LIVING out of a suitcase for nine of the last 12 months was not always a comfortable experience for the globe-trotting chief executive of private equity at Standard Life Investments.
Jonny Maxwell’s schedule at times became so hectic that he would wake up in a hotel room with no idea where he was. “I occasionally had to check the hotel stationery to see which country I was in,” admits the indefatigable 37-year-old.
Maxwell, his colleagues at Standard Life Investments and brokers Deutsche Bank have been touring global investors to promote a pan-European private equity fund — European Strategic Partners.
Last week, Maxwell successfully closed the fund, first launched in 1998. It is one of the largest private equity vehicles in Europe that invests in a portfolio of other such funds — sometimes known as “funds of funds” — having raised a total of €868 million (£502m).
Standard Life has itself committed €432m (£250m) — with the remainder coming from UK, Continental European and US investors. The money is being invested either directly or indirectly in mid-market buy-outs and early-stage telecoms, media and technology companies across Europe.
Maxwell says: “This is the first time we have sought external subscription for a private equity fund and it is a big achievement to have attracted so much support.”
The venture capitalist’s “roadshow” once took him from Edinburgh to Bangkok, Sydney, Melbourne, Hong Kong and back to Edinburgh — all in the space of five and half days. Between meetings, he paid a flying visit to a Melbourne maternity hospital where his sister had just given birth to his nephew. In just one 12-day stretch, he toured institutional investors in 22 cities across the USA and Europe.
“A lot of what we were doing was ‘missionary work’ for European private equity,” says Maxwell. “To meet institutional investors and educate them about the opportunities in the sector.”
Standard Life believes that private equity — a generic term which includes both venture and development capital — remains underdeveloped in Europe and that the sector presents global investors with some attractive investment opportunities.
“In terms of population and GDP, the European Union market is as large as the USA but in terms of private equity it is still less than 30% of the size,” said David Currie, managing director of private equity at Standard Life.
Since Standard Life Investments was hived off as a separate entity by its life insurance parent in November 1998, it has been seeking to manage more and more money for third-party institutional investors. Hence the need to spend so much time on the road. Having them on board also boosts the credibility of the funds.
In Europe, demand for management buyouts has been fuelled by structural changes, including the tendency of larger corporations to offload non-core businesses; succession problems in family businesses; and an increased desire among entrepreneurs to become owner-managers.
Notwithstanding the “correction” in technology stocks since he bursting of the dotcom bubble in March, European stock markets have, at the same time, developed to the extent that it is easier for venture capitalists to make an “exit” through initial public offerings. Such flotations enable them to exchange their illiquid stakes for cash.
One-third of the £502m raised for European Strategic Partners has already been invested. The plan is to invest 60% in existing private equity funds, and some has already been invested in Scottish Equity Partners and Duke Street Capital in the UK, Index Ventures in Switzerland, Global Capital Investors in Greece and Mercapital of Spain.
Unusually, European Strategic Partners is also placing 40% of its funds directly into companies, where it invests alongside its fund partners. It has already made six direct investments, including one in last year’s buy-out of the Italian scooter makers Piaggio, where it invested alongside Morgan Grenfell Private Equity.
Maxwell denies there is any conflict of interest in injecting money alongside partner funds. “One of our funds might say ‘we’re raising money for X. We don’t want to put in £10m. Can you put in £5m directly?’ It’s usually because they want to diversify their exposure.”
This sort of conversation sparked European Strategic Partners’ £1.1m investment in the Edinburgh-based computing firm Quadstone, where it came in alongside Glasgow-based Scottish Equity Partners, a spin out from Scottish Enterprise. “We do a reputational health check ourselves but piggyback on the due diligence done by partner fund managers,” says Maxwell.
Maxwell cut his teeth with Stewart Fund Managers (later Stewart Ivory) in 1984, where his boss was ex-director of private equity John Murray. “John was an ex-Lex columnist on the FT and taught me alot about how to blend cynicism with optimism,” explains Maxwell. “He also taught me about humility and not to get hung up when things go wrong.
“Since capital is a commodity, you have to differentiate yourself as a provider. We do that by building long-term relationships, creating trust and ensuring that we are adding more than just money.” He believes Standard Life’s access to research and its ability to cross-fertilise investments are attractive to the managements of firms in which it invests.
Maxwell has known Calum Paterson, managing director of Scottish Equity Partners, since they were at nursery school together in Linlithgow in the 1960s. “I remember him as the class clown,” jokes Maxwell. “Calum is a very able individual with considerable skill and integrity.” It was with the encouragement of Maxwell, that Paterson recently spun Scottish Equity Partners out from Scottish Enterprise, and is in the throes of raising £75m for his SEP2 fund. Standard Life looks set to invest in Paterson’s new vehicle.
Paterson said: “Jonny and his colleagues have been first-class investors in SEP1, and we have had an excellent relationship. His knowledge of the private equity scene is significant, and he has been positive and supportive from the outset. European Strategic Partners is a major landmark in terms of its scope and scale, and confirms Standard Life’s position as a leading international player.”
Maxwell regrets what he terms “the parochial attitude of the press” and argues that private equity is a global business, so to focus narrowly on, say, deals done in Scotland is misleading. “We’re investing money all over the place. The important thing is that the profits and management fees come back to Scotland.”
Maxwell said: “The €1bn target [set in 1998] was always ambitious. But the correction in the technology market has had some impact on enthusiasm for the sector. But last month we achieved what we said we might be able to achieve in a much more naive lifetime. This has been my hardest project ever. I have never worked so hard in my life.”
This article was published in the Sunday Herald on 29 October 2000