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UBS moves into private equity

The global financial services firm is considering funds focused on Latin America, China and India as follow-ons to its debut private equity fund targeting the Middle East and North Africa, launched this week. The private equity division is an extension of UBS' infrastructure group.

UBS Global Asset Management's $500 million Middle East and North Africa fund, launched earlier this week, will be the first in a series of specialist private equity offerings, largely in the emerging markets.

An extention of UBS's infrastucture group, the private equity initiative's debut fund is a joint venture with Dubai-based MerchantBridge. It was launched with commitments of $40 million from each of its sponsors and is expected to hold a first close in 2009.

“Private equity is probably the one piece of the alternative picture that we really didn’t have an offering in,” Ben Heap, executive director of infrastructure asset management, told PEO. “Having grown into infrastructure, which is all about closed-end specialist funds, private equity was a natural adjunct from that.”

Ben Heap

The private equity unit will be run by several of UBS's infrastructure professionals, including Steve Jacobs, global head of the infrastructure division, who will head the combined infrastructure and private equity business. Heap will have marketing responsibilities for both asset classes. A separate chief investment officer will be hired to helm private equity.

Private equity is probably the one piece of the alternative picture that we really didn't have.

Ben Heap

“What we don’t want to be is a ‘me too’. We don’t want to try to do the same thing as everyone else,” said Heap, who added that UBS will often work with a partner to develop unique products.

The funds UBS is in talks to develop in the near term are largely in the emerging markets. Heap expressed particular interest in Latin America, China, India and possibly Eastern Europe. He also did not rule out specialist offerings in the developed markets such as a renewable energy fund in North America or a construction-focused fund in Asia.

The infrastructure business, on the other hand, launched its efforts with a focus on the developed markets. The firm started with a core infrastructure offering that closed this month on $1.5 billion before rolling out a series of more specialist funds beginning with the Middle East and North Africa and China.

In developing its private equity funds, UBS is able to leverage the knowledge gained while developing the infrastructure business, Heap said. The team met with roughly 300 investors and 50 consulting firms in the last few years to gather insights on what clients are looking for.

“It’s been our view that some of the products out there try to be all encompassing, try and have one product that solves the needs of all investors,” Heap said, noting the varying risk appetites of limited partners. “We don’t think that works and that’s why we’re designing a series of products so that investors that have a particular appetite, we can offer a particular product.”

The infrastructure fund attracted public pension funds and sovereign wealth funds. UBS expects MerchantBridge-UBS Private Equity to be more popular among foundations and endowments, Heap said, although he ultimately expects a similar investor base across the infrastructure and private equity asset classes.