1. The institutional investor
perspective on private equity,
venture capital, real estate
and infrastructure funds
www.LimitedPartnerMag.com Q1 2015
Treasure hunt: which GPs
will catch a following wind
Wouter Jan Naborn: managed
account lowers costs for LP
Connecting LPs & GPs worldwidePublished by
Digging for cash: plugging
infrastructure’s $57trn hole
Survey: two-thirds of LPs actively
looking for secondaries
Big Bang theory:
Christophe Baviere predicts a
golden age for Europe’s SMEs
Spice trader: Allianz takes
on risk to boost returns
Plus: Expert insights on
funds, markets & regions
Strong
on service
Buyout pricing and leverage are
up. Are returns heading down?
4. CONTENTS
2 Q1 2015
High-flier
Farah Shariff,
Adveq
Features
Women in Private Equity
Network Summit
04 Treasure hunt
After years in the doldrums, the fundraising
environment has improved dramatically
over the past two years – but that doesn’t
mean all funds will catch a following wind
If the price is right…
10
The buyout market today looks a lot like
2006. Prices are rising, leverage is up, T&Cs
lax, competition for assets is fierce. Does this
mean that returns are heading down?
Digging for cash
14
Infrastructure projects need $57trn over the next
15 years. But with many investors disappointed
by their experience, how can deals be structured
to give institutions the returns to justify the risk?
Secondaries survey & pricing
19
Two-thirds of LPs are actively looking for
secondaries – at the right price
24
The inaugural meeting
of the Women in Private
Equity Network Summit,
organised in conjunction
with AltAssets, took
place in London recently.
One of the key themes
for delegates was the
small number of women
at the top of the industry
in the West, compared
with emerging markets.
Adveq vice-president
Farah Shariff was among
the delegates
5. Q1 2015
www.LimitedPartnerMag.com 3
28
Pensioenfonds Horeca & Catering has
switched from funds of funds to a managed account to help
diversify the portfolio and bring stability to the fund
Strong on service
WouterJanNaborn,
PensioenfondsHoreca&Catering
36 Adding a dash of spice
Michael Lindauer,
Allianz
Allianz Capital Partners spices up its private
equity portfolio with a smattering of‘riskier’funds and is now
exploring whether the time is right to invest in Africa
74
Private equity fundraising in Italy is still challenging, but GPs
such as IDEA are leading the way as the industry begins to
see encouraging signs of growth
GP Perspective:
Leading Italy’s PE growth
Federico Cellina,
IDEA
32
Idinvest is focused on continental European
SMEs – a market that has generated returns to growth
investors“north of 25 per cent”, says Christophe Bavière
Big Bang theory
Christophe Bavière,
Idinvest
LP Perspectives News & Views
Funds
40 Insider perspectives and exclusive coverage on
fundraising, new funds in the market and the latest
industry developments
People
56 Appointments, spin-outs and people moves from
both limited partners and general partners across
the globe
Regional insights into emerging markets and key
locations within the global investment space
Regional Perspectives
88
Asia
Middle East
Africa
Latin America
88
92
94
98
38
French private equity firm Parvilla looks to
limit the risk of emerging markets by investing in the‘more
exporting’countries of northern Europe
Small is beautiful
Jean-Marie Fabre
Parvilla
Sector Perspectives
60 Essential news, views and opinions on the most
relevant developments, trends and investor activity
across the private equity and venture capital industry
60 Secondaries
64 Infrastructure
69 Real Estate
75 Buyout
82 Venture Capital
86 Cleantech & Sustainability
6. FEATURE
4 Q1 2015
F
ew in the private equity space will have failed to notice that
there is a spring in many a general partner’s step once more.
While some had predicted private equity’s demise in the dark
days of 2008 and 2009, the past couple of years have proved the
sceptics wrong, as fundraising levels have improved markedly and
show signs of sustained growth for the foreseeable future.
In fact, more capital than ever is heading in private equity’s
direction. As quantitative easing and historically low interest
rates have persisted over the medium to long term (and look set
to continue in a number of markets, most notably Europe), lower
returns from other asset classes, such as fixed income, have left
investors seeking higher yielding opportunities. The result is that
allocations to alternative assets, and private equity in particular, are
up and look set to continue their upward trajectory.
A recent report by McKinsey predicts that the amount flowing
into global alternatives will increase by five per cent annually over
the next five years and that by 2020, they will account for 15 per
cent of global asset management industry assets, up from 12 per
cent currently. Private equity is a big beneficiary of this trend. More
than 30 per cent of LPs have increased their allocations to private
After years in the doldrums, the private
equity fundraising environment has
improved dramatically over the past
two years – but that doesn’t mean
all funds will catch a following wind
7. FUNDRAISING
www.LimitedPartnerMag.com 5
Added to this is pressure on allocation percentages. As other
asset classes such as public equities have risen in value over the
past couple of years, so the absolute amount LPs need to commit
to private equity needs to increase to keep pace in percentage
allocation terms.
At the same time, distributions from GPs are up on the back of
welcoming IPO markets in developed economies (albeit with a
slowdown in the second half of 2014). In the first half of 2014, 134
private equity-backed companies had completed an IPO globally,
raising a total of $55.9bn, or a massive 47 per cent of global IPO
equity over the past two years, according to the Coller Capital
Summer 2014 Barometer, against just 17 per cent reducing it, with
family offices and insurance companies leading the charge – nearly
70 per cent of the former have increased their allocations, while half
of insurance companies have done so.
“There is an appetite for all alternatives, including private equity,
as investors look for ways to generate higher returns,” says Helen
Steers, partner at Pantheon. “Private equity has outperformed public
markets, and that is encouraging investors to be quite bullish about
the asset class.”
Treasure hunt
8. FEATURE
6 Q1 2015
proceeds, according to data from Ernst & Young. In addition, the
highly liquid debt markets seen in the past two to three years,
driven by the appetite among investors for leveraged loans and high
yield bonds, have enabled many private equity players to complete
dividend recapitalisations. This has also boosted distributions. In
the US alone, GPs returned $134bn to LPs in 2013, according to
Cambridge Associates – the highest amount on record.
This is undoubtedly having a positive effect on LPs’ ability to
commit to funds in the market, as LPs strive to maintain or increase
their allocations to private equity.
Rising totals
“The last year or so has been a good fundraising environment,”
says Dominique Gaillard, who heads up the direct funds business
at Ardian. “Thanks to the debt and IPO markets, GPs have been
able to distribute a massive amount of cash to LPs from 2013
through to now. LPs are now cash-rich and so if they want to keep
their exposure to the asset class, they need to recommit at quite
dramatic levels.”
The fundraising figures certainly reflect these trends. In 2013,
private equity funds globally raised a total of $524bn, up markedly
from 2012’s figure of $389bn, according to data from Preqin. In the
first three quarters of 2014, fundraising totals stood at $327bn, with
the historically busiest fourth quarter still to go.
There is also a record number of funds in the market, with 2,205
seeking an aggregate $774bn as of Q3 2014 – and the prospect of
many more funds to come to market over the coming year.
“It has been a good year for fundraising in Europe this year
and the positive momentum appears likely to stay with us into
2015,” says Jim Strang, managing director at Hamilton Lane in
London. “This last year has been a great one for distributions, with
significant liquidity from exits and re-caps. LPs are looking for new
commitments to help maintain their exposure to the asset class.
Next year should see several high profile fundraisings from large
European focused GPs.”
Behind the numbers
Yet the overall figures don’t tell the whole story. While fundraising
in general terms has returned to healthy levels, at a more
granular level, there are clear disparities between different funds,
geographies and strategies.
Predictably, the mega-fund space has driven much of the uptick
in numbers. The Carlyle Group’s $13bn sixth US fund, a $3.9bn
Asia-focused fund, Apollo Global Management’s eighth $12bn fund
and KKR’s $9bn North America Fund, together with a $2bn special
situations fund and a $1.5bn real estate fund, have all reached a final
close in the past 18 months.
With large amounts of capital to deploy and a desire to reduce
the number of GP relationships they manage, larger LPs such as US
pension funds are attracted by the mega-funds’ ability to accept big
cheques. “There will be a lot of capital heading towards the larger
funds,” says Steers. “The large pension funds and SWFs need to
Capital Dynamics’ John Gription says you have to look long-term
Theperformancequestion
Private equity’s performance has improved steadily since
the nadir of 2009, with both buyout and venture capital
comfortably outperforming the S&P 500 index, even through
the downturn – and this is clearly one of the reasons LPs are
seeking to increase allocations to the asset class.
“Private equity has outperformed the S&P 500 by
between 400 and 600 basis points over the last 30 years,”
says Carlo Pirzio Biroli of DB Private Equity.“It is not as liquid
as the public markets, but the returns have historically
compensated for that.”
And while the performance numbers of boom-time deals
may have looked shaky a couple of years ago, increased
market valuations together with actions to increase value
at an individual company level, have seen even these deals
improve in multiple terms, even if not in IRRs.
“I think it may still be possible to get north of 10% to 12%
on the boom era vintages,”says John Gripton of Capital
Dynamics.“That’s not too far out of line with stock market
performance during that period. Most investors see that
period as a blip rather than the norm, and the only ones really
affected will be those that had just started investing in the
2006-07 time frame.
“You have to look at it over the long term. Private equity
has otherwise consistently outperformed public markets
and there have been some very good returns on investments
made since the crisis.”
9. FUNDRAISING
www.LimitedPartnerMag.com 7
deploy their capital somehow, and they don’t necessarily have the
resources to commit to large numbers of smaller funds.”
At the very large end, LPs are also being lured by the fact that
many firms have chosen to diversify into other alternatives, from
real estate through to credit and special situations, providing LPs
with a one-stop shop for many of their alternative investment needs.
Further down the fund-size spectrum, however, there is a clear
bifurcation between the haves and the have-nots. “The best mid-
market firms are able to raise funds,” adds Steers. “And because
they tend to be quite disciplined and not increase fund sizes too
dramatically, they have limited capacity for taking on increased
commitments and are raising quickly.
“However, there are also funds that have struggled and had a
much more prolonged fundraising period.”
