November 29, 2011 / 9:43 PM / 6 years ago

Fulcrum to stay the course as Canada independent

TORONTO (Reuters) - Fulcrum Capital plans to stay the course with its meat-and-potatoes approach to investing in resources now that it has completed a spin-off from HSBC and embarked as an independent Canadian private equity fund.

“What we have done in the past, and which I‘m sure we would do in the future, is investments in these traditional industries where for the most part you don’t need a PhD to understand them,” David Mullen, the fund’s chairman and managing partner, said in an interview. “Our target market is the middle market in Canada.”

Oil and gas, mining and the companies that are servicing those industries is where Fulcrum sees the most opportunity.

“What we have seen are some opportunities to service the growth in parts of the Canadian economy right now,” he said.

Mullen helped lead a management buyout of Fulcrum that was finally completed over the weekend. It was part of HSBC’s spin-off of five regional private equity businesses that began 18 months ago.

London-based HSBC is one of many global banks that retreated from venture capital and private equity after the financial turbulence that triggered the global economic crisis of 2008-09.

In Canada Toronto Dominion Bank, the country’s No. 2 lender, spun off Northleaf Capital Partners in 2009. Last year Royal Bank of Canada offloaded BlackBerry Partners Fund, a fund focused on mobile Internet and founded jointly with JLA Ventures.

Mullen said independence from HSBC won’t change much in the day-to-day operations at Fulcrum, but it will make him and the company more flexible and agile in dealmaking and deal sourcing.

Fulcrum Capital starts its life in Canada with C$750 million ($728 million) in assets under management, including some C$300 million private equity and about C$450 million in so-called mezzanine investments or commitments for financing.

HSBC’s relationship with Fulcrum now is an investor; the two have cut all other ties.

HSBC has committed C$300 million of the C$450 million in mezzanine investments to be made during the next five years.

Fulcrum’s private equity arm runs a C$100 million fund that is fully invested and already operated under HSBC together with third-party investors, and a C$180 million fund whose investors include Canada’s largest pension funds.

Investments at the private equity and mezzanine level can be as low as C$5 million and as high as $25 million, but could go quite a bit higher on larger deals with co-investors, Mullen said.

Technically Fulcrum is just four days old, but the fund is already invested in two deals: Petrospec Engineering, an oil and gas servicing company for the oilsands industry in Western Canada, and G Adventures Inc., one of the world’s largest adventure travel tour operators.

Mullen said Fulcrum is close to exiting, or selling, a few of the assets acquired by its first fund.

“We think the timing is good, but there is no requirement for us to sell,” he said.

Mullen is also a partner leading a management buyout of HSBC’s U.S. private equity operations. Completion is expected on Wednesday.

Reporting by Pav Jordan; Editing by Frank McGurty

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