Side Letter: What LPs really want; Ares’ Landmark losses; Maxwell’s next venture

Getting to know the people behind a fund is just as important as financial analysis for some LPs. Plus: Ares Management has lost another senior executive from its secondaries unit and PE veteran Ray Maxwell is advising on co-investments. Here's today's brief, for our valued subscribers only.

Just happened

Knowing PE, knowing you
Keeping up with the frenetic pace of fundraising is not a huge concern for all LPs, Side Letter was intrigued to discover this week. Over coffee in London, the investment director at one large European LP said that for his institution, taking the time to properly diligence a manager and understand issues such as succession and culture was more important than simply trying to keep up with the next re-up or secure an allocation with the hottest name that month – even if this process takes two or three years.

“If we choose to back a manger, it’s going to hopefully be for three funds at least. That’s a 25-year [investment] time horizon,” said the director, who was in town for the Institutional Limited Partners Association’s EU Summit. Understanding issues like succession planning and firm culture are therefore crucial, he added. “We invest on behalf of people. We are people ourselves. We give money to other people to invest, and they in turn invest in companies, in people. [Financial] analysis is 50 percent of what we do but the other 50 percent is understanding people.”

Ares-on to leave?
Side Letter has written quite a bit lately about the various trials and tribulations of PE firms hoping to expand into secondaries (see yesterday’s edition for tips on how to build a team in this highly competitive market). Ares Management is among the most high-profile to have made a push into the strategy with its acquisition last year of secondaries giant Landmark Partners. A series of high-profile departures since that merger was agreed, however, is a timely reminder that the process of launching into a new strategy is not always a smooth one.

Charlie Tingue, a partner who had been based in Landmark’s London office since 2013, left the firm last Friday, affiliate title Secondaries Investor reported yesterday (registration required). Tingue is the third partner to leave the firm since the Ares tie-up, and comes as the firm seeks $6 billion for its latest flagship fund. It is also understood that Tingue was a key person on both Landmark Equity Partners XVI and Landmark Equity Partners XVII, though no key-person event was triggered.

They did the math

Specialist vs. Generalist
Received wisdom seems to hold that specialist funds have a performance advantage over their generalist peers; new research suggests that’s not always the case. The HEC Paris – Dowjones Small-Cap Buyout Performance Ranking analysed the returns of small-cap buyout funds between $100 million and $1 billion raised between 2008 and 2017 to determine which firms have delivered the best returns. Canadian business services specialist CAI Capital Partners was named top performer, followed closely by US-based diversified investor Falfurrius Capital. “This just shows that sector focus or diversity are neither a necessary nor a sufficient condition for success,” HEC Paris professor Oliver Gottschalg said in a statement.


Maxwell’s next venture
UK PE veteran Ray Maxwell has partnered with alternatives advisory Reframe Capital to launch a co-investment service, per a Wednesday statement. In his capacity as an advisory partner at the firm, Maxwell will help asset owners to source and evaluate individual PE and other private markets co-investment deals. Maxwell’s PE career spans four decades, having built and led the Post Office Superannuation Fund in the 1980s, before joining Invesco through the acquisition of LGT Asset Management in 1997 and turning consultant in 2006. “When I began my investment career, I was sourcing single deals and co-investments and now, over 40 years later, the appetite has again returned for single deals and co-investments,” he said.

Today’s letter was prepared by Alex Lynn with Adam Le.