Gaillard agrees: “Since the crisis, the market has become much
more black and white in terms of LP appetite for a particular GP.
Those GPs with good LP relationships and good performance
can raise at or above their target quickly; others drag on for
months and either don’t reach their target or abandon fundraising
completely.”
One recent casualty of this binary market was Gresham Private
Equity, which dropped its £150m fundraising effort in early 2014
after a series of departures at the firm. It has now gone into run-off.
At the other end of the success scale, Inflexion Private Equity
attracted a total of more than £1bn in 2014 to be split across buyouts
and minority stakes.
The venture capital space, meanwhile, has undergone something
of a revival after many years in the doldrums. While most LPs
have historically concentrated their VC portfolios on a few top-tier
managers (if they have been lucky enough to be able to access
them) given the tremendous divergence in returns seen since the
2000 crash, the past couple of years have seen more successful
fundraisings. The first three quarters of 2014 saw $38bn raised by
220 venture capital managers, up from the $31bn raised by 274
managers for the whole of 2013, according to Preqin.
Distributions reached $105bn for 2014 to Q3, a higher total than
for any full-year period since 2007, boosting performance figures.
Many LPs remain circumspect about VC, however, and so while we
may continue to see a steady increase in fundraising, there’s unlikely
to be an investor stampede into the market any time soon.
What’shotfor2015
Investor appetite for alternatives led to impressive figures in
both the real estate and infrastructure fund spaces during
2014. In real estate, two years of strong fundraising has led to
the highest amount of dry powder globally on record.
By Q3 2014, the sector had $220bn to deploy, a significant
increase on the $186bn seen at the end of 2013, according to
Preqin. At the same time, fund sizes have been creeping up,
with the average fund raised in Q3 2014 coming in at $546m,
up from the previous high of $466m in 2008.
Meanwhile in infrastructure, the average fundraising total
has exceeded $1bn for the first time since 2007, with nearly
two-thirds (61 per cent) having exceeded their fund size
targets in the first three quarters of 2014.
“Infrastructure and private debt will be the hot sectors in
2015,”says Ardian’s Dominique Gaillard.“Insurance companies
and pension funds are craving yield that is higher than the
couple of basis points they can achieve in Treasury bonds.
Infrastructure ticks a lot of their boxes in this respect.”
As the low interest rate environment has persisted,
so investors have been seeking yield. One of the main
beneficiaries of this quest has been the private debt funds
– with many of them raised by private equity players or
distressed/special situations firms. In the first three quarters
of 2014, $37bn had been raised for private debt funds, and in
2013 a total of $77bn was raised for these vehicles – far higher
than the $23bn raised in 2009, according to Preqin. And while
mezzanine and distressed debt have historically been the
mainstay of this corner of the market, direct lending has rapidly
increased in importance, making up 42 per cent of the volume
of funds raised in 2014 to Q3.
The supply of deals for these funds is also being boosted by
the trend for bank deleveraging, and the need for diversified
sources of capital among corporates – factors that will not
dissipate any time soon. So, with both supply and demand on
the high side, this is an area to continue watching during the
coming year.
“Privateequityhasbeaten
theS&P500by400to600
pointsoverthelast30
years.Itisnotasliquidas
publicmarkets,butthe
returnshavecompensated
forthat”
Carlo Pirzio Biroli,
DB Private Equity
10. FEATURE
8 Q1 2015
As far as geography is concerned, with many of the mega-funds
based in the US, it’s unsurprising that the US has been behind much
of the rise in fundraising over the past year or so. But it’s also a
function of a pick-up in its economic prospects, as well as the fact
that GPs there have been able to take advantage of a vibrant exit
market. “The market in the US has been very strong, partly driven
by the fact that it is a deep well of opportunity that includes high-
quality managers,” says James Moore, global co-head of UBS’s
private funds group.
“In addition, you’ve had a public market that has rebounded very
strongly and has been hitting all-time highs, providing a great exit
market and therefore LP distributions. As well as that, you’ve had
new LPs setting up new programmes and the existing deep pool of
LPs increasing their allocations. The market has been so hot that,
while two years ago the average timeline for fundraising was 18 to
24 months, for the US funds we’ve raised recently it’s taken more
like a year, with some raising in as little as six months or less.”
Meanwhile in other regions, fundraising conditions are less
clear-cut. In Europe, concerns remain among some investors about
the region’s economic outlook, particularly as countries such as
Germany posted some disappointing GDP growth figures in the
year. Overall, sentiment is improving from the nadir of the sovereign
debt crisis days, but investors are not as bullish about the region as
they might be about the US.
While many pan-European funds are likely to gain traction, the
success or otherwise of smaller, more country-focused funds will
depend much more on macro factors. Germany, the UK, Ireland
and the Nordic region are the most promising regions in Europe for
LPs, according to the Coller Barometer. Meanwhile, only a quarter
to a third of North American LPs (and not many more European
LPs) viewed Spain, Portugal, Italy and France as having good
opportunities over the next three years.
“The market for funds below €1bn has a slightly different
dynamic. Most of these funds are country-specific rather than pan-
European or pan-regional,” says Strang. “Here we see a relatively
small number of funds that the market deems highly attractive and
where there is considerably more demand than investment capacity.
These fundraises tend to happen extremely quickly. Outside of this
group we see fundraising taking longer, but for the most part funds
are being raised, as we’ve seen relatively few failed fundraisings.”
In Asia and emerging markets, appetite among LPs is being
heavily influenced by exit markets – or lack thereof. While the
slowdown in China and some other emerging markets has inevitably
pushed company valuations downwards – creating a better deal-
making environment for private equity players – many LPs are still
awaiting distributions before committing further.
“A lot of money went into emerging economies post-crisis, but
not much has yet come back,” says Moore. “As a result, there is
“Therewillbealotofcapital
headingtowardsthelarger
funds.Thelargepensionfunds
needtodeploytheircapital
somehowandtheydon’t
necessarilyhavetheresources
tocommittolargenumbersof
smallerfunds”
Helen Steers,
Pantheon
11. FUNDRAISING
www.LimitedPartnerMag.com 9
some caution among investors who want to see proof of concept
before committing further. With the US market looking much
stronger now and with many emerging markets, including Asia,
not having delivered the numbers that justify further investment
on a risk-adjusted basis, many US investors, in particular, are now
reappraising their portfolios. If they can get as good, if not better,
returns in the US with funds that are just down the road, they’re
asking themselves why they would go to far-flung parts of the world
where the perceived risks are higher.”
Asset management is about selecting the manager and a good
manager in any asset class will outperform the market. “In
established markets like the US, Europe and now, to some extent,
Asia you have a lot of choices,” says Carlo Pirzio Biroli, global head
of DB Private Equity. “Where you are probably still a little bit short
on choices is emerging markets like Africa, or even LatAm, or some
new sub-asset classes. It is also true that those are new markets
where you still need to prove that the risk-return profile of the
private equity asset class justifies an investment in those regions.”
Ingredients for success
While there is little doubt that increasing amounts of LP capital are
flowing towards private equity, it’s also apparent that this capital is
increasingly discerning. While many GPs used to be able to count
on re-ups from existing LPs, this is no longer the case. Coller’s
Barometer found that 84 per cent of LPs are prepared to refuse
to reinvest with GPs whose last two funds they backed. This may
well increase the divergence between the haves and the have nots.
While performance may have ticked up slightly over more recent
times, most LPs recognise that the days of 30 per cent plus IRRs
have passed, if they were ever anything more than a myth. They are
therefore on the hunt for ways of accessing the market in a more
economic way than the traditional fund investment charging two and
20. But that doesn’t necessarily translate into lower fees.
“Management fees are very sensitive and we always want to
make sure that we don’t overpay,” says John Gripton, head of global
investment management at Capital Dynamics. “But you have to look
at the quality of the manager, and I would much rather invest with
a well performing manager with a slightly higher fee than one that
hasn’t had such good performance but is willing to negotiate.”
Instead, the hunt for value is concentrated on gaining access
to direct deals. Co-investment rights have long been a feature of
fundraising discussions, although few LPs have historically taken up
these rights. However, there is now evidence to suggest that those
who have co-invested in the past are more keen on doing so in the
future, with 56 per cent of LPs planning to increase their direct,
co-investment activity over the next year, according to a Preqin
report. Some of this may be the result of funds-of-funds increasingly
offering this type of service to its LPs, but whatever the reason,
offering co-investments is clearly a box to tick for GPs.
Beyond that, LPs are looking for consistency in the managers
they back. “Teams can and should evolve, but there needs to be a
degree of stability in the team and strategy,” says Gripton. “GPs also
need to have a good position in their market and, most importantly,
consistency of returns.”
Ultimately, there is no substitute for developing good
relationships with LPs. “We like to get to know managers at least a
fund ahead so that we can understand their strategy, know how the
portfolio is performing and track what they are doing,” says Steers.
“That way we know even before they launch whether a GP’s new
fund is one we might want to back, and if it is, we’ll aim to make
sure we get a slot.”
And finally, timing is vital. “Some managers are better prepared
than others,” says Steers. “By that I mean that they come out fund-
raising at a point when they have shown some traction in terms of
exits and portfolio company performance in the immediately prior
fund, as well as in the older funds under management.”
With improved conditions across most markets and the prospect
of ever more capital flowing towards private equity, the fundraising
environment is clearly returning to health. Nevertheless, no-one
is expecting a return to pre-crisis days – LPs are now much more
discerning about where they deploy their capital, with the automatic
re-up now pretty much consigned to the history books.
While most mega-funds are almost guaranteed fundraising
success, for the rest, the basics matter: firms should at least hit their
target if they have a solid track record, good LP relationships and
a consistent and relevant strategy that targets a market that doesn’t
face too many political or economic hurdles. Those with a blot or
two on their copybook will find the going much, much harder.
