AlpInvest Partners jumped to the top of the premier league of private equity business winners in Europe when it was awarded €6bn in mandates from major Dutch pension funds ABP and PGGM at the start of February. This took its total assets under management to €20bn from its two shareholders.
Volkert Doeksen, managing partner and chief executive of AlpInvest Partners, says 99 per cent of its mandates have been granted by ABP and PGGM, which each own 50 per cent of the private equity firm. On 9 February, its parent company announced its decision to spin off NIBC Private Equity under the name AlpInvest Partners to be split between the two pension funds.
“We do not actively market our investment programmes outside ABP and PGGM although a handful of external clients have approached us,” says Mr Doeksen. “About 1 per cent of our assets have been invested by these external clients, such as the Canadian Investment Board, which gave us a mandate of €100m. If we were to decide to market our investment activities externally, we would seek the agreement of our two sponsors.”
But Mr Doeksen argues that ABP and PGGM own AlpInvest on an arm’s length basis and do not interfere in the day-to-day management of the firm and its investment process. Nevertheless, ABP and PGGM each have a member on its supervisory board.
AlpInvest was established in 1999 by the pension funds because they decided their holdings in private equity would be best served through a separate investment company dedicated to this asset class. Previously, the pension funds had managed a fund of funds private equity programme in-house.
“The rapid growth of private equity markets in size and the number of players, required more resources and the increased market complexity called for more knowledge and skills to back up the investment selection process,” says Mr Doeksen. He adds that ABP and PGGM also wanted to develop a direct and co-investment capability. At this stage, AlpInvest had about 10 investment professionals and €600m in assets under management.
Over the past four and a half years, AlpInvest has grown to almost 60 investment professionals and some 100 employees based in offices in Amsterdam, New York, Frankfurt and Antwerp. The investment professionals are divided between five strategies: primary fund; secondary investments; co-investments; mezzanine; and lead buyout (see box below). These investments are through funds and direct investments. Each team makes investment recommendations from their own strategies that are referred to the 13 senior partners, who are responsible for making the final decision on investments. The senior partners meet on a weekly basis.
Mr Doeksen says of the €20bn in assets under management, two-thirds has been invested in primary funds. Of the other third, the largest proportions are in co-investments and secondary funds with the smallest amounts in mezzanine and buyouts. He adds that the secondary funds market has become more important over the past four and a half years.
Wim Borgdorff, managing partner and head of fund investments at AlpInvest Partners, says it had “to jump through hoops” to secure the €6bn mandate from ABP and PGGM. “They do not automatically grant us private equity mandates and we have to go through the usual selection process.” The mandate, like the previous two from ABP and PGGM, are for three years and cover all the private equity strategies managed by AlpInvest. The first mandate was won in 2000 and the second in 2003. Mr Borgdorff says there are a number of factors that AlpInvest stresses when trying to secure these mandates.
The first factor is the performance of its strategies. Mr Borgdorff says it cannot publicly release performance figures, but it meets its clients – notably ABP and PGGM – on a quarterly basis. “They understand the returns we can deliver over a three-year cycle. They can see how our performance compares against benchmarks and our peer group.
“Another selling point is the fact we are dedicated to managing private equity, offer five strategies and have a global platform. We combine the different strategies within one fund for our pension fund clients, take an integrated approach and run a global private equity mandate, covering all geographical regions including emerging markets. Clients like the quantity and quality of the information and analysis we provide.
“The final factor is the scale of our business, which is important in private equity. This enables us to have an understanding of all parts of the global market and therefore select the best investment opportunities. Scale is more important in private equity than public equity.
“In public equity, a manager carries out his portfolio analysis and then passes his sell and buy decisions on to traders. In private equity, managers have to identify investment opportunities, vet their choices through due diligence of the business and then look at the structuring, legal and tax status of the company. The €20bn in assets under management, our four offices, 60 investment professionals and relationships with between 80 and 90 private equity general partners gives us scale. Few other investment managers are able to cover this number of general partners around the world.”
AlpInvest Partners has become one of the leading private equity houses in the world without actively marketing its services. However, in common with other private equity firms, AlpInvest is reluctant to release its performance data into the public domain. In the absence of this information and given that 99 per cent of its €20bn assets are managed for its two shareholders, many pension funds might feel uncomfortable about awarding mandates to AlpInvest.
Volkert Doeksen – managing partner/chief executive
Wim Borgdorff – managing partner/head of fund investments
Iain Leigh, managing partner/head of co-investments
Erik Thyssen, managing partner/head of co-investments
Paul de Klerk, chief financial officer
Investment strategies
Primary fund
The largest strategy with 77 per cent of AlpInvest Partners’ assets is the primary fund. It has a team of 14 investment professionals selecting private equity funds for this fund of funds. It has invested €11.5bn in 160 funds around the world. These funds invest in private equity companies at various stages of development. Between 20 and 40 per cent is invested in venture capital, 35 to 55 per cent in growth and mid-market buyouts, and 20 to 40 per cent in large buyouts.
Mr Borgdorff says it looks for funds that meet its criteria for stage and size of investments, industry and sector focus, deal sourcing and value creation strategies. It also only invests in funds with an experienced and well organised team which has a meaningful track record.
Secondary fund
This team acquires secondary interests in private equity worth between €5m and €250m. They include both secondary funds and direct secondary portfolios. Mr Borgdorff says the five investment professionals in this team not only draw on their own knowledge and network of contacts to find investment opportunities, but can also utilise the 80 to 90 general partners from the Primary Fund. Mr Borgdorff adds that investing in secondary funds enables AlpInvest to obtain immediate exposure to the market.
Mezzanine
This team invests in mezzanine co-investments, while mezzanine funds are covered by the primary funds team. The team has invested €119m in the US and European markets, which is divided fairly equally between funds and co-investments. AlpInvest invests in funds with strong performance records, experienced management teams and an appropriate risk profile. For co-investments, AlpInvest looks for private equity companies worth between €10m and €25m at the mezzanine stage. “We invest in a wide range of mezzanine transactions, including LBOs [leveraged buyouts], recapitalisations and growth financings.”
Lead buyout
This 15-strong investment team with €700m in assets targets market leaders in the Benelux and Germany worth €30m to €400m. AlpInvest defines leader as having the largest or second largest market share. The buyout teams based in the Netherlands, Germany and Belgium typically take a majority stake in companies.
Mr Borgdorff says it seeks companies with strong cash flows, growth potential as a stand-alone business or through acquisitions and clear exit strategies through a trade sale or stock market listing. “We invest in three types of situations. These are companies that want to spin-off activities no longer regarded as core to their business, private companies looking for a change of ownership or growth capital and small and mid-sized public companies that want to grow and/or restructure outside the public markets.” Following the deal, Mr Borgdorff says AlpInvest provides strategic advice on refocusing the business, restructuring and its growth strategy, supports financial engineering and acquisitions and access to resources.
Later stage co-investments
The 10-strong investment team underwrites investments of between €10m and €100m. It has invested €600m in 40 businesses. Mr Borgdorff says it analyses the geographic focus, transaction type, transaction size and industry and sector focus.
He adds that investment opportunities are sourced from its network of 80 to 90 general partners and “reversed co-investment initiatives. If opportunities fall outside our lead buyout strategy, we look for a general partner to take on the lead investor role and assume a co-investor position ourselves.”
