UK private equity firm Terra Firma's next fund will be around half that of its previous fund, according to chairman Guy Hands, citing difficulties in fundraising due to recent market volatility.
In a quarterly letter addressed to the firm’s investors, Hands said the fundraising for Terra Firma’s recent €5.4bn fund was not without difficulties due to the current sovereign debt crisis, an issue he forecasts will continue into the foreseeable future.
As a result, Hands has appealed to the industry to concentrate its fundraising processes.
“From an investor’s point of view, private equity funds need to be right-sized; both for the resources of the GP and for the investment opportunities available,” he said.
“Raising the right-sized fund would appear the obvious and rational thing to do. However, this argument does not drive the current size of most funds as, unfortunately, the private equity fund-raising process disproportionately ties up the resources of each private equity team for a considerable time.
“Indeed, each firm sends a significant portion of its investment talent on the road every two to four years for 12 to 24 months in order to raise fresh capital. That talent spends about one-third of its time marketing, rather than doing deals or focusing on the portfolio companies.
“This is not a problem Terra Firma can address on its own: the length of the investment cycle and fund-raising period are driven by the industry as a whole. We will continue to devote appropriate resources to this endeavour in order to compete for funds; however, it would dramatically improve the prospects for returns and drive down the costs for GPs and LPs alike if we could, as an industry, agree a more streamlined process for marketing funds,” he added.
The full letter can be read here.
At the beginning of the month, the firm announced it had received approval from Chinese authorities to establish an office in Beijing.
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