Patron says transparency with investors was key to raising €880m, fourth fund, writes Jane Roberts
Last September, 100 investors committed €880m to Patron Capital Fund IV, earning Patron the distinction of raising the largest pan-European opportunity fund in 2012.
Patron managing director Keith Breslauer doesn’t think the 13-year-old private equity real estate firm’s success is down to better performance than its rivals for any particular vintage fund, but to a less volatile track record, a stable team of 41 professionals that has proved it can find deals, a culture of transparency with investors, and low gearing.
“The variance of our performances has been relatively low compared to our peers,” he says. “Others may have funds that have done very well and some that did poorly.”
The blended return across its funds is about 14% and a 1.8 multiple on equity, achieved with just 40% average gearing – low for an opportunity fund. The firm hopes to make 18-20% returns from Fund IV “if there are no humps”, Breslauer says.
He is unusual among PERE firms’ leaders in talking about ‘softer’ ways to outperform: “I don’t believe we are outperforming on a pure financial basis. We provide more data and transparency; Patron is 100% trustworthy. Investors are looking into the soul of a manager to see if they will perform.”
It took a year to raise Fund IV. It was two times oversubscribed and last autumn, as it was closing, investors with between €200m and €300m tried to join in when turmoil in the eurozone died down. But Patron stuck to its capital target, based on its deal origination rate and a four-year investment period.
US investors take smaller share
In 2007 most of Fund III’s investors were US endowments, pension funds and family offices. Breslauer says about 55% of Fund 3 clients invested in Fund IV, but the proportion of US investors fell from about 85% to 60%, with the gap being filled by European, Middle Eastern and Asian investors.
Fund IV will have more gearing than previous vehicles and will buy assets alone and with partners, investing up to €3bn. Of the equity raised, €100m is a discretionary co-investment pool outside the fund from one investor; both invested in the acquisition of distressed Dutch office and industrial property company Uni-Invest, a deal Patron closed with partner TPG last September.
The team will focus on western Europe this time and its expertise also includes credit, residential, nursing homes, retail and leisure, and hotels. Its other early investments include the specialist hospital business that runs Bradby Park in Daventry; Luxury Family Hotels, the distressed Von Essen Properties; Motor Fuels Group; and the Mercury portfolio, bought from Henderson with Mountgrange in November.
The firm is interested in the housing businesses Lloyds is selling and is tipped as frontrunner to buy Cala Homes, after outbidding Taylor Wimpey.
US investors and wealth fund find Catalyst for European investment
Pan-European opportunistic investor Catalyst Capital has almost invested Catalyst European Property Fund 1, which raised €230m of equity in 2007/08.
When the firm started talking to investors about a follow-on fund last year it faced two challenges: its two largest investors, Dutch pension fund managers representing around 60% of Fund 1, had either quit fund investing or didn’t have capital, while US investors were still leery about Europe.
However, Catalyst managing partner Jonathan Petit says that just as US sentiment on Europe started to improve late last year, it caught the eye of investors across the pond with three big Continental deals.
In Germany, Catalyst Fund 1 bought 30 retail assets for €155m, Catalyst investing €33m and a US investor, thought to be Townsend Group client New York State Common Retirement Fund, €25m.
The balance, plus capital expenditure, came from an €85m pbb Deutsche Pfandbriefbank senior loan plus €21.5m of BAWAG stretched senior debt, at a 3% all-in cost. Catalyst aims to earn a promote from its US partner and return it to Fund 1’s investors.
In Belgium, Catalyst looked at Ghent’s 678,000 sq ft Zuiderpoort complex for itself, but eventually bought it for sovereign wealth fund ADIA, which it will advise on the property. It was Belgium’s largest office deal for years, the vendor being 12 banks that had lent to an Icelandic insurer.
In France, the firm completed the reletting of a 355,000 sq ft Paris office building, now renamed Les Ateliers du Parc, to Amazon for its French HQ. Catalyst bought the asset from Cambridge Place IM in 2011 after tracking it for two years and had renewed McCann’s lease in the building.
Petit says equity from Fund 1 has been set aside to buy a Warsaw mall and the firm has a position in a potential German mall deal. He also confirms that Catalyst will bid with a partner on the Aspen Irish loan which NAMA is selling.