“ThemarketintheUShas
beensohotthat,whiletwo
yearsagotheaveragetime
forfundraisingwas18to
24months,recentlyit’s
takenmorelikeayear”
James Moore,
UBS
12. FEATURE
10 Q1 2015
F
inancial products come with a health warning: past
performance is not indicative of future performance. It’s a
tricky issue in the world of private equity, where track record
is king and academic studies have shown a stronger degree of return
persistence than in other asset classes. But if past performance is not
the best guide, what is? To what extent does entry price determine
the eventual return in private equity?
“Entry price and return is a complex relationship,” says Robert
Ohrenstein, global head of private equity at KPMG. “Several other
factors, such as market position, geography, synergies
and/or growth prospects go into the mix, which is why it becomes
very judgemental when people comment on a deal at what looks
to be a ‘rich’ multiple that it will not generate a good return. The
multiple is a big part of it, but it’s by no means the only part.”
Exit values
On an individual basis, entry price may not determine exit value, but
what is the picture when the industry is looked at in aggregate? The
Centre for Management Buyout Research (CMBOR) at Imperial
College tracks entry multiples for small (less than €10m), medium
(€10m-€100m) and large (over €100m) European buyouts.
Its data shows price-to-EBITDA multiples for large buyouts rising
from 10.9 times in 2005 to a high of 12.5 times in 2007, falling to
8.7 times in 2009 before climbing back to hit 11.5 times in 2014. It
is worth observing that for the same time periods, exit multiples on
large buyouts were 12.1 times, 13.3 times, 9.7 times and 11.9 times,
so exit multiples did stay higher than average entry multiples in
every year.
But what of returns? It is, of course, too early judge later vintages,
but data from the European Private Equity & Venture Capital
Association (EVCA) appears to follow a pattern set by pricing.
Because of the fundraising cycle, you need to look at investment
periods after a particular fund was raised. Buyout funds of vintage
2004 have returned a net IRR of 15.8 per cent, 2006 funds 3.9 per
cent, and 2008 funds 5.0 per cent. Vintage 2009 funds, invested in
The buyout market today looks a lot like 2006. Prices are rising, leverage is up, T&Cs
lax, competition for assets is fierce. Does this mean that returns are heading down?
If the price is right…
the years 2009-12 when entry multiples were relatively low, have
already returned an impressive 15.4% per cent, driven by a high
level of realisations.
“As you would expect, 2006-07 funds are not performing as well
as other vintages,” says Richard McGuire, private equity funds
leader at PwC, which works with Capital Dynamics and the BVCA
on UK performance data.
“But, one of the things to point out is that, in the UK anyway,
two-thirds of the value is still unrealised, and we typically find there
is an uptick between the unrealised value and the valuation when it
comes to exit because the liquidity event creates more value.”
“Is it fair to say the fuller the price the worse the return?” asks
Tim Jones, CEO of Coller Capital. “It’s a slightly simplistic
“2006-07fundsarenot
performingaswellas
othervintages.But
two-thirdsofthevalueis
stillunrealised”
Richard McGuire
Private equity funds leader, PwC
13. PRICING OUTLOOK
www.LimitedPartnerMag.com 11
generalisation, but one that I would with agree in an ordinary
market. However, if you had taken that view in 2002-03, for
example, when we were at the start of a bull market in equities, then
it would have been an incorrect assumption. At the time you could
pay a very full price and still get fabulous returns, because we had
a good run until 2008 of huge growth in the equity markets. As a
generalisation, though, I would agree with you.”
Historically, private equity has benefited from market
inefficiencies, with high realised equity returns in 2005-07 boosted
by low prices at acquisition.
“There were some markets, like German industrials in the early
2000s, where you could buy great businesses at low multiples.
These market inconsistencies in pricing meant that for those who
spotted them, or got lucky, there was a material boost to their
returns,” says Harry Nicholson, private equity partner at EY.
“Across Europe, that’s now largely gone. There are still some
differences and patterns in pricing, but the gap is much narrowed.”
Private equity performance depends on the health of the equity
market, both in terms of IPOs and giving trade buyers the firepower
to make acquisitions at full prices.
Stockmarket performance is itself (loosely) correlated with the
health of the economy, though the bull run of the past few years
shows that equity markets can perform well even when economic
growth is lacklustre. The global economic recovery continued in
2014, but failed to strengthen to the extent that many economists had
expected, according to Tim Drayson, head of economics at Legal &
General Investment Management.
A number of factors kept growth in check – tighter fiscal policy
in a number of countries, geopolitical tensions, bank deleveraging in
the euro area and in emerging markets, attempts to either constrain
credit growth or meet inflation targets held back growth.
“Next year, we expect these headwinds to fade and global growth
to gradually strengthen as monetary policy deviates further between
the US and UK versus the euro area and Japan,” he says.
“US and UK growth is expected to maintain momentum, while
the drag from Japan’s VAT increase diminishes and China’s switch
to policy loosening stabilises growth. While the outlook for the euro
area remains uncertain, further policy easing should support the
economy.”
Private equity investors generate returns in three ways – profit
growth, multiple expansion and de-leveraging. Nicholson says that
in today’s market, GPs can only rely on the first. “If you go back to
the mid-late 2000s, European private equity was generating strong
returns to its investors because it was achieving profit growth and
multiple expansion. It was buying low and selling high. That feature
of private equity investing has gone. Our data shows that equity
14. FEATURE
12 Q1 2015
returns are now driven almost entirely by profits growth. There is
the occasional deal where there is multiple expansion, and there’s
some with multiple contraction, but in aggregate what we’re seeing
is that equity gain is very significantly from profits growth and, in
my view, that is going to continue.”
GPs argue that the private equity model with concentrated
shareholdings, active ownership and strong alignment of interest
between manager, GP and LP, is at the core of value creation in
private equity.
The top line
“Most people will look for EBITDA growth. That is where they look
to make the value,” says McGuire. “Clearly, there is still a focus
from PE houses around what they pay for the investment – can they
get deals off market and avoid an auction process? If they have a
buy-and-build strategy, how can they convert lower multiples for
smaller businesses into a bigger multiple by combining things? But
I don’t think they would expect a large proportion of the value to
come from an increase in multiples.”
Basic economics says that private equity should not be able to
pay more for an asset than trade buyers, who can extract cost and
revenue synergies from a deal. But for the past couple of years,
that has not been the case with private equity players making life
challenging for corporates in the M&A market.
“Asset prices have been relatively high, there’s a scarcity of high
quality deals, the market is almost bifurcated,” says the corporate
development director of a FTSE 100 company. “You’ve got
relatively challenged opportunities that aren’t particularly appealing
that either confer low valuations or don’t get done, or high quality
assets of such scarcity value they go for very high multiples. Part of
the reason for the high valuations has been the resurgence of debt
for private equity firms.”
Neil Campbell, global head of alternative investments and illiquid
assets at Tullett Prebon says, “Interestingly enough, the atmosphere
now is very similar to 2006. Leverage today is almost at 2006 levels
– there are lot of covenant-lite transactions, which are always a sign
the market is toppy. The only difference between today and 2006 is
that the risk-free rate is now almost zero, and that is having a huge
effect on pricing.”
Getting carried away?
Advisers counter by saying that in this ‘recovery’, private equity
buyers are being more restrained. “If you look at the buy side, they
are relatively cautious,” says Ohrenstein.
“There is a clear recognition that whilst it’s been buoyant on the
sell side, then clearly as buyers they need to be somewhat careful.
Multiples across various sectors are one to two times earnings ahead
of 10-15 year averages.
“Also, current economic conditions are pretty benign: low GDP
growth, but there is not a lot of stress. Corporates have generally
been conserving cash over many years, and hence there are
relatively few forced sellers, and corporates are therefore providing
stern competition in the M&A market. On the other hand, debt
availability is pretty high and frequently cheaper than pre-crisis.”
Private equity buyers have become used to paying high multiples
for quality assets, and are modelling pricing for transactions at lower
exit multiples.
“Private equity buyers are being quite disciplined around making
sure they have a strong investment thesis and ensuring they have
good liquidity in the early years – all the good lessons learnt from
the crisis,” continues Ohrenstein.
“However, a relatively high volume of deals is being done at
today’s pricing. The funds would say they have a specific angle, and
that they believe the company has a position to justify that multiple.
However, one of the key things we are seeing is that buyers are
being realistic about exit multiple assumptions, and pricing in a
multiple decrease on exit where appropriate. This should ensure
better discipline on pricing.”
Secondary pricing: supply and demand
As in the primary market, the same trends in pricing can be seen in
the more opaque secondary market. Secondary market players have
raised huge sums of money. Estimates by advisory firm Evercore
gauged the overall secondary market’s size for 2013 to be around
$26bn, with approximately $45bn of dry powder available at the end
of 2013 and a further $30bn expected to be raised in 2014.
“If you look at buying simple LP books, which is where probably
two-thirds of the secondary market is by value, they are very full
priced at the moment,” says Tim Jones, CEO of Coller Capital.
“You have portfolios which are regularly being sold at par, and some
even at a premium. The buyers of those assets have to be either
Most people look for EBITDA growth, says Richard McGuire
15. PRICING OUTLOOK
www.LimitedPartnerMag.com 13
Tim Jones: All down to supply and demand
underwriting to lower returns, or assuming there’s going to be a
macro bull market, or applying a lot of leverage to try to generate
returns that are acceptable.
“The question is, is it the right return for the risk? Prices are very
full, and also there’s not a huge differentiation in pricing between
a US book and a European one. The reason for that, in my view, is
pure supply and demand, which is the same as we’re seeing in the
primary market. There’s a lot of capital chasing simple LP books.”
But it is not just – or even mainly – the weight of secondary fund
money that is pushing up pricing. Increasingly, buyers and sellers
are cutting out the middle man and dealing with each other direct.
Institutions such as pension funds and insurance companies have
considerably lower return expectations than secondaries specialists
and are thus in a position to pay a higher price.
“Secondary buyers have certain parameters based on their return
profiles, in some cases the bid they show may not be high enough
for a seller. The market is changing, with sellers seeking an end-user
with a lower return profile,” says Neil Campbell, global head of
alternative assets and illiquid investments at Tullett Prebon.
