Alberta to build direct PE team in-house

Leo de Bever, head of the C$70bn Alberta Investment Management Corporation, said money managed by external GPs costs ‘nine times what it costs me internally’.

Leo de Bever, who leads the C$70 billion (€46 billion; $67 billion) Alberta Investment Management Corporation, is building an investment team to make direct private equity investments, moving away from the traditional model of investing with external managers.

In an interview with sister publication Private Equity International, de Bever said he favours an in-house team for the asset class. “External managers get 2 percent no matter what,” he said. “I may be paying 4 percent every year on the amount of capital invested and no returns in the current environment. That’s a very painful way to invest, as opposed to my own guys who don’t start earning any money in terms of variable compensation until the asset does at least as well as comparable public markets.”

“It’s a crazy situation right now, the performance standards being applied to internal managers are orders of

de Bever

magnitude more strict and more demanding than what we expect from external managers,” he said.

The problem I’m wrestling with right now is that 75 percent of my cost is coming from 25 percent of my assets – the externally managed assets.

Leo de Bever

Alberta has traditionally made direct infrastructure investments. The system, which is a combination of pension and endowment funds and government reserve funds, has made about $2 billion in commitments to external private equity managers, of which about $1 billion is actually drawn.

“The problem I’m wrestling with right now is that 75 percent of my cost is coming from 25 percent of my assets – the externally managed assets,” de Bever said. “I’m trying to improve on that cost equation. A dollar managed externally cost me nine times what it costs me internally.”

Alberta will still review opportunities to invest with external managers as a limited partner but will be patient and cautious about whom it chooses to manage its money.

“We’ll take our time and not do anything stupid,” de Bever said. “We’ll be very pragmatic about who is likely to create value for us and minimise exposure to anyone else.”

Alberta has invested in various fund managers, including The Blackstone Group, Apollo Management, The Carlyle Group, Centerbridge Partners, CVC Capital Partners, Hellman & Friedman, TPG and Permira.

A more extensive interview with de Bever will appear in the November issue of sister publication Private Equity International.