Mind the knowledge gap
Team Private Equity International spends much of its time speaking with LPs that have – albeit to varying degrees – already drunk the alternatives Kool-Aid. It was something of a novel experience, then, when Side Letter recently sat down for coffee with a senior executive at a global insurer that has so far eschewed the private markets. When asked whether they had plans to enter this space, the executive noted that – in addition to having a somewhat-conservative risk appetite – talent, or rather a lack thereof, was their largest barrier to entry.

Specifically, the executive said the institution lacked staff with the knowledge of how to mitigate the J-curve, or how to build and due diligence GP relationships, among others. When Side Letter pointed to the existence of highly sophisticated, full-service investment advisers and outsourced CIOs, the executive suggested that such a solution was only “short-term” in nature.

“The knowledge of private equity is kept with those advisers – we don’t learn from it, and it doesn’t solve the problem for us in the long term,” they noted.

The insurer won’t be the first to have these concerns, nor will it be the last. There is, however, something to be said for a project, and – should the institution decide to take the plunge – Side Letter wouldn’t be surprised if there were senior LP executives out there seeking a new challenge and a blank canvas upon which to make their mark. In the meantime, GPs on the hunt for new LP relationships will have to make peace with the fact that some sizeable institutions remain just out of reach.

Pictet double fund close
Swiss investment manager Pictet Alternative Advisors has gathered $2.5 billion across two funds – $1.6 billion for fund of funds vehicle Monte Rosa VI and $900 million for its fifth dedicated co-investment vehicle, per a release seen by Side Letter. Monte Rosa VI is $400 million more than the amount it raised for its $1.2 billion, 2019-vintage predecessor. Capital raised for the vehicle will primarily make buyout fund commitments in North America and Europe-focused GPs. It has a smaller allocation to venture, growth strategies and Asia-based managers, and earmarked between 20-30 percent of co-investments and secondaries, according to the statement.

Pictet has deployed more than 70 percent of the fund already, it is understood. Co-investment V, meanwhile, will be deployed across 30 minority deals alongside Pictet’s GPs. Pictet has backed funds managed by EQT, BC Partners, Forbion and Apax Partners, PEI data shows. Commenting on the fundraise, Maurizio Arrigo, global co-head of PE, said that capital raising was driven by its wealth management business and institutional investors in Europe. He noted, however, that inflation and the tough macro environment will impact PE returns overall.

“It was fairly easy for GPs to deliver good returns over the last five years. Everybody had very good returns, both in buyout and venture or growth. And now, the times are much more difficult with multiples that contract, with uncertainties about the macro and inflation that start to dent companies’ margins, as well as debt, which is difficult to find and very expensive,” Arrigo said. “The gap between the very good managers and the OK ones will widen dramatically in this environment. We’re being very selective and make sure we back GPs we believe will deliver despite the more difficult times.”

Niche news
Investing in funds with specific strategies as opposed to broad mandates can deliver higher returns, according to research from secondaries and fund of funds specialist Mantra Investment Partners. Niche PE funds delivered an average of 39 percent internal rate of return and a 2.1x multiple-on-invested-capital in the decade to 2020, compared with a 19 percent return and a 1.7x MOIC for mainstream PE funds. Mantra, which, we must note, describes itself as a niche investment firm, defines ‘niche’ as typically being a sector specialist such as focusing on aerospace and defence, cybersecurity or food and agriculture, for example. “The common thread running through all niche PE portfolio companies is that they are off the radar of most non-sector specialists,” Mantra noted. Details here.

Essentials