“The smartest guys are at the fund of funds… but because they have less money they are becoming less meaningful,” said one investor relations partner at a London-based upper mid-market buyout firm.
The investment strategy, which groups investors into a fund that then invests in private equity funds, raised $ 15 billion in 2015, down from $ 49 billion in 2008, according to Preqin. Gatekeepers, which charge a fee to invest on an investor’s behalf, have also become less popular, according to industry executives.
Instead, deep-pocketed pension funds are viewed as the most influential and desirable investors in European private equity, while other players such as Canadian pension funds, family offices and sovereign wealth funds are also rising the ranks.
One placement agent said: “People see pension funds as stickier money and less hassle [than funds of funds].”
That change is reflected in Private Equity News’ ninth annual list of the most influential investors in European private equity. In 2015, four out of the top five investors on Private Equity News’ list of the most influential investors in Europe were funds of funds. This year, two funds of funds made the top five.
In response to investors’ reluctance to have a second layer of fees on their investments, funds of funds have been raising money through other means. These include separately managed accounts, where a firm agrees to manage an institution’s private equity allocation for a relatively low fee. As such, fund of funds investors remain large. But executives at placement agents and private equity firms point out that managed account relationships can be unstable and can raise fears that the investor will be unable to invest in the firm’s subsequent funds.
In contrast to funds of funds, pension funds and other investors have been increasing their private equity commitments. At January 2016, sovereign wealth funds had committed around 17% of all the money currently invested in private equity compared with just 6% at January 2011, according to Preqin. Public and private pension schemes also lifted their private equity investments, with such plans making up 45% of all money invested in the asset class at January 2016 compared with 42% in 2011.
Sovereign wealth funds, including Singapore’s GIC, were cited as increasingly influential, with one person describing them as the “holy grail”, although such funds still rank behind many of the more established fund of funds investors. The Abu Dhabi Investment Authority was mentioned by executives but did not make the list because it does not have a significant operation in Europe.
Many of these institutions have been trimming the number of private equity managers they invest with, making the relationships that they do have even more important to private equity firms.
Leith Moghli, a partner at law firm Kirkland & Ellis, said: “I think the sovereign wealth funds and the big pension plans are rationalising their [private equity firm] relationships. As a result, the cheque sizes are getting larger so they are becoming more important to individual [firms].”
He said such investors were making an effort to build their relationships with private equity managers because they were keen on investing in deals directly alongside the firms.
“They have been, and continue to be, focused on co-investment so they are really building strong relationships with the [firms]. From a strategic perspective, those relationships are becoming more and more important.”
Private equity AUM and advisory: €10.8 billion
Average ticket size: €25 million to €150 million
Dutch pension fund PGGM has surged to the top of this year’s list on the back of its significant firepower, its strong credibility with fundraising executives and its high-profile stance on fees and environmental and social governance issues. The amount of capital the institution had to spend swelled by nearly €2 billion in 2015. PGGM ramped up its direct spending on deals, with co-investment activity accounting for around 25% of its private equity investments through the year. PGGM is a “highly desirable name” to bring on board and the team receives praise for being “very commercial” and “very straightforward to deal with”, according to fundraising executives. Eyes are on Arjen Soederhuizen, who replaced Ruulke Bagijn, the chief investment officer of its private markets unit, earlier in 2016. Eric-Jan Vink heads the private equity team.
2. LGT Capital Partners
Private equity AUM and advisory: $ 25.6 billion
Average ticket size: $ 20 million to $ 200 million
Switzerland-based LGT may have a slightly lower profile than other investors on the list but the firm is consistently highly ranked and respected by fundraising executives. The team is praised for the thoroughness of its due diligence and its willingness to walk away from funds that have terms that it does not agree with, say executives. Historically a fund of funds, LGT invests money on behalf of the Princely House of Liechtenstein as well more than 400 institutional investors and foundations globally. The firm is currently raising its fourth secondaries fund and its second co-investment fund. The team at LGT is “genuinely principled” and is viewed as “important, smart and very active”. According to industry executives: “If they like something, they’ll just do it.”
3. Allianz Capital Partners
Private equity AUM and advisory: €8.3 billion
Average ticket size: €20 million to €120 million
Viewed as loyal and likely to recommit to managers it knows, or “pretty sticky German insurance money”, as one fundraising executive put it, Allianz has become a highly sought-after investor. Although it may not be the biggest, it can write some large cheques, with individual fund commitments of up to €200 million – among the largest of any investor on the list. The firm’s private equity team, which is led by Michael Lindauer, is a “high quality operation” and “very popular” among fund managers, the fundraising executive added.
Private equity AUM and advisory: $ 34.3 billion
Average fund commitment: Up to $ 80 million
London-based Pantheon has seen its firepower grow by around $ 4.2 billion over 2015 to reach $ 34.3 billion for primary, secondary, co-investment, infrastructure and real assets strategies in 2016. Pantheon picked up two new Swiss clients over the past 12 months and has made primary fund commitments of $ 632 million since the start of the year. The firm is a first mover in the defined contribution pension market, having set up a fund for pensioners to access its products in 2015. One investor relations partner said that Pantheon is “well-known and [has] a good range of fund investments. They are easy to deal with and they tend to stick with you.” Helen Steers heads the European investment team. Despite all this, the firm – which topped the list last year – was mentioned less often than several others when fundraising executives were asked to name influential investors.
