Unigestion’s Hanspeter Bader sees private equity helping institutions struggling with asset allocation in a hostile climate.
Another way to increase transparency that Bader mentions is using managed accounts, where the legal structure may belong to the client, not the fund of funds/adviser. Segregated accounts comprise about 60% of the money Bader’s unit runs.
“Transparency and control have become very important themes for investors, given the increased regulation, transparency and control-over-assets requirements in Solvency II and AIFMD,” he says.
Unigestion can, and has, set up funds of funds for specific funds, and also mandates where their client owns the legal investment structure, and Unigestion assists with investing and associated administrative tasks. Bader argues pooled funds, investing cash from many clients jointly, will remain a cornerstone of his industry.
“Many investors do not want to do the allocation between buyout and venture capital and private equity,” he says.
“Most segregated accounts we run have global scope and their asset allocation can change over time with market opportunities. “One must remember, shifting asset allocation in private equity can be a slow process, and investors ask themselves how much they want to be involved in that process of managing the assets.”
When surveying the various regions, Bader says Europe is “one of the most exciting opportunities at the moment from a risk/return perspective” (see box below).
Asia is “a place to be for the long term”, but Bader expresses concern that too much money flowed in for the experience of some managers there and for the strategies they run. There are too many private equity GPs [general partners] opening up there,” he says.
“The true capability of the GP, to create value in their portfolio companies and not just do pre-IPO and speculative work, is more proven in the US and Europe. In Asia you must search hard for the GPs creating value. It is about selectivity and prudence in the region.”
Bader’s words are supported by the fact Unigestion has made just seven private equity commitments in Asia since 2007. America has the deepest, oldest and most transparent private equity market, but in Bader’s opinion it can be hard to differentiate generalist managers there.
“You can find [various GPs] all bidding on the same deal, and you ask, what is one GP’s difference to the one just next door?” His team therefore prefers niche or sector investors to generalists in America. Other areas of interest in North America include oil and gas, and renewable energy funds.
Bader also mentions managers offering private finance in the place of risk-averse banks and bond markets. He says, for many companies, public markets are “not a financing option anymore”, so a company wanting to grow internationally “has to turn to private equity, today more than ever”.
Focus on Europe
Unigestion’s Hanspeter Bader says the attraction of private equity in Europe comes from the diverse countries, legal systems, cultural differences and language barriers – all making it a “highly inefficient” region.
“Private equity firms in Germany have a competitive advantage in Germany, but not in France or Portugal, so local players dominate [their markets],” Bader says.
“Europe is not a common market place for entrepreneurs,” Bader says. “But its different languages, cultures and inefficiencies create tremendous opportunities for private equity funds to help [entrepreneurs] penetrate new markets with their know-how, and make add-on acquisitions.