“Instead of selling to secondary funds with fairly high return
profiles, they are finding end-users such as insurance companies,
endowments and family offices who may have lower return
requirements. If you are a pension fund your return profile could
be 4-6 per cent, but if you are a fund-of-funds it will be early teens.
This is what has changed significantly over the past 12-18 months.
The massive pension funds feel the market is becoming more
commoditised, easier to transact, more efficient, so it makes perfect
sense for them to invest directly.”
The trick for sellers is to maximise the potential pool of
buyers. “If you’re selling a substantial position across a variety of
strategies and a variety of different GPs, the only way you can do
something sensible is have some sort of process with a variety of
buyers – dedicated secondary traders or secondary investors, high
net worth individuals, family offices – because you need to create
investor tension,” says Robert Ohrenstein, global head of private
equity at KPMG.
“For the larger intermediated deals we are currently seeing high
prices,” says David Jeffrey, partner and head of the European
business at Stepstone. “But for the smaller transactions there is still
what I would call a traditional secondary discount for the illiquidity.
I view the market as bifurcated right now. There’s the large, well-
diversified portfolio transactions that are occassionaly leveraged
to increase the price that buyers can pay. And there are the smaller
single asset sales that sometimes clear at a bigger discount.”
This is not to say there is not a role for dedicated secondaries
players, but they are having to work much harder to generate the
returns – and justify the fees. “A large part of our business model is
looking at portfolios that are more complex by nature and around
how they are held,” says Jones.
“Take our acquisition of Lloyds Bank’s Integrated Finance
business in 2010. We lifted out the team and the assets, finding value
by being a partner with the seller in trying to sort through some of
the issues and some of the complexities around disposing of the
whole business. There’s a lot more complexity, and therefore it takes
you away a little bit from the pricing pressure that you’re seeing
with the plain vanilla stuff.”
“Thequestionis,isitthe
rightreturnfortherisk?
Pricesareveryfull.There’s
alotofcapitalchasing
simpleLPbooks”
Tim Jones,
CEO, Coller Capital
16. FEATURE
14 Q1 2015
Digging for cash
Infrastructure projects need
$57trn over the next 15 years.
But with many investors
disappointed by their
experience, how can deals be
structured to give institutions
the returns to justify the risk?
Projects such as London’s Crossrail, pictured, require huge investment from the private sector
17. INFRASTRUCTURE
www.LimitedPartnerMag.com 15
I
n September 2014 Ontario Teachers’ Pension Plan (OTPP)
took control of Bristol Airport, the UK’s ninth busiest. OTPP
bought the 50 per cent of the airport it did not already own
from Macquarie European Infrastructure Fund in a deal that
Reuters reported was worth up to £250m. OTPP, Canada’s largest
single-profession pension plan first invested in Bristol Airport in
2001 and raised its stake to 49 per cent in 2009.
The transaction is the logical extension of a trend towards
direct investment that is being seen across the infrastructure
space, with LPs increasingly eschewing the traditional route of
investing through GP-managed funds and preferring either co-
investment or direct investment. As with traditional private equity
funds, reducing the overall fee burden is a critical motivation.
“We have to go direct or we have to work as a co-invest. Going
through funds is too expensive for us,” Edmund Truell, chairman
of the London Pension Fund Authority (LPFA), told AltAssets’
LP-GP Forum in October.
“The fee drag and the J-curve drag kills our returns. On the
other hand, we do want to be in these assets. We want to be in
infrastructure. Why? It has characteristics that can be exploited
by that ultimate illiquid investor – the defined benefit pension
plan. But there is a scarcity of assets, so we’ve got to be cleverer.
We’ve got to work out ways in which we as a pension fund can
invest, without being number 77 in the queue and paying the
highest price. We have to take on development risks.”
The moment you move down the curve towards direct
investment, you are taking on additional operational and
development risk. Investors that have taken this route argue those
risks can be manageable, however. Ken Manget, vice-president
at OTPP, is quick to defend the Bristol Airport investment: “I
hate to think of it as a brave investment. We think it’s a prudent
investment.”
For a start, OTTP has been a shareholder in Bristol Airport,
which generated pre-tax profits of £25.8m in 2013, for more than
a decade, so has a relationship with the asset that had evolved
over time.
“Buying an infrastructure asset is not the same as buying an
inflation-linked bond and putting it away in a safety deposit box
for 30 years,” says Manget. “It’s much more complex, requires
rigorous and disciplined analysis and intensive due diligence.
“We actually started as an LP in an airport portfolio including
Bristol, Birmingham, Brussels, Sydney and Copenhagen. We
were simply an LP investor, but there was a strategy to get
familiar with the asset class, to get familiar with the assets, and to
understand the disciplines involved in being an effective manager
of our pensioners’ money.”
In 2007 OTTP received direct stakes in the airports when a
fund run by Macquarie was wound up, and also took over direct
stakes from other LPs that did not want to hold them. Manget
says that with six years of ownership under its belt, OTTP was
ready to be a direct owner.
“We evolved from indirect LPs, passive investors, and made
sure we involved ourselves in the ongoing operations of these
airports to a point where we felt comfortable taking direct
ownership.”
In 2011 OTPP carved out a speciality asset manager, Ontario
Airport International (OAIL), which has five London-based
individuals managing the European airport assets.
“When the other 50 per cent of Bristol became available it was
just a very natural evolution to take it on – because essentially
we had been associated with that asset for almost 13 years,” says
Manget “If you look at that evolution of investment expertise,
the investment is consistent with our strategy. We currently
have in the infrastructure group 40 individuals; 30 are based in
“We’vegottoworkout
howweasapensionfund
caninvest,withoutbeing
number77inthequeue
andpayingthehighest
price.Wehavetotakeon
developmentrisks”
EdmundTruell,
chairman,
London Pension Fund Authority
18. FEATURE
16 Q1 2015
Toronto, five are based in Santiago and five are based in London.
There are intensely rigorous management activities involved in
being a direct owner. It’s not just attending board meetings and
it’s not just receiving the annual reports, it’s actively engaging
in the management, with the management team and the asset
managers, to make sure that value is being created at all stages.
“We have considerable expertise, but we weren’t endowed
with that expertise. We just grew with the market and the assets
to a point where we were fortunate enough now to be in a
position where we can make an investment such as Bristol and
not think of it as brave.”
Size matters
So does OTPP’s experience mean that the role of the infrastructure
fund manager is redundant? Far from it. Specialist managers are an
essential part of the jigsaw if investors are to move further up the
risk-return curve.
“Infrastructure is perceived as inflation-protected through
regulatory cost adjustment; stable, with predictable cash flows;
low risk and easy to manage. Anybody can do it,” says Volker
Häussermann, director, infrastructure asset management at First
State Investments. “So why should we actually go through funds?
What justifies funds and fees and why should we not go direct?
Why should I pay more if I could do it myself?”
Experience has shown that infrastructure is anything but
stable and predictable. Häussermann cites the example of
Anglian Water, a UK water utility that First State invested in,
where Ofwat has recently published the framework for the next
regulatory period. On one side there is the classical regulatory
regime, where the operator is allowed an inflation-adjusted
nominal return, but on the other is where the regulator has
introduced new elements for performance management, service
and operational delivery.
“If you’re not best in class, you’re not able to capture the
potential the regulator allows you to earn, so you need to make
sure when you manage your assets you lock in all these various
elements, manage all your costs – operational and investment –
and set clear guidelines as to what you want to achieve.”
Lands of opportunity
There is no shortage of infrastructure opportunity. The numbers
boggle the mind. According to a 2013 report by the McKinsey
Global Institute, Infrastructure productivity: how to save $1trn a
year, worldwide demand for infrastructure investment to 2030 is
$57trn. This includes spending on roads ($16.6trn), rail ($4.5trn),
ports ($700bn), airports ($2trn), power ($12.2trn), water ($11.7trn)
and telecoms ($9.5trn).
But there are significant challenges. Professional services firm
Ernst & Young lists some of the most “daunting” in its latest
infrastructure report – providing the basics, including drinking
water, waste-water treatment; building multi-modal mass transit
systems; converting from coal and oil to less polluting, lower
CO2-producing energy sources; anticipating the next wave of
communications requirements for business; maintaining existing
infrastructure; and convincing cash-strapped governments and
other bodies to pay for all of the above.
The demand is such that both public and private sector capital
will need to be mobilised if the world is to come even close to
satisfying its infrastructure needs. A big problem for private
capital is accessing opportunities that provide the right risk-
return balance, particularly given the efficiency of the market.
“Europe has a very broad opportunities set,” says Christoph
Manser, head of infrastructure investments at Swiss Life.
“Unfortunately, most of the opportunities are coming through the
form of auction processes, and there is limited deal flow that can
be kept purely in bilateral discussions.
“We are prepared to engage in auction processes where we
think we have a better than average likelihood of winning. The
way we look at businesses is with a relatively low cost of capital,
but obviously we want to make our returns with moderate or low
levels of risk, and we want to be able to achieve that with robust
business cases.
“That’s not always the case in these auction processes, where
people are not only willing to bid for relatively low levels of
returns, but also with relatively aggressive business plans.”
Competition among investors for equity assets has pushed
Petersen-Lurie: “You need to assess the politics of the country”
19. INFRASTRUCTURE
www.LimitedPartnerMag.com 17
down returns, which is making more investors look at debt. “Is
this still an attractive asset class for an equity investor?” asks
Nicola Beretta Covacivich, head of infrastructure finance at ECM
Asset Management.
“If you own the equity side clearly you are taking an equity
risk position. And does that really differ very much from corporate
equity risk? When you had double-digit returns the answer was
very easy. When you start to get into single digits, or low single-
digits equity returns as is the case now in the UK in the renewable
energy market, it makes sense to look at the debt, whether its
senior or subordinated. For the type of risk you are taking, it’s an
attractive proposition.”
Infrastructure is suited to pension funds and other institutions
with long-term investment horizons, but that very long-term
nature brings a whole new set of challenges. “One very obvious
point which is sometimes missed, is that you need to assess the
politics of the country not just in terms of stability, but also in
terms of sustainability,” says Fagmeedah Petersen-Lurie, CIO
of Eskom Pension & Provident Fund, the pension fund of South
Africa’s state-owned electricity generating company. “I tend to
favour democracies simply because you understand them and
they’re slightly more predictable than other areas.”
