will look to commit to four to six funds per annum, Planvig said. The vehicle will not be making co-investments or direct investments.

Scala and Hamilton Lane have already begun preparations for the next club mandate, Bouix said.

“Many investors didn’t have time to join this club, so we then promised to get back after summer with another concrete proposal that would allow them to do something similar,” he said.

Planvig added that, given the two-year investment period and the intention to begin fundraising for the follow-up vehicle in the second half of 2017, “it’s very unlikely that Fund I investors will be able to invest into Fund II”. The second vehicle is expected to be a similar size to the first, he said.

Fund II is also expected to be made up of Finnish investors, Bouix said.

Planvig said that, while the majority of Hamilton Lane’s business is running tailor-made mandates for specific clients, “where this mandate does stand apart is that it’s a collection of investors instead of just one institution behind the mandate.”

“It’s a bit more complex in the sense that we have to adjust and adhere to the investment demands of nine investors instead of just one,” he said, later adding that “on the structuring side it’s been quite complex getting nine different investors into the same vehicle, given all the different compliance metrics and so on.”

Planvig stressed that, although it has multiple LPs, the vehicle is not a typical fund of funds.

“One of the attractive things here is that there is a small LP base and that we are able to adjust the strategy as we go forward, so it’s not your average fund of funds blind pool,” he said.

“A very important aspect for the investors into the club fund is the fact that they’re able to work closely with our team at Hamilton Lane and also get a much better understanding of private equity than they would have investing into an average fund of funds structure.”

The vehicle will have dedicated relationship management resources, and the intention is to have “semi-annual investor meetings where we get all the investors into the same room where we discuss the pipeline, the market, and some of the new investments in order to make it much more interactive and facilitate that knowledge transfer to the investors.”

Planvig said he anticipates seeing more of these types of mandates with small groups of LPs teaming up, given the challenges for first-time private equity investors both of getting access to top-quartile managers and the trend toward increasing fund sizes.

“The trick is to align investors and find investors that have a commonality in terms of what investment exposure they would like.”