It’s 16 years now since Jeremy Coller did the deal that first caused the world of private equity to sit up and take notice: the daring acquisition of a $265 million portfolio of limited partnership interests from Shell’s US Pensions Trust, which his eponymous firm Coller Capital completed in 1998.
It was daring in part because secondaries as a strategy was still a blip on the radar of most institutional investors; many LPs (including some of Coller’s own investors) thought the market would be a short-lived phenomenon that would disappear within a decade. But it was also daring because of its sheer size: at the time it was the biggest single secondaries transaction on record, and it meant Coller had effectively bet the whole of his $240 million second fund on a single deal.
Happily for Coller, the bet paid off. And it proved to be the first step in an impressive growth story: 16 years on, Coller Capital is one of the world’s biggest and most important secondaries specialists, having raised almost $14 billion across six funds (a seventh is expected soon, of which more later). Meanwhile the secondaries market has not only survived but thrived: transaction volumes are expected to hit the $30 billion mark this year for the first time.
Coller himself remains in situ as chief investment officer, but he’s handed over the day-to-day running of the firm to Tim Jones, who has been with the firm since 2000 and was promoted to the newly-created role of CEO last year. Together, they oversee a team of about 160 people worldwide, including about 60 investment professionals – a big operation by any standards, but particularly in the secondaries space.
In other words, the Coller Capital of today is a very different beast to that of 1998. Gone are the days when the CIO might bet the house on a particular deal; today there’s far more talk of institutionalisation, and talent management, and best governance practice, and so on.
But as the secondaries market gets more competitive, and rivals raise even bigger funds, does Coller Capital still have enough of a spark to stand out from the crowd? In August, Private Equity International went to see Coller and Jones in their London office to try and find out.
BANKING ON COMPLEXITY
Most people in private equity seem to know Jeremy Coller, or at least know of him. He’s generally perceived as a maverick who’s not afraid to speak his mind (most people, including your correspondents, appear to have experienced him telling at least one joke not fit for reproduction in a family private equity magazine).
On this particular occasion, however, he’s in a quieter, more contemplative mood; he lets Jones do most of the talking, which the latter seems happy to do (though when the former does choose to interject, there’s no question who’s still in charge). That’s perhaps in keeping with the lower public profile Coller has maintained in recent years; he’s rarely given interviews, leaving most of the front-man stuff to his new CEO.
We start by talking strategy. What exactly is it that makes Coller Capital different these days?
“Most of the market is focused on simple purchases of fund positions – the kind of ‘plain vanilla’ deal you get when a pension fund auctions a fund book,” says Coller. “In those situations whoever writes the largest cheque gets the deal. [But] we’ve not bought from pension plans since the start of 2007 or so; we play at the more complex end of the market. Our thesis is: everyone else is building over there, so let’s build over here.”
So what does this actually mean, in practice? For the most recent fund – the $5.5 billion Coller International Partners VI, which closed in 2012 – a major focus has been on doing deals with banks that are trying to offload private equity assets, usually for regulatory reasons.
“Private equity is just a pimple on the balance sheets of these banks, but for our needs it’s plenty big enough,” says Jones. “And banks face numerous issues in disposing of it, from team incentives to accounting for goodwill. So it’s always complex.”
One recent example was a deal with Italy’s Banca Monte dei Paschi di Siena, supposedly the oldest bank in the world. “[The bank] operated right across the EU and also had its own direct investing business, so there were all sorts of complications around how the assets were held and by whom,” Jones explains. “They knew these assets were non-core and, in the current environment, they knew they should dispose of them – but they didn’t know how to do it, because nobody in Italy had ever done this kind of transaction before. That deal took three or four months of problem-solving.”