Geopolitical events, from the Arab Spring to Ukraine, can have
a huge impact on infrastructure investors because of their time
horizon. “The environment we are operating in at the moment
Skandia: constructing an
infrastructure portfolio
Swedish insurance group Skandia is a committed investor
in alternative assets. At present it allocates 25 per cent of its
€46bn of assets to alternatives, with 10 per cent in private
equity and venture capital and four per cent in infrastructure.
“Skandia has been actively investing in alternative assets
for a long time,”explains Roger Johanson (pictured), head
of venture capital and direct
investments at Skandia Mutual Life
Assurance Company.
The institution has been
investing in private equity since
the mid-1970s, when it was
a founding partner of one of
Sweden’s leading buyout groups.
“We have learnt how to invest in
these asset classes over time and
we approached the infrastructure
the same way,”says Johanson.
“You have to learn what you are actually investing in
before you actually start doing co-investing and direct
investing, and that’s how we did it.
“I started to build our programme in late 2007, beginning
of 2008, and now we feel we have a deal flow that is of high
enough quality, and that we actually know what we are
doing ourselves so that we can be more active in looking at
co-investing and also direct deals.“
Johanson says a different skill set is required to do direct
investments from fund investments.The key difference is in
the depth of understanding that is required of the investor to
be a partner to the operational partner of the asset.
“You have to have some people internally – or at least
some people you can recruit to be your speakers – that
actually understand the asset, because as a financial
institution you are not the guy who can actually run the wind
turbines or build the toll road.”
The core of Skandia’s infrastructure programme comes
through fund investments. Johanson says the institution has
seven active relationships with GPs, a number he does not
expect to increase significantly in the coming years.
Skandia is able to vary the risk profile of the portfolio
by selecting managers who take on different levels of risk
themselves.
Johanson accepts that fund investments come with a cost.
“We do have to pay them, but we have also realised that we
don’t have the skill sets that are necessary to do these type of
investments ourselves.
“I would love to do more direct, and I have said internally
that if we had ten people I would gladly do more direct
investments, but as long as we are only nine people in the
whole private equity group it will not really happen, not on
a big scale.”
“Oneveryobviouspoint
whichissometimes
missedisthatyouneedto
assessthepoliticsofthe
countrynotjustinterms
ofstability,butalsoin
termsofsustainability”
Fagmeedah Petersen-Lurie,
CIO, Eskom Pension &
Provident Fund
20. FEATURE
18 Q1 2015
is becoming more challenging,” says Serge Lauper, managing
director at BlackRock PEP. “It’s more difficult to assess the
macro risk you invest in when you look at the asset.
“One of our key elements when we think about the
attractiveness of a region is not only looking at the infrastructure
sector as a kind of sub-sector, but looking first of all top-down at
how attractive the region is and what is its outlook.”
As with all investment classes, emerging markets are
perceived as having a higher degree of risk, but Petersen-Lurie
believes they can also offer some of the best opportunities.
“A big potential growth area I’ve seen infrastructure is India,”
she says. “One of the things I’ve deduced from my experience
is that infrastructure projects give higher yield where there
is less infrastructure. India as a subcontinent has very little
infrastructure and the infrastructure projects that have been
successful there have given significantly high yields.”
Edmund Truell, chairman of the London
Pension Fund Authority, says creating
a SWF with the expertise to invest in
infrastructure is the only way of affording
ever-increasing pension liabilities.
“The real challenge in public sector
pensions today is that our liabilities are
growing faster than our assets.
“Despite all the political rhetoric, the UK
– one of the fastest growing economies in
the G7 – is still going to add £100bn to the
deficit this year. How on earth can it afford
to pay for these ever-increasing pension
liabilities?
“How can we actually make workable
investments out of the billions and billions
– the hundreds of billions – that needs
to be put to work in that infrastructure
sector?
“There is a solution, and that is to get
the pension funds pooled, merged and
then investing into British infrastructure.
“We have to take on development risks.
We’ve got an objective in our fund of
getting to real plus four. The first thing you
do is fire the pension consultant that says
you should be investing in gilts because
they are safe. They safely guarantee
bankruptcy. We’ve got to get rid of that
stuff and into much higher yielding assets
if we are going to stand a chance of
getting to fully funded.
“Now, why private capital? These pools
of capital have to be harnessed because
governments have no longer got the
money to invest. This is a nice asset
class. It has low correlation. Returns are
less volatile. And, of course, it actually
promises, in many cases, inflation linkage
which, when you have inflation-linked
liabilities, is incredibly important.
“How can we source infrastructure
investments? We can go into fund-of-
funds, we can go into funds, managed
accounts, all sorts of different structures.
But increasingly we want to be going into
either co-invest or direct because the cost
of funds can be excessive.
“So let’s look to other models, at the
Canadians, the Dutch, the Australians. How
are the best sovereign wealth fund type
investors actually getting into this asset
class? They are investing directly into the
assets, they’re resourcing up their teams.
But that’s expensive.
“I’ve got George Osborne’s agreement
that we can actually pay people properly
in the public sector. That’s really, really
important if we’re going to have the right
team, the right experience to make good
investments. People are beginning to
realise you’ve got to do this properly or
not at all.
“We need to pull together all the public
sector money. According to the Rotman
Institute in Toronto, it would save about
half a per cent a year, which over the
lifespan of a pension scheme is an awful
lot of money. Build scale and go direct.
Welcome Trust reckons that returns from
direct investments are about 10% a year
better than the returns from the pooled
investments.
“Pull it together, improve our expertise,
improve our governance. If we just take
the LGPS, that’s £178bn. The Department
of Business has got £120bn in its pension
funds. Defra has over 100 pension
schemes under its umbrella. They’ve all
got their own consultants and actuaries
and rather badly invested assets. Pull them
all together and create a SWF.
“It would bring significant benefits to the
UK in terms of making proper investments.
If we can make proper investment returns
– real plus four, rather than gilts at two or
three per cent – then we have a chance at
least of eradicating that enormous deficit.”
‘We need to create a sovereign wealth fund for Britain’
Truell:TheUKmustpoolitspensionresources
Lauper: “We should be looking top-down at how attractive the region is”
21. www.LimitedPartnerMag.com 19
FEATURE SECONDARIES SURVEY & PRICING
Two-thirds of LPs actively
looking for secondaries –
at the right price
W
hilst secondaries dealmaking has
experienced a huge surge in the past
few years, picking the right deals at the
right time can be make or break for fund investors.
Digging out reliable and trustworthy data to base
those decisions on can be tough given the relative
scarcity of information about transactions and
pricing.
AltAssets Secondaries Platform aims to change
that. The new initiative, which will be fully
launched in early 2015, will provide pricing
and liquidity data for hundreds of funds on the
secondaries market, as well as letting users follow
funds of interest and connect with LP investors in
the vehicles through the LP-GP Network.
To coincide with the impending launch, AltAssets
has called on more than 100 active investors from
AltAssets survey reveals increasing appetite in the secondaries
market as deal volume continues to grow
across the private equity marketplace to provide
an in-depth review of the current state of the
market. The following survey reveals some of the
surprising findings, as well as providing data to
back up anecdotal trends surfacing in the market.
They include the rise of Latin America as a
surprise destination for LP demand, the huge
opportunities presented by some ailing venture
capital funds and the real reasons institutional
investors are looking to divest their private
equity stakes.
The full secondaries survey and pricing data is
available via the AltAssets LP-GP Network
(www.lpgp.net).
22. 20 Q1 2015
Demand for growth capital funds is surging with nearly two-thirds of investors actively interested
in acquiring secondaries stakes
LP interest in both buying and selling stakes
continues to be strongest for buyout funds,
but other sectors have made huge gains in the
past few years and are providing enormous
opportunities for discerning investors. Growth
capital and infrastructure both show serious
discrepancies between large demand and short
supply, a situation sure to drive up prices in
these areas. Better buy-side deals are likely
to be had in venture capital fund stakes, which
have seen a surge of both buying and selling
interest since 2009 as LPs look to pull out of
underperforming investments or take advantage
of cut-price bargains.
What type of secondary transaction would you consider:
Buyout
Venture Capital
Infrastructure
Growth Capital
BUYING SELLING
76%
63%
56%
58%
65%
40%
32%
15%
Interest in the secondaries market remains high with
73 per cent of investors actively looking to acquire stakes
Somewhat surprisingly, investor interest in buying secondaries stakes is no higher than it was in 2009 according to the survey.
What is striking, however, is the amount of LPs that have actually managed to acquire stakes has jumped to 58 per cent from 55
per cent five years ago. That shift could partially stem from LPs significantly broadening their sources of dealflow, with 35 per
cent now tapping multiple sources compared to 25 per cent in 2009. The data also reveals that LPs are increasingly shunning
intermediaries as they hunt for deals, with the proportion completing a transaction using that method halving during the period.
Sell-side data shows a similar story, and highlights the increasing stability and maturation of secondaries dealmaking as a source
of fund investment.
