Nicola Horlick, one of the UK’s most famous quoted equity managers, warned the private equity industry to promote itself better or miss an opportunity for growth.
Horlick, chief executive of UK fund manager Bramdean Asset Management, was speaking yesterday to a packed audience at PEI Media’s “Private Equity COOs & CFOs Forum” in London.
She said: “Private equity is not doing enough to court or educate UK pension funds. It has had a low profile. And it was outrageous this summer how much animus against the industry came out in negative articles, because the industry isn’t well organised.”
Horlick has a vested interest in the industry’s success since raising £131 million (€194 million; $264 million) for a listed fund of funds product to invest in private equity and hedge funds.
She conceded the industry was trying to raise its game. “It is important to stress private equity is doing everyone a favour, if businesses [after a buyout] are better managed. It needs to get away from [its reputation for] asset stripping,” she said.
“Quite apart from anything else businesses don’t have assets like they used to.”
Horlick predicted a booming market of mass affluent and high net worth retail investors looking to diversify into private equity, but who would struggle to access the best performing managers. She said: “This is an industry where skill is absolutely essential and who is generating alpha is not difficult to identify. The next question is how you gain access.”
Listed private equity she said provided a solution, but the industry needed to think carefully about the issue of cash drag, which has crippled some recent issues.
Private equity is doing everyone a favour.
She said the fund flotation by Kohlberg Kravis Roberts had been disastrous, trading at a 20 percent discount to net asset value, partly because of the large amount of un-invested cash on its balance sheet. She said partly paid structures of the kind proposed by Doughty Hanson last year did not work because the market did not like them.
Bramdean invests surplus cash in its product into hedge funds using the returns to mitigate the J-curve return of less liquid private equity funds.
The fund has already made commitments to a number of funds in and around the private equity asset class, including the latest offerings from Terra Firma and Thomas H Lee, Coller Capital’s latest secondaries fund, and SVG Capital’s second Strategic Recovery Fund, which aims to use private equity-style value creation techniques in the public markets.
In addition to the listed stock, retail investors can also access the fund through an off-shore “bond wrapper”, which is being provided by AXA’s off-shore division in the Isle of Man.
Horlick is a well-known figure in the UK – she was given the tag “superwoman” by the press for juggling a high-flying City career with the demands of bringing up a large family, an image strengthened when she fought off an armed robber attempting to steal her diamond ring in 2005. Horlick, who made her name as chief executive of Société Générale’s asset management arm, started Bramdean in 2004.