A work in progress

In October 2002, Finvest, at the time Scandinavia’s only listed private equity fund-of-funds, acquired Nordic insurance business Sampo’s private equity interests. The merged entity was renamed Amanda Capital. Sampo’s private equity business, Mandatum Private Equity Funds Ltd, bought the entire share capital of the management company Linna Advisors Oy, as a result of which Amanda’s management agreement was transferred to Mandatum Private Equity Funds Ltd, and the management resources of the company increased to eight professionals.

Today, the operations of Amanda Group have doubled in size and comprise management and consulting services related to private equity investments as well as investment operations. The business consists of the parent company Amanda Capital Plc and its subsidiaries. In total, Amanda employs 16 private equity professionals.

Amanda is one of the largest managers of private equity investments in Finland. It manages several private equity fund portfolios based on consultancy agreements and six private equity fund-of-funds, which have a number of domestic and foreign institutional investors. Today, assets under management have reached €1.6bn, which are invested in more than 100 private equity funds in Europe, the US, Asia and Russia.

Parent company Amanda Capital Plc is listed on the OMX Nordic Exchange in Helsinki. It is the first publicly listed private equity fund-of-funds in Scandinavia. The number of shareholders is approximately 3,600.

What is Amanda Capital’s strategy for private equity investing?

Amanda makes private equity investments on behalf of itself and its clients. The assets under management currently total €1.6bn, of which more than 90% are client assets in our own fund-of-funds and in separate accounts. There are different strategies among different fund-of-funds and client accounts. For example, there is a dedicated fund-of-funds for Russia and Eastern Europe and a dedicated fund-of-funds for Western European mid-market buyouts. Amanda Capital Plc’s strategy is generalist with the majority of investments being in European mid-market buyout funds with some exceptions in US venture and Russian and Eastern European growth capital/mid-market buyout funds.

How do you split your investments in private equity? For example do you invest in buyout, venture, turnaround/special situations and mezzanine funds?

We have invested in all of those, but the core of our investments is in buyouts. Out of the €1.6bn of commitments more than 80% is committed to buyout funds. Geographically our investments are diversified as follows: 74% in Europe; 12% in US; 9% in Eastern Europe & Russia; and 5% in the other areas.

Do you also invest in fund-of-fund vehicles or do you view these as diluting your potential return?

Regarding the fund-of-funds investments we invest in our own vehicles only. For example, in Russia and Eastern Europe we see this as a very efficient tool to diversify the risk in several funds in the region. Our latest investment was a €20m commitment to our own fund-of-funds Amanda IV West LP which invests in Western European smaller and mid-market buyout funds.

What is your due diligence procedure?

We have invested in 135 private equity funds since 1994 and are reviewing 200 to 300 funds annually so it can be said that the flow of investment opportunities is plenty. However, we don’t trust that we get offered all the best fund opportunities there are so all of our investment professionals are actively seeking to find the best opportunities in different areas which they are responsible for. This means frequent visits to target countries and funds. In most of the cases we have already done the preliminary due diligence before the fund enters the fund raising phase. The due diligence itself is done according to a formal due diligence checklist. It always includes several meetings with the management team, meetings or at least reference calls with target companies, checking the consistency of strategy and track record, checking the documentation between fund and target companies and changes in the management team. The legal and tax due diligence is done after the financial due diligence is ready. We basically require market standard structure (tax transparency), terms and conditions. In addition, we require reporting from the funds provided in a certain format and time period.

Where do you see the next hot sector – has venture finally made a comeback?

We see the Russian and Eastern European market as very interesting at the moment. The structural changes in the economy and growth of economy, especially growth in private consumption and disposable income, opens a lot of private equity plays similar to ones that have been successfully executed in the West in the past. There are several experienced second or third-generation private equity managers in the region who are well placed to take the benefit of this market opportunity and inefficiency.

Clean tech certainly will be and already is a hot sector but the execution of the managers is yet unproven and we tend not to invest in first time funds so that is probably not so relevant for us for the time-being.

The valuations in venture and the experience the managers have gathered the hard way since the last boom around 2000 does speak for venture’s benefit but I don’t think it will outperform buyouts in average performance. But certainly the best managers will make great returns in venture.

Does your asset allocation strategy change according to market conditions or has it remained consistent?

We have been consistent in preferring small and mid-market buyout funds in Europe. However we increased our Russian and Eastern European private equity allocation during the last three years as we have seen the increasing competition in the more mature markets, especially at the bigger end of the market, increase the leverage and pricing to challenging levels.

Do you also invest in direct deals?

We have been doing some co-investments, but very selectively. Most of the portfolios we are managing have been built during the last 10 years so the value added from the risk-return perspective is limited on making direct investments. For us, co-investments are a cost-efficient way to deploy capital rapidly and in more interesting cases but this happens very seldom.

What are your views with the current investment environment and the credit crunch? What will this mean for returns for funds of this years’ vintage?

We see that the current investment environment is better than it has been for a couple of years as the credit crunch and turmoil in the stock market has pushed the entry prices down in private equity deals. On the other hand, the reduced level of debt used in the deals is reducing the expected return for equity down a bit. The activity in the private equity market will not accelerate until the debt supply normalises and the stock market stabilises.

I don’t think I am far from the truth if I say that we won’t see so many exits and recapitalisations in the coming two years as we did for the last two years. But, looking from the risk perspective, the situation looks healthier and we think that the vintage 2008 will perform better than the three previous years.

Petteri Änkilä CV

Petteri Änkilä, M.Sc.Econ, was appointed CEO of Amanda in March 2004. He holds positions of trust in many private equity funds. Before the spinout from Sampo he was the managing director of Mandatum Private Equity Funds Ltd and belonged to Sampo Group’s management group. He previously served as a fund director at Sampo Fund Management and as a partner and head of institutional sales at Mandatum Securities.