Mass appeal

Large US pensions aren’t the only ones keen on multi-asset class separate accounts – as illustrated by the mandates recently won by LGT.

Over the last few years, there’s been increasing attention on private equity firms structuring special accounts – sometimes to invest across multiple asset classes – for their most prized limited partners.

Typically that attention has been on the industry’s largest LPs and GPs, such as Texas Teachers’ $6 billion arrangement with Apollo Global Management and KKR or the New Jersey Division of Investment’s $900 million deal with The Blackstone Group.

But a recent win for LGT Capital Partners serves as a reminder that investors of all sizes are keen for tailor-made programmes. The fund of funds and advisor won a £100 million segregated mandate from UK-based Kingfisher Pension Scheme last June. This was the second such vehicle it created in recent months, after receiving a £280 million commitment from the British Hertfordshire County Council in January. All told, it now manages about £4.7 billion via such separate accounts. 

The rationale for these has become clear in recent years, says Tycho Sneyers, managing partner at LGT. “In 2011 we recognised the difficulties some pension funds face in accessing alternative investments, because effectively managing a diversified portfolio of such investments requires significant team resources and expertise. In response, we developed our multi-alternative offering, which provides them with exposure to a broad range of risk/return drivers and access to best-in-class managers.”

While segregated accounts provide the largest investors with greater control over how their money is invested, they can also attract smaller LPs who are looking for higher yields but lack the capital, staff and expertise to manage a diversified portfolio of alternatives. LGT’s latest offering hopes to address such needs: it spans nine classes of alternatives, ranging from hedge funds and commodities to real estate and private equity. 

That doesn’t mean smaller firms are going to wind down their blind-pool fund investments, or that demand for such vehicles is being cannibalised by the rise of separate accounts. LGT closed its latest secondary fund on its $2 billion hard cap last February, for example, a full $800 million above the sum collected by its predecessor fund in 2010. If anything, the development of novel fundraising strategies may well allow a fresh flow of institutional money into the private equity space.