Why invest in the same strategies every year?

The first reason is, as I explained earlier, that buyout growth equity are the two private equity strategies that offer the best risk-return and liquidity profile for our private clients. If I look at the performance of mature cohorts from 2000 to 2013, according to Preqin—one of the leading private equity databases—global buyout growth equity generated an average IRR of 16%. This figure represents the average of the average performance across the thirteen cohorts. The second reason is that it is important to invest in private equity on a regular basis over time. If there is one important rule in private equity funds of funds, it is that you cannot time the market. It is true that cohorts following recessions tend to perform better because managers invest their funds at lower valuations. But when you commit to a private equity fund, you are not the one who decides the timing of the underlying investments in the companies that will make up your portfolio. The Fund manager is Fund manager decides. That is why the winning formula for the best institutional investors in this asset class over the long term is to invest in funds on a regular basis in every vintage. And so the right way to invest—and this is what I did for over 17 years at the largest institutional firms—is to deploy the same strategy every year across different managers to gain exposure to different economic cycles and diversify your portfolio of managers.

It is absolutely not about changing strategies from time to time to follow the latest trends or to test new market segments that have underperformed historically but are currently in vogue. Finally, the third reason we reinvest annually in the same strategies is that, to gain access to the best managers, we must position ourselves as long-term investors. And so we must convince the Fund manager we will be able to reinvest in their successor funds. However, thanks to numerous commitments each year exclusively in buyout growth equity funds, Altaroc will consistently have the ability to reinvest in the successor funds of its top managers and can thus position itself as a long-term investor to access and attract the best managers. I am also often asked about our sector choices, with people wondering why we don’t change our sectors from one year to the next. Well, the reason is the same as the one I just mentioned. We have identified sectors with secular growth and potential. So we seek to continue supporting managers in these top market segments and to select only those managers who have successfully operated in these segments for over 20 years. It would make no sense to choose new sectors that are merely a bit more trendy.

And for those of you who have been tempted into private equity, beware of the danger! I could mention two or three sectors that have been fashionable for the last five or ten years, but for which there is as yet no track-record, or even where sums have been swallowed up, such as clean tech or solar energy. Private equity is a business that is measured over time. That's why it's essential to choose managers with a very good track record in their chosen sectors, and whose processes, governance and methods have been tried and tested over many investment cycles. If I had to sum up our investment approach, it's very fundamental and never gives in to the fashion of the moment. I can't say whether a new strategy will be successful. It takes 20 years to find out. What I can do, however, is analyze why and how the best players in a promising underlying asset have created value. And finally, we even look for players who have been doing things better and better every year for the past 20 years. And if there's one word we love, it's playbook. We love to work with players who support successful companies in the best segments, developing ever greater expertise in their sector and successfully applying the same industrial recipes that have contributed to the best deals in the past.

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