Private equity investing has been around for a long time and will continue to be around notwithstanding short-term gyrations of over-pricing, over-leveraging and credit shortages. But that doesn’t mean it won’t change. GREG BRIGHT spoke with two of the world’s most influential private equity middlemen, who happened to be in Australia at the same time last month.
As institutional investors continue to search for new opportunities in unlisted markets, notwithstanding recent concerns about liquidity, the influence of packagers and advisers is growing. Lines between the various types of intermediaries are becoming blurred as the diversity of offerings increases. The major traditional asset consulting firms are building their research capabilities in private equity and other alternatives, at a time when placement agencies are also offering a clear alternative to the funds-of-funds which have tended to dominate international private equity for the institutional market.
Placement agents research alternative investments, negotiate capacity limits for various markets or segments, and then package them typically as closed-end funds, which offer a brief window for investors to get set. One of the oldest placement agencies in Europe, UK-based Helix Associates, is expanding its private equity relationships into emerging markets. Visiting Australia last month was the chairman, Lord Charles Cecil, and managing director, Clive Norton.
Helix has an affiliation with Australia’s Principal Advisory Services, which operates as an adviser, third-party marketer and placement agent in its own right. Coincidentally, also visiting Australia was Ed Francis, the London-based head of private equity for Watson Wyatt.
Despite their different approaches, the message from both was similar: the demand for good private equity managers and investment vehicles is intense and unlikely to abate much, even in the current climate. The challenge for super funds is to choose the intermediary – be it consultant, placement agent or funds – with whom they are most comfortable in terms of quality of research and negotiation skills. Lord Cecil says Helix has one of the largest teams of researchers – 15 in Europe and 15 in North America – but still limits the number of deals it offers to clients to 30-40 a year. “We establish a level of trust, both with the investors and our clients. Helix is unique in letting investors access the due diligence we do on funds,” he says.
There is no doubt that the Helix clients are the providers of the investment opportunities and not the pension and other funds that invest. But what makes them different from third-party marketers is placement agents such as Helix want the power to decide whether they wish to participate in an offering and the power to decide how it is presented to investors. “We make sure that the case is properly made and we have added value,” he says. “There are lots of issues such as how you allocate when a fund is over-subscribed.”