You recently closed your fifth fund of funds, which is solely backed by ATP, on €800 million. In what way does the fund differ from other fund of funds?
ATP PEP is part of ATP and by law we are prohibited to compete with the private sector. We are therefore unable to raise third party capital. If we wanted to do that, we would have to spin-out ATP PEP from ATP and we don’t want to do that, because we are happy with the current set up. Although ATP is the sole investor, we are structured and measured as a fund, we invest like a fund and it’s governed like a traditional fund. And we put our own money in alongside the fund. ATP PEP has invested DK 2 million (€268,000; $369,000). We haven’t received any carry yet from the funds, so this is a sufficient amount to show we have skin in the game.
What is the strategy for this fund?
Approximately 75 percent of the total fund will be deployed in buyout funds, approximately 5 to 10 percent is deployed in distressed opportunities, up to 5 to 10 percent in venture and the remaining into co-investment opportunities. We typically invest €40 million per GP, or $50 million depending on whether the GPs is based in the US or Europe. This is our sweet spot, but this can be less. When we invest in smaller funds, we write smaller tickets.
ATP PEP has a lot of flexibility where we can invest. In 2013 for example, we only did re-ups in the US from our Fund IV. This wasn’t because we didn’t want to back European funds, it’s just that there weren’t that many funds of the preferred quality we were after. If you look at our portfolio today, it is roughly 50-50 in the allocation in the US and Europe.
You also recently co-invested alongside Bain, Advent and ATP in Nets, a payment provider in the Nordics. How did you come to participate in that deal?
Since we are investors in Advent International, we sourced the investment of Nets. The exposure to one company should not be too high. Therefore ATP provided the DK 3.15 billion in a PIK note and we only provided DK 150 million of equity as well as DKK 150m additional PIK note financing. We would never be able to deploy DK 3 billion in one transaction. We did something similar in 2008 when we acquired KMD, a Danish provider of software and IT-services, with EQT, and Via Venture Partners, the venture arm of ATP. In situations where we believe there’s a very good risk-reward situation we may look at these types of situations going forward. But these types of transactions are pretty rare.
What is your strategy on co-investments going forward?
We are keen on doing co-investments because we think [it] can enhance returns. We have done more than 25 co-investments since we started out in 2000 and they have returned more than 2.5x so it has been boosting our performance. We have been able to do the co-investments we’d like to do. Of course there’s competition but many LPs that are asking for co-investments are unable to actually do them [when they get offered them] because they don’t have the manpower. And this is also why ATP PEP didn’t do any co-investments in the US before 2007, because we didn’t have a team there at the time. After we had people on the ground, we felt we were able to work alongside GPs in the US on co-investments.