No and do not expect to buy
SellBuy
PREFERENCES
Yes, bought directly via intermediary
1. Have you ever bought a Limited Partner secondary interest?
ACTIVITY
3. What size of secondary transaction have you bought/sold or would consider buying/selling?
$0 to $5m
$5 to $10m
$10 to $25
$25 to $50m
$50 to $100m
$100m+
YES=58% NO=42%
Yes, bought directly from another LP
Yes, bought from multiple sources
No, but do expect to buy
Nearly three-quarters of respondents are actively
interested in acquiring secondary stakes
• 73% of investors have either already bought LP stakes
(58%) or expect to buy secondary interests (15%)
• 35% of respondents have bought secondaries from
multiple sources ensuring they do not limit themselves
to only one source of dealflow
• None of the surveyed investors has acquired stakes
through auction processes exclusively and only 8%
rely solely on intermediaries
Transaction sizes within the $0-$10m range
are the most popular for the purchase and
sale of secondaries
• Investors’s bite sizes for secondary transactions
are in line with their primary commitments with over
half of respondents looking to buy stakes below $25m
• An increased appetite in the middle market is observed,
where 54% of investors are seeking to buy stakes in the
$25-$50 range and 41% are interested in selling funds
in the same range
• More than one in four investors (28%%) is looking to
buy stakes or portfolios of funds greater than $100m,
which is testament for the maturity and high liquidity
of the secondary market
YES=43% NO=57%
8% 15%
35%
15%
68% 69%
69% 55%
50%
54% 41%
27%
Yes, sold via an auction
2. Have you ever sold a Limited Partner secondary interest?
Yes, sold discreetly via intermediary
Yes, sold directly to another LP
Yes, sold through multiple sources
No and do not plan to sell
No, but do plan to sell
Nearly two-thirds of respondents have sold
or plan to sell a secondary stake
• Of the 43% of investors that have sold a secondary,
sales using multiple sources has been the most
common method (16%)
• 13% of respondents have sold stakes directly to
another LP and 10% via intermediaries
• Using auctions is not a popular source of dealflow
and only 4% of investors have solely relied on it to
sell stakes in the secondary market
4%
13%
10%
16%
22%
35%
37% 25%
28% 24%
Source: AltAssets Survey
Source: AltAssets Survey
Source: AltAssets Survey
23. www.LimitedPartnerMag.com 21
FEATURE SECONDARIES SURVEY & PRICING
BUYING SELLING
North America
Europe
Australasia
Asia
71%
64%
79%
72%
43%
29%
28%
13%
South America
25%
11%
In which region would you consider:
52%
0 to -5%
0 to -5%
0 to -5%
-5 to -10%
-5 to -10%
-5 to -10%
-10 to -15%
-10 to -15%
-15 to -20%29%
What level of premium/discount to NAV
would you expect to see for post-2009 vintage funds?
23%
22%
3%
3%
3% 19%
18%
18%
21%
21%
21%
1%
1%
1%
1%
15%
15%
16%
16%14%
5%
5%
5%
5%
5%
2%
2%
2%
2%
2%
2%
2%
4%
12%
11%
13%
48%
48%
48%
49%
44%
38%
36%
33%
46%26% 8%
8% 8%
3%
3%
3%
2%
Mega buyout fund
Large buyout fund
Medium buyout fund
Small buyout fund
Venture fund
Real Estate
Infrastructure
Growth Capital
Fund of funds
+20 +10 NAV
NAV
-10 -20 -30 -40 -50 -60
-10 -20 -30 -40 -50 -60
Average
+20 +10 Average
10%
9%
9%
9%
Reduce number
of GP relationships 33%
What motivates you to sell?
Portfolio rebalancing
Poor performance
Change in
investment strategy
Liquidity requirements
Industry regulations
Other 18%
3%
26%
26%
22%
63%
Valuations for buyout funds are
surging with over one-third of
investors expecting them to
transact above NAV
Venture capital funds raised after 2009 are ripe
candidates for a hefty discount to net asset value
according to the survey, with half of respondents
saying they expected a discount of between
10 and 20 per cent for the asset class. Growth
capital and fund of funds are also seen as likely
options for discounts, while infrastructure and
real estate are regarded as more stable options
trading closer to NAV. Large and mega buyout
funds are particularly well thought of by LPs,
with almost 90 per cent of respondents expecting
them to be trading between 10 per cent over and
under NAV.
There is increased geographic interest in
emerging markets, with over 25 per cent
of buyers interested in buying South-
American and Asian fund stakes
While Europe and North America continue to hold the
most interest for fund stake buyers and sellers alike, Latin
America has made a surprise emergence as a favoured
destination for picking up fund interests. One in four
LPs responding to the survey said they would consider
buying secondary stakes in the region, while just 11 per
cent said they were interested in selling. Rising demand
for Asian and Australasian fund stakes also looks set to
outweigh supply in the regions, pushing up prices in both
and creating a strong market for LPs looking to exit their
commitments early.
Nearly two-thirds of investors quote
portfolio rebalancing as the main
motive for selling
The rise in secondaries sellers in the past few years
has been accompanied by a shift in the motivation
behind their dealmaking. More than 60 per cent
of survey respondents cited portfolio rebalancing
as the main reason for selling their stakes. Poor
performance has seen a corresponding dip as a
reason for selling, while industry regulation has all
but disappeared as banks and insurance companies
have largely completed their enforced portfolio
restructurings following the financial crash.
24. 22 Q1 2015
FEATURE SECONDARIES SURVEY & PRICING
LP-GPNetworkwww.lpgp.net
The big name buyout funds with 2011
vintages are receiving the highest prices on
the secondary market according to the new
AltAssets Secondaries Platform.
The platform, which has been running in
beta mode for the past month, has received
valuations hovering around net asset value for
the 2011 buyout funds, reaching a peak of 3.5
per cent premium to NAV.
It appears that now is the perfect time to
buy 2011 vintage funds for those looking to
mitigate the J-curve effect, and a great time
for sellers to gain early liquidity at a premium
to NAV.
However, demand for these funds remains
low in comparison to the pre-2009 buyout
funds, which look to be a significantly better
deal for buyers. The pre-2009 vintages are
consistently receiving valuations of between
89 and 94 per cent of NAV as the funds reach
the latter half of their lifetime.
Many more insights are revealed by the
pricing data soon to be available on the
AltAssets LP-GP Network.
The new initiative, which will be officially
launched in early 2015, is the industry’s first
Secondaries Platform to include a pricing and
liquidity index. The platform allows users to
view pricing and liquidity for hundreds of funds
on the secondaries market. Additionally, users
can follow funds they are interested in, provide
price estimates and connect with LPs invested
in the fund via the LP-GP Network. The full
secondaries survey and pricing data is available
via the AltAssets LP-GP Network.
Secondaries pricing index shows
highest valuations for 2011
vintage buyout funds
25. A Global Leader in
Third-Party Fund
Administration and
Custodian Services
Bahamas | Bermuda | British Virgin Islands | Cayman Islands
Guernsey | Ireland | Jersey | Luxembourg | Singapore
To find out more, contact cis@rbc.com.
RBC Fund Administration (CI) Limited (“the Company”) is regulated by the Jersey Financial Services Commission in the conduct of fund services and trust company business in Jersey. All products
and services offered by the Company are subject to terms and conditions which you should read before applying for any product or service. Registered office: 19–21 Broad Street, St. Helier, Jersey,
Channel Islands, JE1 3PB, registered company number 52624. Administrative and custodian services relating to funds domiciled in certain jurisdictions listed above are provided through RBC
Investor & Treasury Services, a division of RBC. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. CA2323/Nov15
• Private equity
•Venture capital
• Real estate
• Infrastructure
• Fund of hedge funds
26. FEATURE
24 Q1 2015
E
urope and the rest of the Western world are lagging behind
other regions in the number of women at the helm of
private equity firms and the companies they invest in,
according to panellists at the inaugural Women’s Private Equity
Network Summit.
Development Partners International founder Runa Alam told
the event, staged in conjunction with AltAssets, that said she had
seen a marked difference between the proportion of women on the
boards in US and European offices compared with other regions.
“In Africa I find much it’s easier to work as a woman. Maybe
it’s because there’s both a shortage of skills as well as shortage
of capital, so there’s a lot more acceptance of just anybody who
shows up with the correct skills,” she said.
“Boards in Nigeria had women long before anybody here had
them. [In Nigeria] it’s very common to have 25 per cent, or up to
40 per cent women, not because they’re trying but just that they
were there to be on the board.”
Women ‘in majority’
Amadeus Capital Partners co-founder Anne Glover told attendees
she had seen the same phenomenon in other parts of the world.
“My experience of going to Asia and Africa, particularly Asia,
is that there is much less surprise when you have a majority of
women in the room – it’s taken for granted,” she said.
“[In Asia] there are very senior women all over our industry
and all over industry in general. It started with Singapore, but now
we see it across southern Asia, so I think it’s more of a Western
culture, not a gender culture issue.”
Fellow panellist and CEO of the European Venture Capital and
Private Equity Association (EVCA) Dörte Höppner shared her
experience growing up in Germany, where in the eastern part of the
country women working was the norm because of the principles of
communism that every person had to be part of the workforce.
She said, “In East Germany it was normal that women went to
work, and were provided with childcare that made this possible.
The same goes for all the other countries in Eastern Europe. So it’s
not really a big surprise that in these countries you have a higher
number of women in management positions.
“If you want to change something it’s not just sufficient to
discuss quotas, you need to look at the whole of society – things
like childcare need to be taken into account if you want to increase
the ratio of women.”
Some speakers during the day detailed discrimination they had
come up against when trying to scale the private equity ladder, such
as being passed over for promotion because of having children, or in
one case, the boss attempting to fire someone on the spot because he
could not understand how a woman could be in sales.
Other industry figures however shared more positive experience,
including GMT Communication Partners’ Natalie Tydeman.
“I’ve found it’s only an advantage to be a woman when it
comes to deal sourcing,” she said. “I will go in regularly to meet
perspective investments and they’ll be so pleasantly surprised,
because it’s the first senior woman that they’ve met.
The inaugural meeting of the Women in Private Equity Network Summit took place
in London recently – and one of the key themes for delegates was the small number
of women at the top of the industry in the West, compared to emerging markets
West‘lagsemergingmarkets
on female representation’
Delegates discuss the issues at the WPEN summit
27. WOMEN IN PRIVATE EQUITY NETWORK SUMMIT
www.LimitedPartnerMag.com 25
“With a lot of the men we’ve met, the idea of having a woman
on their board was very attractive – it has been a positive
differentiator and we as a firm feel that as well.”
Amadeus’ Glover said, “There are men in my organisation who
have a bias towards hiring women, they will openly say ‘actually
I think they work harder’. If they want to exercise that bias, and
genuinely think they’re getting a better talent, I’ll support them.”
It could just be that women themselves are put off the private
equity industry because of their perceptions of it, suggested
HgCapital partner Lisa Stone.
