LP Special: Fantasy five

If a GP could hand pick their perfect investor team, it might look a little something like this.

 The best fund managers know that what you really want from an LP base is diversity — of investor type, geography and commitment size. If a GP could hand pick their perfect investor team, it might look a little something like this:


Some of the largest Canadian pension plans, such as Canada Pension Plan Investment Board and Ontario Municipal Employees Retirement System, have proven sophisticated investors, building quality private equity portfolios with the help of large, specialised teams. With offices throughout the world, they are long-term investors that are not afraid to take risks if they can foresee the reward. Most private equity firms would welcome a Canadian powerhouse into their fund with open arms, but as they are increasingly committing to the asset class through direct investments, you will have a hard time coaxing them into your next vehicle.


There are some funds of funds that every GP wants. Adams Street Partners, AlpInvest, HarbourVest Partners, Hamilton Lane and LGT Capital Partners are names Private Equity International hears frequently. For the most part these managers have the ability to write game-changing cheques, but also the flexibility to back smaller managers and take more risk with first-time funds and emerging markets offerings. Once they’ve committed, they’re also a magnet for other investors. However, it is not all plain sailing; they are, after all, at the mercy of their own ability to raise capital, which can make it hard to predict whether and to what extent they will re-up for your next fundraise.


If you manage to lure a blue-chip US endowment fund such as Harvard, Yale, Stanford, MIT or University of California Regents into your fund then you’re onto a good thing. Insiders agree that endowments are some of the most experienced, thoughtful investors you can have among your LP base. Although cheque sizes tend to be on the smaller side, if you woo one, you’ll likely see interest from others, which can add up to a significant chunk of your investor base. However, fund managers should beware that this is a very tight-knit community that regularly compares notes; if one is unhappy with terms or performance, you’ll have a hard time convincing others.


US pension funds, such as the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, Washington State Investment Board and Oregon Public Employees Retirement System are some of the largest investors in private equity in dollar terms. These investors also stand out as they are at the forefront of private equity trends and often set precedents followed by their peers, whether they’re exploring new markets, accessing the secondaries market for portfolio management reasons like CalPERS, or leading by example by pushing for greater gender diversity within private equity firms, like Washington State.


Long-established European pension funds such as PGGM, APG, ATP and AP-fonden 2 should be high up on the wish-list for fund managers. Described by one industry insider as “sticky capital”, these funds can write large cheques and their names bring a certain gravitas. Funds have to pass a rigorous due diligence process before they can get a commitment from one of these pensions, and as a result having one in your investor base can be a green light to others considering making a commitment. However, that meticulousness doesn’t end with the final close; expect to keep these investors up to date regularly with extensive reporting.


Still considered by some to be the new kids on the block, there’s no denying the Asian and Middle Eastern sovereign wealth funds represent some serious money. A commitment from the Abu Dhabi Investment Authority, GIC, Temasek, KIA or KIC could change the course of your fundraising. However, SWFs do not always make for the easiest investors. As a group, they don’t have the best reputation for transparency — glance at the list of funds on the Sovereign Wealth Fund Institute’s website and you’ll see that a fair few score fewer than half marks on the Linaburg-Maduell Transparency Index. This can make it tough for fund managers to anticipate their intentions.