CIC at the Apax?

Under the terms of the deal, CIC will gain rights to take over up to €800 million ($1.2 billion) of undrawn commitments to Apax’s 2007 €11.2 billion ($16.6 billion) Apax Europe VII fund. CIC will also pick up 2.3% of Apax operating company Apax Partners Worldwide LLP as a minority shareholder, in a deal that reportedly values the whole firm at around $5 billion.

“It clearly shows that CIC is really serious about getting more exposure to private equity as a fund investor, and moving some of its assets out of Treasuries and into alternative assets,” one industry source observed. “This is their European Blackstone.” The same sources confirmed the structuring of the secondary transactions, which confer the right – and obligation – to participate in future Apax capital calls, replacing existing investors in the fund who might not be otherwise willing or able to honor the calls themselves.

Asia Pacific inside Apax

The CIC deal apparently unfolded after a major Japanese investor pulled out of a plan to take the 2.3% tranche, following in the footsteps of Singapore’s GIC Special Investments and Australia’s Future Fund, who jointly took 7.7% of the business from the firm’s partners earlier this year.

Speaking at this November’s AVCJ Private Equity and Venture Forum in Hong Kong, Martin Halusa, CEO of Apax, pointed out that, “while some LPs will cut back, due to liquidity issues, many new pools of money, including SWFs, in particular here in Asia, are entering this asset class.”

Perhaps motivated by the post-crisis valuation drop, CIC has reportedly pushed up to $40 billion this year into a broad range of investments across various sectors and asset classes, including a $1 billion commitment to Oaktree Capital. AVCJ industry sources described the new Apax investment as part of the larger reallocation strategy aimed at both diversifying assets away from US dollars, preferably without actually undercutting the value of the dollar, and giving the SWF more experience and understanding of a range of asset types, preferably through positions that give added benefits in terms of knowledge transfer.

Hedge funds and commodity plays have also been on CIC’s roster of targets, with $500 million for Blackstone’s fund of hedge funds arm, and additional capital for Morgan Stanley Investment Management’s alternatives division. The SWF is recruiting new staff in up to 33 different categories to bolster its capabilities. “They have a vision, and they’re executing on it,” another source said.

What’s in it for the players
   
With the Apax deal, CIC gains exposure to what industry sources agree is likely to be a very attractive vintage for investment, while sidestepping any involvement in existing portfolio assets. These may have been relatively sound in themselves: Halusa noted publicly that Apax had accumulated, “a portfolio which has performed relatively well through the recession: 60% of our portfolio has delivered at or above our original investment plan.” However, CIC is likely to prefer the prospective deals, sources emphasized – not least since, as Halusa said, “the way we work our business, with our industry expertise, you have to keep plugging the deal flow pipeline.”

Furthermore, Apax has arguably weathered the recession better than some of its London-based peers. The firm had few of the major staff upheavals that have seen, for example, Damon Buffini relinquishing the chairmanship of Permira and Philip Yea stepping down as CEO of 3i Group.

Although CIC’s entitlements under the agreement are unclear, the SWF may also be looking for deep insight into the investment processes of a top Western buyout firm – one particularly noted as, in Halusa’s words, “a private equity pure play,” with little exposure to other alternative asset classes. CIC might not automatically get such information, but reports indicate that its due diligence into Apax prior to the deal was some of the most penetrating the firm had experienced: a possible pointer to things to come.

Apax, meanwhile, gains traction in Asia, where its deal record has been scanty to date. Halusa said that, “in ten years, I expect one third of our business at Apax to be in Asia, with a third each in the US and Europe.” CIC’s support, alongside GIC SI and the Future Fund, may speed that evolution.

With the deal, CIC also gets a position in private equity conveniently not linked to a publicly available stock market value. CIC was much criticized for the performance of its IPO investment into Blackstone, and the Apax investment gives them a back entrance into a leading private equity group whose value and performance are not so conspicuously on view.

“That shields them from political pressures,” one source noted. “In Blackstone they were starting off with more or less a blank slate. They didn’t have a burden of proof on their shoulders. This time they do because of Blackstone.”

Contacted by AVCJ, Apax declined to comment further.

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• Topics
• Greater China
• Secondaries
• The Blackstone Group
• Martin Halusa
• 3i Asia Pacific
• Apax Partners Hong Kong
• Oaktree Capital
• Permira Advisers