As of September this year, a new era began for Altius Associates, the US- and UK-based private equity advisory group. Co-founder John Hess, who’s been running the firm since its inception, took a step back from day-to-day operations, moving to an executive chairman role.
To replace him, the company promoted his three senior lieutenants – Jenny Fenton, head of investments Brad Young and head of investor relations Eric Warner – who will henceforth be co-CEOs of the business (apparently they’ve worked out a formal structure for who decides what, which will hopefully reassure any clients worried that three people into one role won’t go).
In part, the changes are a natural outcome of the succession planning that most long-standing private equity players have been trying to manage in recent years. Hess, who’s now 65, says he wanted to pass the leadership of the firm onto a younger group who would be around for the long term. The hope is that since Fenton, Young and Warner have been running the three main business lines and sitting alongside him on the management committee for the last 18 months, this option will allow Altius to manage that succession in the least disruptive way possible.
But at the same time, Hess’s move illustrates how Altius and other intermediaries are trying to adapt to the challenges of the post-crisis private equity world. In his new role – which will be a full-time position – Hess intends to spend most of his time looking after the firm’s clients, as part of the firm’s expanding investor relations efforts. According to Warner, this has really ramped up since he joined in 2011. “We’ve become a lot more outward-looking as a company in the last three years,” he says. “Previously we had some high-profile clients, but most of them were gained through RFPs; we did relatively little in terms of active business development.”
This process has had some important consequences. For one, it has convinced the firm of the opportunity in Asia. In September, Peter Pfister, formerly of Deutsche Bank, joined as the new head of Asia-Pacific based in Singapore; once the necessary regulatory clearances are obtained, he will run the firm’s first full-service office outside the UK and the US.
Altius has also tried to expand its reach. “One of the big changes has been that we’ve brought our research and analysis to a different category of investor – so not just the large global institutions we’ve traditionally had as our clients, but also smaller institutions, including endowments, foundations and family offices,” says Warner.
The smallest ones may not be suitable for the sort of separate account relationship Altius would have with a big pension fund, say. But they might invest in its fund of funds, as around 25 smaller investors have done in the past. (Altius is currently in the market with its second such vehicle; the firm refused to comment on any aspect of fundraising, but market sources suggest it’s likely hold a final close in the next few months).
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So how else is Altius’s world changing? Investors are certainly becoming more sophisticated, Young says. “One of the biggest changes is the range of investments people are making under the private equity heading now.
When a client comes to see us, they’re not just talking about fund investments any more; they want to know how we can provide a private equity solution. That includes funds, but it also includes secondaries, co-investments, maybe even private credit and real assets.”
Altius has been building some dedicated secondaries capacity in recent years. On co-investments, it’s slightly less advanced. “We’re doing co-investments for a few select clients, and it’s an area of focus where we’re looking to increase our skill set,” says Young. But it’s clearly much more top of mind than it once was. “I’d say before that it was fairly ad hoc and opportunistic; now it’s a lot more systematic.”
Another big change has been the increased focus on portfolio monitoring and analysis, Young adds. “It’s really come into focus what you do post-investment. So our systems, monitoring and understanding of the risk in our portfolio have developed accordingly.” (Altius now does an annual risk assessment for all the funds in which it invests).
“All our systems and procedures are geared towards providing full information all the way down to portfolio company level,” explains Fenton, adding that this level of granularity tends to be particularly helpful for LPs with an interest in ESG monitoring.
And it’s this greater focus that lies behind its other new senior hire: Dr. Billy Charlton, who joined as head of US investments in March. “We were looking for somebody with a skill set that would address the needs of our clients for the next 10 years,” says Young. “He’s a very quantitatively-minded person, with a PhD in Finance – but he’s been a practitioner as well as an academic, so will bring a lot to our analysis. When you think about the amount of data there is now versus what we had 20 years ago… It’s phenomenal what you can do with it and how it can drive better decision-making.”
Real assets have been the firm’s other preoccupation in the last few years. Again, it’s in market with a fund of funds; again, it didn’t want to talk about fundraising, although it’s safe to assume that the relatively low inflation environment has inevitably dampened appetite for an investment class that exists partly as an inflation hedge. “I think there’s already a lot of political will to increase real assets allocations,” Fenton argues. “I think people have just been a bit unsure of the best way to go about investing in it.”
And of course, like all intermediaries, Altius has had to spend a lot of time thinking about fees. “I think it’s global,” she says. “All investors have been under pressure to cut the costs of running their business. When your anticipated return comes down 10 percentage points, you need to work out how much it’s costing you to generate it. That’s a consistent theme across the market in all geographies. So we’re very cognisant of that as an advisor, and we try as much as we can to help our clients reduce their costs.”
Presumably that also includes Altius’s fees? “We wouldn’t get away with not discussing that too.”