“It starts with recruitment,” said Stone. “We just don’t get
female applicants – it’s not that we weed them out or have some
bias about hiring them, it starts with not having enough coming
into the pot.
“I think it’s about the perception – people perceive it as being
very aggressive, people feel it’s a very male environment, or
perhaps women are put off by the commitment you need to make
to it.”
Women need to be ‘more bold’
Afternoon speakers at the WPEN summit revealed that while men
get in touch with them constantly with queries or to ask for LP
introductions, their female counterparts are simply not picking up
the phone.
“The guys all do it,” said Omega Fund Management partner
Renee Aguiar-Lucander. “If they’re coming up in front of the
board, every guy who can find my email or my phone number will
[contact] me and say, ‘have you got five minutes? I’m interested in
this or in that’.
“I have never had a woman call me or send me an email prior to
a job interview or a board interview.”
Aguiar-Lucander’s comments were echoed by other women
speaking in the afternoon panels.
Emerald Ventures managing partner Gina Domanig, for
example, said that she is regularly asked for introductions or
recommendations by men within private equity. “I think I receive
10 emails a week from men asking me for a favour,” she said. “I
barely know these guys but they ask for personal introductions to
some of my LPs. Sometimes I’m hesitant to do it, sometimes I do
it to get the person off my back.”
Domanig added, “Granted there aren’t many women in our
industry, but I very rarely I receive any requests from women, I
think they hesitate to ask for a favour. I think probably as women
we could be more bold and ask for favours more often.”
Marianne Germain, CEO & co-founder at EpiGaN, said she has
realised that her male peers call each regularly other even if they
have no particular reason.
She said, “Men are constantly calling each other for anything,
I’m not sure there is an outcome, but the mutual confidence
increases a lot between them. Now I’m trying to pick up the phone
to make sure I keep the relationship and to make sure there is
nothing else that has to be discussed.”
Key terms now part of
due diligence, says LP
The terms and conditions part of a deal can be so contentious
that Illinois Municipal Retirement Fund CIO Dhvani Shah
considers them alongside a fund profile when deciding
whether to invest.
Speaking at theWomen’s Private Equity Network Summit,
she told delegates,”“I felt so strongly about this I moved terms
and conditions up into our due diligence part, so we can view
terms prepared at the outset. Because we’ve learned that once
a deal is approved, it can be painful to pull out.”
Details Shah would look at, she said, include partnership
and organisation expenses, but there are other reasons for
agreeing terms from the outset.“We’re also looking to see how
they negotiate – are they going to be a good partners?That’s
also really important to know from the onset as well,”she said.
Fellow panellistVickyWilliams, head of private equity at BP
Investment Management, agreed that she is“very focused on
terms and conditions these days”.
The BP exec said she had experienced a scenario where a
deal is all but signed off, but the firm did not agree to meet
them halfway on the legal terms, so the LP pulled out. She
said,“It is painful, very frustrating having to do that, but things
like the key man, etc, we need those investor protections.”
Williams also told delegates that her current focus is on
lower market-focused funds which“hopefully have the
potential for outsized returns”.
She said,“We’re also concentrating on early stage and
venture capital funds.”
Williams added that pension funds tends to avoid larger
vehicles, with a current focus on sub-$500m private equity
players. She said,“In my experience, generally the returns
seem to go down, the larger a fund gets.”
Williams is especially keen to avoid markets that appear
to be becoming overcrowded.“I saw a lot of people go into
the Asian market in 2007 and 2008, who didn’t do too well,”
she said.“I don’t like it when there’s too many people going
into the same market, it gets very heated – for example Latin
America the last few years, and that’s now fallen away again.”
Speakers respond to questions at the WPEN summit
28. FEATURE
26 Q1 2015
Adveqeyesmoreagricultureinvestments
A
£116m deal for the world’s
largest almond orchards has
sparked Adveq’s interest in global
agriculture and the firm is now seeking more
investments of the same ilk.
The Swiss fund of funds and co-investment
specialist announced the acquisition of 18,000
hectares of orchards in February this year,
made via its Almond Trust II vehicle under its
real assets investment division.
The farm includes 12,000 hectares planted
with three million trees and accounts for
around 50 per cent of Australia’s almond
production and 3.5 per cent of the nuts grown
worldwide.
London-based vice-president at the firm
Farah Shariff said that agriculture investment
such as this one provide the characteristics
that Adveq’s investors are looking for. “The
almond orchard deal provides an inflation
hedge and the returns that you get are long-
term and stable in nature,” she said.
The firm entered the deal alongside
co-investment pension fund partners the
Municipal Employees’Retirement System
(MERS) of Michigan, and Danica Pension.
The timing was especially propitious
as almond production has been falling in
California, one of the biggest regions in
the world for the nuts, which has driven up
prices, said Shariff. “We’re now looking
globally for similar deals,” said the VP.
Adveq has a number of different
investment themes including technology,
Europe, opportunity, Asia, secondaries and
real assets.
The firm employs 90 members of staff
across eight offices worldwide, with the head
office in Zurich and others in New Jersey,
London and New York. Over the course of
the past six years the investment manager has
also expanded into Asia, opening offices in
Shanghai, Beijing and Hong Kong.
While there may be debate about China’s
potential for growth during the next few
years, Shariff reckons private equity
investment is a good way to benefit from any
upturns.
“You can capture the consumption growth
in places like China through private equity
investing more readily than you can through
the public markets,” she said. “We are finding
very favourable dynamics for private equity
in that region.”
The firm has an “emerging market view”
said Shariff, but its deals in Asia so far have
mostly been in China and India.
Adveq’s investment focus tends to vary
depending on where it is operating, backing
venture capital in the US while targeting
small buyouts and turnaround opportunities in
Europe and Asia.
At the moment the firm is looking to be
part of more co-investments through its
primary and secondaries programme, and is
targeting companies at the lower end of the
market.
Shariff said, “We believe that at the smaller
end, valuations are more reasonable. We
are finding good valuations for high-quality
companies which are much more difficult to
come by at the larger end of the spectrum.”
While opportunities are plentiful, Shariff
does not rate all of them. “There’s a lot being
offered to LPs but not everything offered is
worth taking. One has to be discerning.”
Recent investments by Adveq include
backing new Danish SME focused investor
CataCap, which had exceeded its hard cap
by 10 per cent, closing its first fund on
DKK1.1bn ($191m). It was Adveq’s first
investment in Denmark, and made alongside
Access Capital Partners.
Earlier this year the firm also invested in
Dutch spoolable pipeline maker Airborne Oil
& Gas, which serves offshore oil and gas and
service companies.
As of June this year Adveq had a total of
$5.7bn assets under management.
Adveq says it incorporates environmental
and social governance into its investment
analysis and decision-making processes and
promotes acceptance and implementation
of these principles within the private equity
industry.
Farah Shariff:: Looking to capture consumption growth
29. WOMEN IN PRIVATE EQUITY NETWORK SUMMIT
www.LimitedPartnerMag.com 27
Privateequityfirms
lookingtoFrance
forsmallcapdeals
G
lobal private equity firms are zoning in on the opportunities
provided by France’s small cap companies and their need for
debt providers, according to Monica Dupont-Barton, counsel
at law firm Reed Smith.
“We are acting for a number of alternative capital providers and
sponsors currently looking to invest in the French market at all levels
of the capital structure,” she said.
France is particularly popular, said Dupont-Barton, because of
the high-quality companies emerging from the country. “In contrast,
perhaps, with the French economy, there are a number of small cap
companies in France, particularly in the biotech and retail space, that
are performing well and have attracted interest from international
investors, in particular US investors.
“These companies require capital to grow, and there are a number of
debt providers who are interested in helping them grow.”
There is also plenty of scope for investing in a French business and
bringing them to other countries, said Dupont-Barton.
“The most prominent example was the acquisition of the SMCP
Group by KKR in April 2013, but other smaller companies have
followed suit,” she said.
As a French speaker, Dupont-Barton is well-suited to facilitate these
firms, particularly those that are concerned about recent changes in
financial regulation.
New fast-track regime
“One of the areas of my expertise is to work with alternative capital
providers and sponsors looking to invest in France and educate
them on the risks of investing in France, particular with regards to
restructurings,” she said.
“The new fast-track sauvegarde regime has gone some way towards
meeting the concerns of foreign investors into France but it has not
addressed all the shortcomings of the French legal system.”
Reed Smith’s specialism on the French market also helps with firms
looking to invest in African regions. “We find that there are a number
of funds focusing on energy and mining in West Africa, and you need
to have a French capability to be able to provide meaningful advice,
because a significant number of African countries’legal systems is
based on the French system of law,” said Dupont-Barton.
Among Reed Smith’s specialities is putting European deals into
terms that US private equity investors can understand and use.
“In an environment where a number of French companies require
refinancing or growth capital, and French banks are restricted (from
a regulatory perspective) from lending, there is an opportunity for
private equity houses and funds to invest in France.
“We find that French corporates are becoming increasingly
comfortable with borrowing from funds who can provide financing on
more bespoke terms better attuned to a particular business,” she said.
“In this space, we advise on a number of French private placements,
and we see this becoming increasingly sophisticated from a covenant-
package perspective.”
In the US, Reed Smith has a number of firms as clients, particularly
in the real estate space, who are looking to raise funds in the US
market including in Chicago, LA and New York.
Reed Smith also has a base in Kazakhstan, which is ‘thriving’
according to Dupont-Barton. The law firm is being pulled in, however,
because of the knock-on effects of sanctions with Russia.
“We have seen a number of investors focusing on investments
in Kazakhstan this year, or through Kazakhstan into Russia,” said
Dupont-Barton.
“This year we have acted for the Ministry of Finance of the
Government of the Republic of Kazakhstan in relation to the multi-
billion debt facilities put in place to finance the public-to-private
acquisition of Eurasian Natural Resources Corporation. We continue to
advise the government in its capacity of shareholder in ENRC.”
Dupont-Barton, who spoke at the AltAssets Women’s Private Equity
Network Summit, said that she was attracted to Reed Smith because of
the relatively high number of women in senior positions.
