As SuperReturn in Berlin nears its close we share with you a very clear message from our much respected resident local PE guru, Guy Hands, Chairman & CIO of Terra Firma.
‘It’s all about going Back to the Future.’ Guy believes that smaller private equity firms will return to the original model in the seventies and eighties, when they were backed by a smaller number of investors but had more “skin in the game”, offering potentially much higher returns to clients.
So what’s on offer at the coffee counter?
I’ll stick with a Vanilla Latte – top tier GPs and PE Firms are without a doubt becoming more institutionalised, it’s a natural development of their growth cycle. These firms are very good at delivering consistency, their attractiveness based on what you see being what you get.
Of course we will see these firms grow into mega firms, diluting their specialisms and morphing into generalist investment managers. For those who bolt on proprietary products to support the investment chain we may even see old style investment banks emerging once again, add an extra shot and we should look to see some really innovative products emerging as competition hots up.
The problem lies in their ability to create alpha when they employ more people globally than the residents of a small country. Beta is still achievable of course but for those looking at 1.5x returns.
Make mine an Espresso – how many of us have left large firms in order to work for smaller, more nimble and importantly more flexible organisations? Focussed specialisation will always be an attractive proposition for LPs who have a clear vision about how their portfolios should be balanced. Small firms can invariably afford to create niche opportunities for niche investors achieving all those nuances large firms cannot.
Their smaller infrastructure will well support twenty or so close LP relationships to work alongside them on a much more private basis. Personal investment into the portfolios, by the management team, carries much more incentive & momentum than that of a larger firm.
We do small, innovative, flexible private equity managers exceptionally well, just ask some of our clients.
For a deeper discussion on managing the needs of your dedicated investors, feel free to call James in Guernsey or Peter in Denmark if you would be interested in hearing more:
James Orrick / +44 1481 730988 / email@example.com
Peter Toyberg / +45 70 20 40 61 / firstname.lastname@example.org