Allianz Capital Partners is tilting its U.S. private equity investments toward value-oriented strategies that can thrive even during a potential downturn.
ACP, the alternative-assets arm of Allianz Group, has made recent commitments to a smaller software-and consumer-focused fund and a deep-value transatlantic fund. It sees those types of investments as typical of the kind of recession-resistant strategies it would like to continue to add, says Susanne Forsingdal, head of Americas Private Equity at Allianz.
Forsingdal, speaking at Buyouts Insider’s PartnerConnect LP-GP Outlook 2019 conference in New York on Jan. 22, said the focus on value has been a theme over the past few years, so much so that her colleagues in Europe have started kidding her about it.
“Now our European counterparts are starting to ask us how much value bias we actually need in our portfolio,” Forsigndal said.
“I suppose it’s our way to try to prepare for a potential downturn. At least the managers that we back have the skills that would be needed in case things do go wrong with the companies in their portfolio. So that is definitely part of the reasoning why we have more exposure to value funds.”
Healthcare and business software are other areas of focus for Allianz, which has 26 billion euros ($29.61 billion) of alternative assets under management. The group allocated about 1 billion euros to U.S. PE in the past year.
“Other groups we are looking for and that we would like to add to our portfolio with an eye towards a potential recession are software funds,” Forsingdal said. “Recurring-revenue-focused funds is an area that we know we like, hoping that they will fare well through a recession because regular clients and customers can’t do without their services even in a down cycle.”
Allianz also wants to strike a balance consolidating investment with core partners in private equity and bringing on new funds. The company has about 300 PE funds in its portfolio, with 80 managers worldwide that are considered core and will continue to receive re-ups.
Forsingdal initially planned more re-up commitments over the past few years, but she and her team have made room for new managers, especially those she knew from previous work, like Accel-KKR, Roark Capital and Arbor Investments.
“We are bringing in a few more funds than I originally thought,” Forsingdal said. “Last year we made six commitments to funds that were all re-ups, and four commitments to new managers.”
For new managers, Allianz is looking at firms that have a few funds under their belt, and that add diversification or a strategic edge that other funds in the portfolio don’t have. Allianz also wants to commit $60 million or $70 million without representing more than 20 percent of a fund.
“At the smaller end, I think what we are missing a little bit in our portfolio really are funds that are still growing,” Forsingdal said. “$350 million to $1 billion is a spot in our portfolio where we can add more managers.”
Allianz has been reluctant to buy on the secondary market because of high prices, she said.
“We have made bids, but we have not been willing to go up to a 15, 20 percent premium on top of the asset values in the portfolio,” Forsingdal said.
“We are keen to jump at the opportunity in case we do see a downturn and we start to see opportunities again at a discount to where the assets are in the books.”
Action Item: Learn more about Allianz’s PE activity here: https://bit.ly/2S1pOPo