Private equity AUM and advisory: €19.9 billion
Average ticket size: €207 million
Dutch pension asset manager APG is becoming a “more important” European investor and is “clearly very influential”, according to executives, not least because of the size of commitments – on average €207 million to each private equity fund – the largest on the list. The investor is a behemoth in the Netherlands, looking after the pension assets of around 4.5 million Dutch citizens, with the bulk of the firm’s money coming from ABP, the largest pension fund in Europe. In common with other Dutch asset managers, APG has improved its internal guidelines about the transparency and accountability of its private equity investments in the past 18 months. New York-based Iain Leigh is its global head of private equity.
6. Partners Group
Private equity AUM and advisory: €29 billion
Average ticket size: $ 10 million to $ 200 million
Partners Group, which is based in Zug in Switzerland, has been a bellwether investor for many years that provides “kudos” to fund managers that bring the investor on board, according to executives. The firm has shifted its focus from fund investments to direct investing in recent years, causing it to drop a few places on the list. Partners now spends about half of its €49 billion AuM buying assets directly, but still commits around 20% to fund investing and a further 20% investing in secondaries. The firm has also made inroads into the defined contribution market, launching a fund for such pensioners in 2016. Partners Group is “extraordinarily big and active” and “in an awful lot of funds”, according to one investor relations partner. Another added that with “that sort of cheque size you just can’t ignore or turn them away”.
7. Hamilton Lane
Private equity AUM and advisory: $ 315 billion
Average fund commitment: between $ 50 million and $ 75 million
Despite being Philadelphia-based, Hamilton Lane has a significant London presence and is seen as one of the most influential European investors because its views are well regarded by smaller investors and because of the quality of the data it collects. As well as raising $ 516 million for its latest fund of funds vehicle in July and collecting another $ 210 million for another fund in June, it has a range of managed accounts it invests on behalf of clients. It increased its assets under management from approximately $ 236 billion in 2015 to a whopping $ 315 billion as of 30 June 2016. One investor relations executive called the firm “highly influential” and added that “we know that their views will be broadcasted to a large group of investors”. The London team is led by Jim Strang, a regular on the conference circuit and well respected in the market.
8. ATP PEP
Private equity AUM and advisory: €8.4 billion
Average ticket size: €40 million
Denmark-based ATP PEP, which manages money on behalf of Danish pension fund ATP, is smaller in both firepower and team size than many other investors on the list but is highly regarded because of the strong performance of the investments it makes. In 2016 the firm was ranked by Preqin as one of the most consistent performing funds of funds globally. Over the past 12 months, the firm, which has around 15 professionals in Copenhagen and New York, announced that its latest fund of funds was increasing in size to €1.5 billion and co-invested in ADT Security Services alongside Apollo in 2016. One upper mid-market manager said: “They have got a steady pool of capital” and are sought out by peer investors for reference calls.
9. AlpInvest Partners
Private equity AUM and advisory: €39 billion
Average ticket size: €30 million to €40 million
Well-regarded fund of funds AlpInvest has slipped a few places on the list from last year because many fundraising executives say that it has focused on raising money for its coffers after being taken over by the Carlyle Group in 2011. Nevertheless, as a stalwart investor, the firm is highly regarded for its due diligence and the quality of its team. Since 2011, the firm has expanded from five investors at the time of the Carlyle takeover to around 33 investors in 2016. The firm, which previously relied on a clutch of large Dutch pension funds for cash, has been busy raising money for its $ 6 billion secondaries fund. One placement agent said: “They are busy fundraising and have less time to do extensive research”, but an executive added: “They have had to redevelop their model but they are doing well.” The Amsterdam team, which is led Maarten Vervoort, is “really good”, while Tatiana Chopova is “pretty sharp”.
10. HarbourVest Partners
Private equity AUM and advisory: $ 44 billion
Average ticket size: $ 10 million to $ 160 million or more
While some fund of funds managers are shrinking, Boston-based HarbourVest Partners is growing strongly. It increased its private equity assets under management from €32 billion ($ 36 billion) to $ 44 billion in the last year. It acquired BAML’s Capital Access Funds group, which focuses on emerging managers. Not only does the firm actively invest in European funds, it is also busy on the co-investments side and is considered a leading European secondaries investor. Kathleen Bacon and George Anson are considered influential investors in Europe, with many investor relations executives saying that HarbourVest’s European team consists of smart individuals who have their eye on the ball.
Raising a private equity fund does not necessarily involve getting as many investors as possible. Attracting certain high-profile names is often key because it will give the fundraising a stamp of approval that will encourage other investors to get on board. These big names also tend to control the biggest allocations to the asset class, meaning the firm will need fewer investors anyway.
Private Equity News, Financial News‘ sister title, produces an annual ranking of the most influential investors in Europe. As in previous years, our editorial team has analysed data from Preqin to determine which investors have the biggest budgets. We then canvassed the views of some of the industry’s most respected chief executives, placement agents and investor relations partners to assess which institutions conduct the most thorough due diligence, are strong negotiators, have kudos with other investors and are well known across the wider industry. Their ability and willingness to commit to future funds was also taken into account.
To be considered, investors needed to have a sizeable presence, reputation and budget in Europe.