Following ECI’s announcement last week about the final close of ECI 12, which beat its target and reached a £1bn hard cap, we chat to Managing Partners Chris Watt and Tom Wrenn, and IR Partner, Jeremy Lytle, about the latest fund and the fundraising market.
Q: How does it feel to have raised ECI’s largest ever fund?
Jeremy: I think it’s fair to say, relieved! As my peers will know it’s a tough fundraising market at the moment, so having hit our hard cap of £1bn, that feels quite unusual, and we’re delighted to have reached that milestone.
Chris: Absolutely, raising our largest ever fund means a lot to us as it’s testament to our experience and track record. It is a challenging market, but the fact that investors are looking for quality, established managers that have invested through cycles, meant ECI was well positioned. It’s a huge vote of confidence in us from our investors.
Tom: For me, it’s also the fact that we didn’t just hit target, but we were oversubscribed. As anyone fundraising at the moment knows, that’s a very unique position to be in and we’re very grateful to the investors that have put their faith in us to deliver.
Q: Does the new fund represent a change in strategy for ECI?
Tom: Simply put, no. We haven’t changed our strategy across our last three funds, so this really does represent more of the same, a proven strategy that works, and a strong but realistic increase from the last fund in terms of what we can deploy. For those that don’t already know what that looks like, that is an investment strategy focussed on growth, resilience and fantastic management teams, across our established subsectors, in businesses valued up to £300m and investing as either a majority or a minority investor.
Chris: That doesn’t mean that we aren’t constantly looking to evolve. Something we’re seeing is that the businesses we invest in are increasingly international, so we’ve invested in our international capability and are backing more global businesses. We’re also seeing a greater focus on M&A, so we’ve invested in an efficient and effective M&A toolkit for the portfolio, and for the majority of our investments that is now a core component of the strategy. Our investment in Commify, the first from ECI 12, is a great example of that – a European market leader that is proactively looking to add to its organic growth through acquisitions.
Q: How did this fundraise compare to others in terms of what LPs were looking for?
Jeremy: I’d say this time around there was one key metric that stood out for our existing and prospective LPs: DPI. We have always focussed on delivering DPI for investors with good exit discipline, and I’d say it was the most important single KPI in this fundraise!
Chris: If you have met Jeremy in the last year, I’d bet good money that he’s talked to you about DPI. It’s interesting though that even with top performing funds and great DPI performance, it was still challenging. I think given the current market backdrop, you really had to be able to demonstrate the resilience of your portfolio post-Covid. We’ve focussed on resilience as a core pillar of our investment strategy ever since the Global Financial Crisis in 2008-2009. I genuinely think being able to demonstrate that long-term resilience was one of the main factors that drove the 95% re-up rate –
Jeremy: Which goes above 100% if you also include returning investors from our 2015 fund as well.
Chris: Exactly, we’ve been able to demonstrate a consistency now which means that focus on resilience is clearly visible from one fund to the next.
Tom: Outside of performance, I’d say it was notable that there were more questions from LPs around ESG, company culture, and deep dives on cyber and ops this time. Those questions have always been there, but now it was much more sophisticated and felt like more than hygiene factors. Investors were looking for data and benchmarking in these areas!
Jeremy: Definitely, LPs were looking for top-quality performance, consistency, experience of team, and further progress on ESG. I think that bar has been raised in the past decade. It was also really positive to see more confidence from European investors in the UK market compared to five years ago, as well as a notable increase in allocations from family offices or foundations.
Q: ECI 12 is an Article 8 fund. For those who don’t know, can you explain what an Article 8 Fund is, and how it impacts ECI’s investment strategy?
Jeremy: Put simply, an Article 8 fund is a fund which promotes certain environmental or social characteristics (under the EU directive SFDR). For ECI 12 our commitment is about how we can help our portfolio to decarbonise and help them progress towards Net Zero.
Chris: In many ways this was a reflection of our existing strategy. We’ve been invested in ESG for a long time – we’ve been benchmarking the portfolio on ESG for over a decade – but what Article 8 does is formalise that commitment and provide more clarity to investors around our priorities. We had good feedback from LPs around our data-led approach and we’re pleased with our progress so far on ESG, but there’s always lots more to do and more exciting initiatives coming up.
Tom: What we see is that the ECI team is actively engaged on this topic, LPs are actively engaged, and management teams are focussed on it and want our help. So, there’s great alignment, and ECI’s ESG Toolkit is all about making sure they can prioritise and get support on the initiatives that will have the most impact.
Q: How is the team feeling about having £1bn dry powder to go to market with?
Tom: I think this is what they call in the business an easy question!? This is clearly a great milestone for ECI and the team are excited about the firepower we now have behind us and there’s significant appetite to deploy it across the next tranche of fantastic businesses like MiQ, Tusker and CPOMS…
Chris: There is a bit of doom and gloom around deal doing at the moment, but actually that is the market as a whole, and not the subsectors we focus on where we are still finding high quality growth opportunities. We focus on premium assets with longer-term sustainable growth drivers and there are still plenty of those out there, we have a strong pipeline and see lots of opportunity in the market to back exceptional teams.
Tom: As Chris mentioned we have got the new fund underway and now looking forward to building on the next investment after Commify!