No dogmatic investor
Allianz Capital Partners has been investing in private equity funds since 1996 and has been building a balanced portfolio of private equity fund commitments with 80 active managers in Europe, the Americas and Asia. Currently it manages EUR 8.3bn of assets (as of end-December 2015).
ACP invests in private equity funds worldwide, and covers the entire spectrum, from buy-outs to growth equity and selective venture capital exposure in both primary and secondary markets. In addition, ACP is also active in the area of co-investments, whereby ACP invests alongside its private equity managers.
In 2009 Michael Lindauer and Andress Goh became the global co-heads of Private Equity. In the following they answer some of the most frequently asked interview questions about the private equity business of ACP.
Why does Allianz Capital Partners invest in private equity?
Andress Goh: By investing in private equity funds, we spread our investments across a pool of privately-owned companies – this diversifies our portfolio beyond stock market-listed companies as well as offering us the opportunity to invest across a range of company sizes and industry sectors. By investing globally, and consistently, we gain access to investments across different regions of the world, allowing us to take advantage of varying economic characteristics in different markets, across a range of investment strategies, and over different vintages.
Overall, private equity fund investments provide our investors with a premium over public market returns while the focus on diversification constitutes a good fit with Allianz's prudent investment approach.
What are the main challenges?
Michael Lindauer: While we eventually invest in private equity funds, we back the respective fund managers to be good stewards of our capital. As such, we will have to make sure that our investee managers are good investors as well as trustworthy and reliable partners (which, in turn, ACP also thrives to be for them) over the life of usually more than one fund, hence, spanning time periods exceeding a decade.
In the currently "hot" market environment fuelled by quantitative easing, we need to ensure that we back partners who will also be successful once the "music stops playing". As such, we focus on proven fund manager performance through cycles as well as prudence and sen-sitivity in terms of the sizes of new funds raised.
What are you looking for in partners?
Andress: Given that a fund commitment is a long term partnership, we actively and constantly screen the market to make sure that we have enough time to get to know the fund managers we would like to invest in, preferably years ahead of any fundraising.
Once we find the managers we like, we're not a dogmatic investor. We don't have a mandatory checklist which fund managers must fulfil before we invest. Instead, we look at the holistic picture: when we embark on due diligence on a manager, we start with a list of reasons why we would like to invest, as well as the three or four areas where we need to dig deeper, and then really focus on these.
As implied by the term "partner", apart from their investment capabilities we look for managers who respect the spirit of partnership, who will communicate openly and proactively, and show a commitment to, and a clear culture of "doing the right things", e.g. when it comes to ESG topics. For us, these characteristics form the basis for a trustworthy and reliable long term relationship between investor and fund manager. In this spirit, it should go without saying that ACP endeavours to be a good and transparent partner for its fund managers, too, offering not only stable long-term funding from Allianz's sizable and permanent pool of capital, but also other support and counsel when needed. In the current environment which is marked by full transaction pricing, we believe that fund managers need a bit more creativity in deal-sourcing, as well as the value they want to derive from a deal. This is a key diligence area for us when reviewing potential partners.
What are your predictions and advice for the future?
Michael: One needs to be either very brave, or very foolhardy, to make predictions in a time of such geopolitical and macroeconomic uncertainty. Instead, cognisant of the limits of our own wisdom and knowledge, we will try to apply a healthy dose of scepticism and common sense to new "hot" fads, while remaining open for interesting new ideas. As always, periods of uncertainty frequently offer pockets of opportunity and outperformance, and we will look to exploit these by placing our bets with the right fund managers.