“It makes it easier to link in with other women across the globe – a
lot of US investors are women and it’s refreshing to be able to talk to
them; I am not working in a room full of men,” she said.
Reed Smith has more than 1,800 lawyers in 25 offices throughout
the United States, Europe, the Middle East and Asia.
The law firm’s activities this year include advising Sovereign
Capital and the management of City & County Healthcare on the
secondary sale of C&C to private equity firm Graphite Capital.
Monica Dupont-Barton: opportunities in France and Francophone Africa
31. WOUTER JAN NABORN – PENSIOENFONDS HORECA & CATERING
www.LimitedPartnerMag.com 29
M
ore than a million Dutch hospitality and catering
workers have their financial future tied to the
performance of Pensioenfonds Horeca & Catering
(PHC), under the executive stewardship of head of asset
management Wouter Jan Naborn. More than half of the €6bn fund
is real estate or ‘riskier’ assets, which includes public equities,
commodities and private equity.
Private equity is a relatively new addition to the portfolio,
following a decision by the board in 2003 to allocate five per cent
of assets under management to investments in private companies.
“What attracted us to private equity?” says Naborn. “The
diversification aspect of private equity within the total portfolio
and the long-term, stable returns private equity provides are the
main attractions to us.”
PHC’s team were fully aware of the downsides to investing in
private equity. “Obviously there are examples of drawbacks,” says
Naborn. “By that I mean the lack of liquidity, lack of transparency,
the long-term commitment, the complexity of the asset class, the
need for real expertise and the high costs are examples of some
drawbacks we identified.”
The experience has been positive since the programme was
initiated. “Our experience of the overall performance of the funds
is more stable with private equity,” says Naborn. “There is a
diversification aspect to it. Especially if we look at public equity
versus private equity, private equity is more of a stabiliser within a
portfolio. You get some years where public equity performs better
but then the other years private equity is performing better. Overall
the correlation is lower than one.”
Balancing effect
Naborn runs through figures for the past six years. In 2008, private
equity returned -5.8 per cent, a less than disastrous performance
when compared with a -45 per cent return on public equities. The
return was -2.9 per cent in 2009, 23.4 per cent in 2010, 19.8 per
cent in 2011, 10 per cent in 2012 and seven per cent in 2013.
“Beforehand we thought the diversification aspect of it would
help us lower the volatility of the total portfolio, and indeed it did.
It really stabilised the overall performance of our fund, so it turned
out the right way,” says Naborn.
Initially PHC approached private equity through the
“Thediversificationwithin
theportfolioandthe
long-term,stablereturns
privateequityprovidesus
arethemainattractions”
Strong on service
A decade into its private equity journey, Pensioenfonds Horeca & Catering has
switched from funds of funds to a managed account.Wouter Jan Naborn says it will
help diversify the portfolio over different vintage years and bring stability
CV
Wouter Jan Naborn started working for Pensioenfond Horeca
& Catering in June 2008 as a senior portfolio manager and was
promoted to head of asset management in January 2011. He
leads a team of four investment executives running the fund.
He joined PHC fromTridos MeesPierson, a Dutch private
bank where he was responsible for sustainable investment
management for more than three years, and also managed a
number of semi-institutional discretionary mandates. Before
Tridos MeesPierson he spent seven years with Fortis Bank.
Naborn says the role is challenging but rewarding. “I enjoy
the more strategic part of my work, thinking about the strategy
and deepening our knowledge about different asset classes we
invest in.”
32. LIMITED PARTNER PERSPECTIVES
30 Q1 2015
traditional route of ‘blind’
commitments to fund-of-
funds, committing to five
managers, including Dutch
heavyweight AlpInvest. The
approach has since been
amended, with the fund
signing up a programme
manager in 2014.
“Why did we look for a
programme manager or a
managed account?” Naborn
says. “Over the last couple
of years we invested in five
different funds of funds, so
we were over-diversified
within this asset class within
private equity. We didn’t
have any oversight of the
underlying companies, so
we were looking for more
transparency in our private
equity programme.
“We were also looking
for ways to construct a
continuing programme
instead of appointing new
fund-of-fund managers
every once in a while. We
wanted to diversify over
different vintage years,
so we were looking for
more continuity in our
programme. We decided
to choose a managed
account, and we searched
for a manager who was
able to manage a managed
account for us. We also
want lower costs and more
transparency.”
It is too early to say
whether the change of
strategy will pay off in terms
of returns, but Naborn is
happy with one crucial element, the cost. “I’m not going to give
you numbers, but it has lowered our costs considerably and will
have a material effect on the net IRR, absolutely.”
PHC beauty-paraded ten managers before deciding to award
the mandate to AlpInvest, for a €500m investment programme
between 2014 and 2018.
“What we found out is that in finding the right private equity
manager for us, performance really matters and expertise of the
asset class really matters. So we looked for a top-quartile, fund-
of-funds manager in the private equity space. We already had
experience with AlpInvest, but researching it more, comparing it
more to other firms in our search, we favoured AlpInvest
“During the selection process AlpInvest was our preferred
choice because of the customised solution they can provide for our
Wouter Jan Naborn: Pleased with the cost savings of switching to a managed account
33. WOUTER JAN NABORN – PENSIOENFONDS HORECA & CATERING
www.LimitedPartnerMag.com 31
private equity allocation and their solid historical returns,” says
Naborn. “In addition, the focus on our requirements with regards
to exposure planning and reporting exposure were an important
consideration for our decision.”
One thing that surprised Naborn in the search was the lack of
service from US fund managers, who instead of offering a tailor-
made package for the LP, preferred to channel them into a fund-of-
funds pool. “I was rather surprised to find that in Europe, managers
are much more looking for solutions and offering managed
accounts more than they do in the US. In the US, managers stick
more to their fund-of-fund propositions. And they are not as
flexible as in Europe to lower costs. I was really surprised about
that – in Europe managers are further along in their thinking about
their product offering.”
The programme manager, AlpInvest, will have discretion over
where the funds are invested, subject to some broad geographic
and segment guidelines. Global large buyout will account for 5-30
per cent; US mid-market 15-45 per cent, EU mid-market 15-45 per
cent, non-traditional markets 15-30 per cent, and global venture
capital 0-10 per cent. Of that, 75 per cent will be in primaries and
25 per cent in secondaries.
Naborn is clear about his role as an LP – it is about selecting
the manager and letting them get on with the complex business
of managing the fund. “We’re as good as AlpInvest is, to be quite
honest. They are the ones who invest our money. That’s really
Pensioenfonds history
Pensioenfonds Horeca & Catering is the occupational pension
fund for the Dutch hospitality and catering industry. It is a
mandatory fund with some 35,000 affiliated employers and
over one million active or former participants at year-end
2013, making it one of the largest pension providers in the
Netherlands.The coverage ratio of the pension fund as at the
end of the third quarter of 2014 is 119%.
The fund was founded in 1963 by employee and employer
organisations in the hospitality or contract catering industry.
Participation in Pensioenfonds Horeca & Catering was
declared mandatory for the entire industry in 1964.That
means all individuals or legal entities operating a hospitality
or contract catering enterprise that is required to register
with the Bedrijfschap Horeca & Catering are obliged to
participate in the fund.
All employees aged 21 and upwards who have a
service contract with an employer falling under the
mandatory participation rule are required to join the basic
Pensioenfonds Horeca & Catering pension scheme, which
provides for the accrual of a retirement pension.
“Wedidn’thaveany
oversightofthe
underlyingcompanies,so
wewerelookingformore
transparencyinour
privateequity
programme”
the reason why we don’t invest ourselves – we don’t have the
expertise and AlpInvest does have the expertise, so we’re as good
as they are.”
PHC is not planning to increase its allocation to private
equity in the near future. According to the latest Coller Capital
Barometer, 31 per cent of LPs have reported increases in their
allocation to private equity, compared with 17 per cent that have
reported decreases.
However, for pension funds the trend is reversed, with 12 per
cent having reported decreases and just nine per cent reporting
increases. Coller said that family offices and insurance companies
had increased their allocations the most. Pension funds are most
‘in balance’ around their allocations to private equity of all classes
of investor, such that although more than 40 per cent are under-
allocated, a similar percentage is over-allocated.
“We’re quite happy with five per cent,” says Naborn. “Once in
every three years we look at our risk budget and we look at our
allocation to the different asset classes.
“We are still happy with five per cent. It does have a liquidity
aspect, so that’s also something we always have to take into
consideration. There has to be a balance between the liquid and
the illiquid parts of the portfolio.”
34. LIMITED PARTNER PERSPECTIVES
32 Q1 2015
C
hristophe Bavière exudes confidence and charisma. All
the more impressive as Limited Partner caught up with the
Paris-based CEO of Idinvest Partners over several phone
calls during a hectic schedule of meetings in Munich. He is open,
honest and passionate about what his company is doing. Anyone that
thinks private equity investors are ‘locusts’ would do well to spend a
bit of time with the Frenchman.
“It is very important to be transparent,” he says. “There is
absolutely no reason why you should not provide to your investors
the information they deserve regarding investments. We deliver to
our investors as much information as they ask for. Some has to be
structured as regular, written information, some is better delivered by
face-to-face meetings and by dedicated reporting for each investor.”
But his openness does not extend to the details of underlying
investments. Asked for details of specific funds that Idinvest has
committed to, Bavière is tight-lipped. “I cannot tell you who we
invest in – I am sorry for that, but the reason is that when you think
about the good mid-market players, they are very hot and it is hard
to get into their funds. There is one Swedish buyout player typical
of the funds we invest in. They are fully concentrated on their local
market where they have deal-flow. They don’t increase the size of
their funds that much and their fundraising is incredibly discreet.”
Idinvest specialises in the lower middle market in Europe and
manages more than €5bn of assets for French and international
investors. Since it was formally established in 1997 as part of the
Allianz Group, the firm has supported more than 3,500 SMEs.
Idinvest Partners is strictly focused on continental European SMEs. CEO Christophe
Bavière tells Limited Partner how this underserved market has generated returns to
venture and growth investors“north of 25 per cent”
Big bang theory
Image: NASA/JPL-Caltech
