BlackRock on why long-holds and less leverage can be ‘compelling’

Dag Skattum, Europe head of the asset manager's Long Term Private Capital fund, says family- and privately owned companies are attracted to a more flexible type of capital.

BlackRock‘s long-hold private equity fund made its second investment last month with the acquisition of a majority stake in perfume maker Creed.

Long Term Private Capital, which has a $12 billion target, has raised at least $3.85 billion, according to Private Equity International data. PEI caught up with Dag Skattum, who leads the fund’s Europe business, to discuss the deal, the types of assets the fund looks for and how LTPC differs from other long-hold strategies.

Tell us how the deal with Creed came about and the plans for growth

It’s a rare privilege to be entrusted with the legacy of a business that’s been in the family for over 250 years. When the family decided they wanted to find a partner to sell the business to, it was very important to them to find someone who has respect and appreciation for the truly unique business Olivier Creed, the sixth-generation Creed, built since he took the reins over 50 years ago.

We will be very respectful of what makes this company the great luxury brand that it is and plan to pursue a very measured growth strategy. Some of the opportunities that we will look at include investing further in the business and putting in place a well-defined strategy to grow in specific geographic markets where Creed is under-represented today.

What types of companies do you look for as investment opportunities?

We look for high-quality companies where we think we can be a value-added owner for the long term. Our first investment, Authentic Brands Group, was a founder-led company but was majority-owned by private equity. Our ability to go in and become a long-term partner in a business that we’d known for a long time was a good example of where our capital is well suited.

In this case, Creed represented a unique opportunity to acquire a differentiated luxury brand that had a really strong growth and financial profile, and was well positioned in a niche luxury market that’s forecast to see strong growth.

We are a long-term or flexible ownership horizon fund and rely less on maximising leverage to generate PE returns, given our efficient fee structure. Long-term and lower-leverage might not be differentiators to everyone; but among family- and private-owned companies, we find the proposition to be particularly compelling, helping deliver unique sourcing opportunities for our investors.

What’s the best way to think about BlackRock Long Term Private Capital?

LTPC is an innovative private equity fund focused on delivering PE returns and better alignment with investors and portfolio companies. Our model is focused on growing quality businesses and driving value creation through active ownership. We target companies that we believe have delivered the best source of private equity alpha over time – high-quality, high-ROIC businesses with a strong track record of growth – and leverage our unique alignment and fee efficiency to drive differentiated compounding of private equity returns for our investors.

How does BlackRock LTPC compare with, say, a Berkshire Hathaway-style model?

There are many elements in Warren Buffett’s strategy and Berkshire Hathaway that are similar, such as the focus on high-quality companies, the ability to own for the longer term, and the focus on delivering compound returns. That said, Berkshire Hathaway has over $120 billion in cash and is focusing on a completely different scale of companies from any private equity firm – including LTPC. By contrast, LTPC targets private equity returns focusing on private companies and active value creation in a vehicle that is not publicly listed.

How long do you expect to hold assets for?

We have a structure that allows us to hold companies for as long as it makes sense for each investment, without being required to sell early or at any particular point for reasons unrelated to an individual company or investment. Our focus is on driving long-term value creation and delivering private equity returns while enabling our investors to compound returns in a highly aligned and efficient manner.

Dag Skattum is managing director and head of the London office of BlackRock’s Long Term Private Capital fund. He has more than 30 years of experience across private equity and strategic advisory