Where do you see opportunities in today's climate?
The opportunity in secondaries is growing and will be attractive. Plus, we're looking more at emerging markets. Certainly, as an organisation, we're feeling optimistic and have substantially built out the team. We currently have 24 investment professionals and over 40 professionals overall, excluding back office support. We traditionally had a single office [in West Conshohocken, Pennsylvania] for quality control reasons, but with the maturity of the organisation, we can now take advantage of being closer to other markets. Having opened in London in 2001, we'll be opening in Hong Kong later this year.

How has your strategy been affected by the credit crunch and other market dislocations?
Normal, steady smaller cap buyout strategies are not affected much by the credit cycle. To generate value they do things differently. Over the years, there have been a couple of themes outside what we describe as the “steady state”. The anomalies were the spike in distressed opportunities in the early part of the decade, and then the cheap credit-induced hyper activity in large-cap buyouts. Also, to add a third, there was the venture capital bubble. We avoided VC in the late 1990s and, by virtue of being a fund of funds, we're not focused on large-cap buyouts. In times like these, you have good distressed and turnaround opportunities. Through good and bad times, our mission is to deliver a healthy premium to the public market. I think the view that this is an absolute return business is outdated. If you're aiming for a premium, then the important thing is to stay invested.

What are the keys to effective due diligence?
At the outset, the first gating item is the investment concept. What's the fund's rationale? Is it a plausible thesis for outperformance? Are there differentiated skill sets? Then, due diligence is about validating the thesis. We do track record analysis and we meet the GP and go through all the deals to make sure there is good attribution. We look for team cohesion. Independent reference checking is very important to us – we have our own reference networks so we're not relying on the GP's own references. In emerging markets especially you need independent references on the market and the GP. Where we have no history in a market, the first commitment is always very challenging. Therefore, when we first enter the fray it may be through a secondary purchase or a historical connection.

Would you expect to see a movement of investor capital away from larger buyout funds and into the smaller and mid-cap space?
There is increasing appetite from investors for smaller funds, but there are constraints on institutional LPs because they need to invest big tickets. So they are still supporting mega-funds in order to put a quantum of capital to work. There will be a movement to smaller funds but, practically, how much of a shift can it be? That said, mid-market funds have been raising tremendous amounts of capital. Especially those funds that are institutional and visible are making a material step-up in terms of capital raised.