Dutch investment firm Achmea Investment Management is considering to increase its strategic exposure to private equity to 5 percent of its total portfolio in the next few years.
“We are in the build-up phase, the group is light in private equity exposure and we are building up the programme,” senior portfolio manager Jos van Gisbergen told Private Equity International. “It’s challenging to time the market, so if there’s not any good offering or any great fund that fits our criteria, we won’t do it. Quality and alignment goes first since private equity is a long-term asset category.”
Achmea’s strategic target allocation to the asset class is 60-80 percent in funds, 10-20 percent in co-investments and 10-20 percent in secondaries, he added.
Along with investing in high quality managers, Van Gisbergen also noted that the firm is “keen on backing European spin-outs because they know how the system and processes work and have a good network, alongside its investments with high quality managers”.
The investor has backed funds managed by LeapFrog Investments and Life Sciences Partners, according to PEI data.
Achmea serves as asset manager for 35 pension funds and insurance companies in the Netherlands and manages more than €130 billion in assets, according to its website.
The firm’s private equity exposure stands at less than one percent or about €1 billion including outstanding commitments, van Gisbergen said. The private equity investments are highly diversified nature in terms of sector, geographical region and type of investment such as buyouts, growth and special opportunities. The US makes up about 45 percent of its portfolio; EU, 45 percent; and the rest of the world, 10 percent.
Its portfolio of alternative assets also includes hedge funds, infrastructure, real estate and commodities. The value of this portfolio as of August 2018 is approximately €13 billion. The share of alternative investments in the overall portfolio has, however, decreased due to reductions in its positions in commodities and infrastructure, Achmea noted in its latest annual report.
Van Gisbergen noted that private equity investors expect returns to inevitably come down because the fundamentals of the market are changing.
“We already see the first signs of trouble coming – a rising interest environment combined with high leverage, will make it more difficult to make good returns. It’s also a highly competitive market where people are buying at crazy multiples, at 10-12x EBITDA whereas the average historic has been around 8x. It’s almost impossible to make great returns as we saw in the past. At expectations of 5 percent for public equity and 3 percent for illiquidity premium, one should expect returns of between 8 percent and 12 percent as being more realistic.”
Van Gisbergen also warned of private equity’s “massive inventory pool”, which he explained as GPs circulating assets amongst themselves instead of selling to strategic investors or listing in the public markets.
“There’s too much money for too few deals. On the surface the returns are fantastic but if the underlying companies are not growing, people will realise that’s just lot of air in it.”