Felix Haldner, Princess Private Equity, examines the attractions of the asset class.
Princess Private Equity Holding Limited ("Princess") provides investors with exposure to a globally diversified private equity portfolio. The company is managed by Partners Group, a leading private markets investment manager with USD 66 million of assets under management and a team of 1,000 employees spanning 19 offices globally.
Partners Group believes that private equity merits an allocation in the portfolios of all investors seeking long-term capital growth and diversification from public equity. In contrast to public equity in which minority shareholders delegate control of a company to management, private equity typically acquires controlling stakes, taking Board seats and working closely with management. Free from the distractions of short-term earnings figures, private equity is able to take a long-term perspective and focus on creating value in portfolio companies.
Accessing the opportunity
It can be challenging for private investors to access private equity due to high minimum investment requirements and institution-only fund structures that lock-up capital for ten years or more. However, by investing in a listed investment company such as Princess Private Equity, private investors are able to access an asset class that has traditionally been the preserve of institutional investors.
Lesson learnt from the financial crisis
Investing in private equity is not without risk and there were a number of high profile investments that suffered during the global financial crisis. Looking back to this period, in many cases it was investments in large and mega-cap companies, acquired at stretched valuations and funded by high levels of debt, which made the front pages of newspapers for the wrong reasons. In contrast, we believe that a diversified portfolio of mid-cap private companies, with a focus on creating value through operational improvements, and financed with more moderate levels of debt, offers greater downside protection.
Global mid-cap focus
Princess provides public market investors with the opportunity to invest alongside Partners Group's institutional clients in a global portfolio of market-leading mid-cap private companies. For example, its investments include a US chain of early childhood learning centres, a Swiss manufacturer of vacuum valves, an operator of gas infrastructure in Mexico and a global manufacturer of precision engineered metal components (discussed further below).
Current investment themes
Core to Partners Group's investment philosophy is a relative value analysis that looks at global sectors, industries and regions from a top-down perspective and identifies opportunities in specific markets. Selected themes that we currently believe offer attractive investment opportunities include digital infrastructure and services, industrial automation and business process outsourcing in the US; healthcare and financial services in Europe; and business services and consumer sectors in Asia. Our local investment teams then work to identify growing companies within those markets that would benefit from our involvement.
Value creation in action
Partners Group's investment in Dynacast on behalf of its clients provides an example of the value that hands-on private equity ownership can create. Dynacast is a global manufacturer of precision engineered metal components for multiple end-markets including automotive, consumer electronics and healthcare. The company is headquartered in the US and has 31 manufacturing plants in 16 countries worldwide.
Partners Group was attracted by Dynacast's leading global market position, proprietary technology and attractive margins. Since investing in the business in January 2015, Partners Group has worked with management to execute a number of acquisitions, including the transformative acquisition of precision component manufacturer Signicast in March 2017. The acquisitions have added complementary technologies, allowing the companies to expand their product offerings and further grow their combined customer base, diversifying the customer exposure by end-market.
Other value creation activities include the implementation of lean manufacturing processes in a number of Dynacast's facilities around the world and the transition toward a more globally integrated sales function. Partners Group continues to support the company in the next stage of its growth. Dynacast is Princess' fourth largest investment, representing 4.7% of net assets as of 30 September 2017.
Felix Haldner is a partner and member of the board of directors of Princess