Nomura International, the European arm of Nomura Securities, has hit the road with a collateralized fund obligation which references private equity funds. It is a EUR600 million, arbitrage transaction managed by SVG Advisors, a subsidiary of SVG Capital, a private equity fund of funds with GBP815 million (USD1.451 billion) under management. It follows the pair's first CFO launched in 2004.
James Witter, head of private equity capital markets at Nomura in London, said the complex structure offers investors a more efficient alternative to buying directly into individual buyout funds. "This takes out investors' operational complexities, costs and hassles," he said.Sam Robinson, director at SVG in London, said the transaction is being pitched to typical private equity investors as a way to enhance returns.
Only a handful of rated, private equity CFOs have been issued to date, including an offering from BNP Paribas and INVESCO last year, because of technical difficulties in arranging them. Witter noted it took Nomura close to 12 months to devise a financial model to assess the uncertain nature of underlying funds; including timing of drawdowns, distribution and returns, as well as convince the rating agencies of credit worthiness. "It's bloody difficult, but Nomura has cracked it," he said.
The latest Nomura/SVG CDO is linked to a range of private equity funds, including buyout, venture capital, mezzanine, and fund of funds. It offers euro- and U.S. dollar-denominated investments. Witter said he is considering following up the transaction with other private equity CFOs, possibly with euro-only investment or with buckets of alternative asset classes.
