Inflexion, the private equity owner of Times Higher Education’s rankings unit and outdoor retailer Mountain Warehouse, has raised £1bn in two funds largely from US investors finding the UK more attractive because of a Brexit-related slide in sterling.
The New York State Teachers’ Retirement System, the State of Wisconsin and the Illinois Municipal Retirement Fund are among institutional investors in these funds, according to people briefed on the matter.
The funds separately target small and midsized deals and co-investment opportunities, mainly in the UK but also Europe, and raised the money in just 10 weeks.
Buyout groups are raising funds at their fastest pace since the financial crisis, taking just 12 months on average to do so, compared with 20 months in 2010.
Only existing investors in current Inflexion funds were targeted and both funds were more than twice subscribed, said people close to the deal said.
“The UK has become more attractive due to the devaluation of the pound against the dollar and the euro,” said a person with direct knowledge of the fundraising. “If you are a US investor, you might conclude that right now sterling is inexpensive on a historic basis.”
A financial adviser to buyout funds in London said: “It’s a very cheap time for dollars to be buying sterling.”
Hedge funds have recently bet on a further decline of the pound, which has dropped sharply since Britain’s 2016 referendum. However, the consensus has turned marginally positive in recent weeks, with some even expecting a pound rally.
A person familiar with Inflexion’s fundraising stressed the interest was not only Brexit-related and that investors had also been attracted by the private equity group’s performance and the team behind the deals.
More than half of the investors in the two Inflexion funds came from the US, with 20-30 per cent from Asia and the rest from Europe, said people familiar with the matter.
Inflexion, whose funds have delivered three-times returns on invested capital to investors during the life of its funds, declined to comment. An official announcement on the fundraising is expected this week.
Despite demand for UK-specific funds, the uncertainty surrounding Brexit has made it difficult for funds to invest, according to multiple industry insiders.
The UK also recently lost its crown as Europe’s largest buyout market by deal value for the first time since 2011 as investors worried about a lack of clarity around Brexit.
In some cases investors are demanding no more than 30 per cent exposure to UK assets, and executives at private equity groups have downgraded the UK as their top-tier investment destination in recent months.
“People have found it very difficult to price in the risks associated with Brexit,” said one banker who advises some of the large private equity groups in Europe.