“We have decided to move away from those traditional primary fund of funds platforms and to [instead] build mandate solutions,” Olivier Decannière, head of mandates at Ardian, told Private Equity International.
“We saw the evolution of the market,” he added. “LPs are becoming more sophisticated and have internal constraints, whether it’s regulatory or specific strategies they have to develop.”
Paris-based Ardian deploys on average $1.5 billion to $2 billion of investors’ capital into funds each year through its mandate programme, up from $500 million annually three years ago, Decannière said. It manages around $10 billion-worth in primary mandates.
The firm is well-known for its fund of funds model, having deployed more than $15 billion in secondaries transactions and primary commitments between 2014 and 2016, according to its website. It amassed a further $14 billion for the strategy in April 2016, comprising $10.8 billion raised through its secondaries platform and $3.2 billion for primary investments.
Primary funds of funds have been losing their appeal in recent years. Increasing pressure on valuations has threatened to narrow returns and render the additional layer of fees somewhat unattractive to investors.
Capital raised for funds of funds fell to $11.4 billion in 2017; a 10-year low, according to PEI data.
“Traditional primary fund of funds are constrained by a double layer of fees, so you’re paying for the fund of funds and underlying fund you invest in,” Decannière noted.
“That created a bit of a problem for a lot of institutions. So we decided we can keep offering that kind of product for the people who are willing to access those, but that part of the business I would say has reduced over time and is now stable.”
Ardian is instead focusing more on individual mandates for LPs, offering them access to its 1,400-strong portfolio of funds while charging just a single layer of fees. Costs are based on net asset value of their portfolio rather than the size of commitment or fund and can vary depending on the complexity of reporting desired by each LP.
It is not alone in this move. In May Hamilton Lane collected $70 million in capital from nine Finnish limited partners for a separately managed account, the first time it formed a mandate for a group of investors. The fund will invest in US and European large-cap buyout funds, which the LPs would be too small to access directly on an individual basis.
“Most of our new mandates are mainly pension funds and insurance companies,” Decannière said. “Some of the public pension plans in some European countries haven’t had that much private equity exposure and in the global macroeconomic environment they understand there’s a need, or an appetite at least, to reallocate a bit more of their resources to private equity.”
More than 70 percent of Ardian’s mandates are from European LPs, he added. The firm is also in discussions with LPs from Asia and Latin America.
“You have a lot of money flowing into this asset class now, and that’s why we’re trying to play a role.”