The UK Post Office, which in December last year decided to increase its exposure to private equity by about £450m, has created three fund-of-fund portfolios to invest the money. Three firms – two from the US and one based in Europe – have been handed discretionary mandates to invest the money.
It has handed global mandates to Pathway Capital Management of Los Angeles, and Hamilton Lane Advisors of Bala Clywyd, Pennsylvania, and has given a European mandate to Pantheon Ventures, based in London.
“Clearly the Post Office is UK-based and wanted some exposure to Europe,” said James Cane of Campbell Lutyens, the specialist private equity firm enlisted to help the Post Office decide how best to invest its money. “But it accepted that it couldn’t have a balanced portfolio without significant US exposure.”
The mandates these firms have received are discretionary and the Post Office will play no role in deciding which companies will be invested in. “We are very much in the initial stages (of pension fund investment in private equity),” said Cane. “We are talking about a relatively small amount being invested over a time frame of three to five years.” Private equity represents about three per cent of the £16bn the Post Office manages.
Cane believes that private equity’s popularity among pension funds can only grow. “I would say the lemming instinct is ingrained in people,” he says. “Three per cent is not the figure we’ll end up with.” However, he says the rise will be gradual rather than meteoric.
But the recent stock market slump could dampen enthusiasm in the short term, despite the fact that buying opportunities are improving, not getting worse. “By the time everyone gets in a high state about it (private equity), the market goes the other way,” says Cane, “which is of course the ideal time to invest.”
The Post Office fund is the fourth largest in the UK.