Wellington Management eyes build-out of EMEA alts platform

The alternatives unit of the $1.4trn investment firm wants to put more capital into growth equity, private debt and climate change-focused investments.

Wellington Management, the Boston-based investment firm with over $1.4 trillion of client assets, wants to expand its EMEA platform in specific alternatives strategies.

Manuel Kalbreier, managing director and director of alternatives for EMEA, said the firm wants to launch more growth and venture-focused vehicles.

“When we think about the strategy in the late-stage growth space, what we’ve done there is to take our expertise in the public market space and in the IPO market and transfer that to private markets,” Kalbreier told Private Equity International.

He did not disclose a timeline for fundraising nor the target size of the funds.

Wellington in December held the final close on $2.2 billion for its third late-stage fund, Wellington Hadley Harbor Partners III. The firm gathered $1.8 billion in commitments and up to $400 million in co-investment capital. That fund is nearly 60 percent larger than its 2017-vintage $1.4 billion predecessor, and more than double its $1 billion 2014-vintage inaugural fund.

Capital raised for the vehicle will be invested in “late-stage companies that need capital to sustain or accelerate growth prior to a potential IPO or sale”, according to a statement. The firm also has a biotech-focused growth fund, Wellington Biomedical Innovation Fund I, which gathered $393 million in 2019. Consumer, technology, healthcare, financial services and biotechnology are focus sectors.

Private debt is also an asset class that Wellington could get into, Kalbreier said. The firm already manages close to $450 billion of assets on the public debt side and thus it could be a “natural evolution”, he added.

Similarly, investment that addresses climate change is a strategic area for the firm, Kalbreier said.

Wellington is also exploring how it can combine public equities and liquid long/short strategies in the same fund as its private investments – something that would give clients better liquidity terms and reflect equity convergence between public and private markets, Kalbreier added.

“This insight we have in the public markets is highly advantageous, but we also need to think carefully about which investment areas to get into,” he said.

Wellington’s investor base includes public and private pension plans, insurance companies, corporations and family offices. The 88-year-old firm manages assets across equity, fixed income, alternatives, multi-asset as well as sustainable investing strategies, according to its website.

The firm has been investing in alternatives for over 25 years and in private companies for over a decade. It manages $31.4 billion of alternatives, of which $4.5 billion (roughly 14 percent) is in private equity. Wellington launched its first dedicated fund in 2014 in response to the evolving market dynamics of companies staying private longer, Kalbreier noted.

Investment timeline

According to Kalbreier, Wellington’s late-stage growth funds have a shorter life cycle than the traditional blind-pool fund.

Wellington - Manuel Kalbreier
Kalbreier: private debt is a natural evolution of Wellington’s alternatives business

“What you will typically find is that in the buyout space or in the venture capital space, you may have a five-year deployment period and then five-year-plus harvesting period. Our late-stage growth strategies are typically shorter than that, so we get to deploy capital faster and we get to realise it faster.”

He added: “The companies we back typically have revenues north of $50 million. They are very established companies, and we assess them for their ability to grow and scale rapidly and have a liquidity event in the next two to four years.”

Returns thus far across the firm’s PE funds on both net internal rate of return and net multiple compare favourably with the rest of the industry, Kalbreier said, declining to provide details.

The PE team comprises between 20 to 30 professionals with diversified sector experience, all supported by Wellington’s public market research analysts. The team also appointed a director of ESG for private markets, Hillary Flynn, last year.

Trends driving more capital into PE

Kalbreier said there are two trends that should drive more capital to the asset class: equity convergence caused by more companies staying private for longer and investors’ increasing desires to see more evergreen structures that afford more liquidity.

That Wellington is a private partnership has helped the firm in its operations and deal origination. “That resonates with us strongly,” Kalbreier said. “Because we are privately held, we have this ability to effectively take long-term decisions and to focus on important issues for our clients, as opposed to worrying about quarterly earnings and therefore having to chase asset growth.”

There’s also more alignment. “We feel when we’re talking to companies that are private and that are growing quickly, it’s obvious to them that this is a great model because they have a table of investors that are aligned and have a long-term focus on growth, versus having a strong focus on the next quarterly earnings that typically comes with a public company.”

The second trend is infusing more liquidity in private markets. According to Kalbreier, LPs want fund structures that are either evergreen vehicles or structures that have more liquidity. “Ultimately, the private investment model has a drawback for many investors, which is this need of having capital sitting on the sidelines that gets drawn and returned. You have to re-invest. There are a lot of investors that can’t really have capital in a 10-year lock-up, and especially if that structure is routinely extending to 12-15 years.”