Interview

ASKING THE ALLOCATORS

IAN SANDIFORD, SENIOR PORTFOLIO MANAGER – ALTERNATIVES, BORDER TO COAST

Border to Coast Pensions Partnership, one of the largest pension pools in the UK, was established in 2018. It manages the investment of pensions assets of 11 Local Government Pension Scheme funds holding circa GBP55bn of assets

How has your private equity investment strategy changed over the past year?

The market as a whole is increasing exposure to alternatives and private equity however those with an established legacy portfolio have probably seen quite a strong run of private equity performance over the last 12-18 months so it’s possible that this might temper some investors’ allocations in the near term.

While we have clear areas of investment focus, we’re tasked with delivering a broadly diversified portfolio and have therefore tempered our exposure to these key themes. We therefore haven’t experienced, and don’t anticipate, meaningful changes to our PE investment strategy, with continued appetite for tech and software, healthcare and pharma and Asia.

We aim to diversify our programme with some degree of real economy exposure and also have some exposure to special situations, in case of market downturn.

How often do you allocate to emerging or first-time managers?

As we’re a new programme, our current fund managers are all new relationships to some degree. Nonetheless, we have reviewed some new managers across private markets, and committed to second generation funds in our private equity and infrastructure programmes. Our overall programme does have a bias towards established managers – we don’t have a discrete pocket for new managers.

What advice would you give to new fund managers in the current market?

As well as not having a track record of returns, one of the challenges for newer funds is whether they have the institutional quality in terms of operational due diligence, so we’re very focused on making sure they have appropriate compliance procedures to manage things like valuations.

Another issue is that we are looking for fee discounts and, typically, a small manager with a single fund or on a second generation isn’t necessarily best placed to offer fee discounts, particularly if they’re trying to build out a team.

Do you have any concerns about the current pace of fundraising?

There are clearly concerns around access to high quality funds. With more people allocating to private markets, there’s more competition for access.

Also, [we have concerns regarding] the size of funds that are being raised at the moment and what that means in terms of manager discipline, how that changes the alignment between managers or what they receive from management fees versus their dependence on carry.

We’ve also seen some really fast deployment. While we don’t necessarily have concerns over the individual assets acquired by these managers, there are concerns around what this means for portfolio diversification, vintage diversification, and our ability to re-up with managers on a regular basis.

STEFFEN PAULS, CEO, MOONFARE

Moonfare is an online trading platform which funnels private wealth and retail investors into private equity funds. It was built by a team of professionals from companies including Google, JP Morgan and Blackrock and surpassed EUR1bn AUM in September.

What are private wealth and retail investors currently seeking from private equity?

Ultimately investors seek high returns. Current low interest rates, concern about high inflation rates and high volatility in public markets have led to investors increasingly turning to private equity to diversify their portfolio. It’s a unique source of value creation that cannot be found in public markets.

How do you see fintech feeder platforms changing fundraising long-term?

The private equity industry is going retail. Fund managers are looking to retail investors for capital and to diversify their revenue and client base. As private fund managers gain increasing access to the largest untapped pool of capital out there, they become less dependent on very large institutional investors.

For non-institutional investors, digital platforms provide the opportunity to have a direct relationship with fund managers but also a more transparent one than they would have as a private banking client. We provide reporting, education and regular updates to investors. Additionally, as part of Moonfare’s mission to create a community of like-minded individuals, we connect investors with fund managers through, for example, live webinars such as ‘Meet the Manager’ and ‘DealTalk’ or events hosted by our offices. And most importantly through our digital secondary platform we offer a path to liquidity, making a previously illiquid asset class liquid.

How do lesser known and emerging fund managers access retail customers?

When sourcing funds, our investment team performs in-depth due diligence to gather holistic insight into an investing opportunity. The investing framework evaluates funds based on five different aspects ranging from the funds track record (delivering top-tier results consistently across fund vintages) to assessing and understanding the fund manager’s level of experience in managing similar strategies and evaluating its governance structures.

The team screens more than 200 funds in a given year, but less than 25 funds make it to the investment platform. Curation from a highly experienced investment team is what differentiates us from others.

This in-depth process does favour established top-tier funds with a strong, long-term and consistent track record. However, we also feature high quality middle market and smaller funds that meet the selection criteria, such as H.I.G. and Lerer Hippeau in the past.

How are you planning to grow your platform within private equity?

In the past years, we have consistently more than doubled AUM every year and we expect to keep that pace, if not accelerate.

Very soon we will offer credit as a new asset class on our platform. In addition we will significantly build out our co-investment offering over the course of the year.

Furthermore, we are consistently growing our international footprint. We are already operating in over 18 countries globally and there are more markets to follow very soon.

Our fund pipeline includes funds in the growth equity, private credit, secondary, infrastructure and technology segments. And there’s more to come - we see sustainable investments as an exciting growth area. “ The private equity industry is going retail. Fund managers are looking to retail investors for capital and to diversify “