Almeida Capital-AltAssets

Over a year down the road since its launch and into its second round of funding, Almeida Capital-AltAssets continues to increase its penetration of the European institutional investor market in private equity. Co-founders Richard Sachar and Jamille Jinnah explain the rationale behind the formation of Almeida Capital, the private equity advisory and placement agent arm, and AltAssets, Almeida Capital’s online information site for Europe’s institutional investors in private equity, and they talk to EVCJ about how the company has fared to date.

Richard Sachar, chief executive of Almeida Capital, and Jamille Jinnah, the firm’s managing director, were putting together a business plan and funding for Almeida Capital towards the tail end of 2000. As it turns out their timing probably couldn’t have been better: the dot.com bubble had burst in the spring of that year and institutional investors were beginning to wonder what this might mean for them but due to the nature of the private equity industry the information was slow in coming and patchy. This is in part down to the fact that the extent of the market downturn was unknown, quarterly portfolio valuations that have historically tended to lag behind public markets and also because some venture capitalists were simply not being realistic about what their investments were worth in a different economic environment.

So Almeida Capital-AltAssets was launched to provide information on the private equity industry to institutional investors at a time when the institutional investor market was pretty hungry for unbiased information. The advert on the outside back cover of the National Association of Pension Fund’s annual handbook recently placed by Almedia Capital-AltAssets showing Clint Eastwood’s The Good, the Bad and the Ugly sums up the firm’s approach to demystifying the private equity industry, says Richard Sachar. Almeida Capital is FSA registered and so while not recommending private equity funds for institutions to invest in, it does aim to show the good and bad sides of the private equity industry as a whole.

While Almeida Capital’s aims are worthy it is also a business run for profit. There are two distinct areas of the business. AltAssets is Almeida Capital’s online information site for Europe’s institutional investors in private equity. It pulls together information on the private equity industry that is specifically of interest to institutional investors and sends out a free weekly newsletter containing headline news stories, features, surveys and reviews. It also produces paid-for tailored research reports, the most recent being about the private equity secondaries market as a route for liquidity. These are charged out at GBP500 a copy, although series orders merit a discount. Another key part of the AltAssets offering is its fund calendar which Sachar believes is the most accurate and up-to-date list of funds actively in the fund raising market. AltAssets has some 500 active institutional investors in private equity on its database and records investment preferences such as geographic, sector, stage and willingness to cornerstone new funds.

One of AltAssets’ users is Scott Gregory of State Street Global Advisors, an asset investment management firm which manages around $775 billion, of which less than $1 billion is private equity. Four years ago, the firm didn’t have any investments in private equity. He says: “They have put out a couple of European research reports which I have found particularly helpful as a US-based investor without a hand on the pulse of what’s going on in Europe.”

While the business has grown from just Sachar and Jinnah at the end of 2000 it now stands at 20 people. Most are employed directly on the AltAssets side of the business and some have roles across the business as a whole. Almeida Capital the private equity advisory and placement agent arm, however is looked after by Sachar and Jinnah. Both have invested in private equity on behalf of institutions in the past and so are clearly well placed to advise on what is and isn’t attractive to these investors. Of the advisory work Sachar says: “We will talk to firms about terms and conditions, our recommendations tend to centre on having better and more frequent contact with institutional investors, having clear control structures, and not taking institutional investors for granted. We also talk to them about building their teams and the structure of the firm, and issues like succession.”

Some VCs find this approach a bit daunting. “A lot of placement agents are quite sycophantic to potential clients and don’t explain why if they decline a fund raising mandate. Every time we tell people exactly what we think and what the issues will be for institutional investors. Some people get upset and you can tell immediately that they are not used to that approach,” says Sachar. He also acknowledges that the institutional investor market can be pretty unforgiving to those on the fund raising trail and that if VCs Almeida Capital has advised to change their approach come back to the firm at a later date he is unable to help. “We don’t work with those firms that have come back to us at a later date because then it’s a repair job.”

While the private equity market can seem lacking in transparency and difficult to penetrate to institutional investors Sachar and Jinnah have some staggering stories to tell about the naivety of those going out to fund raise. They have been approached by a VC firm hoping to raise two funds at the same time in the belief that one will eventually get off the ground! For most though it’s a case of cleaning up their act. “After an initial meeting we give a snapshot analysis of the level of interest of our institutional investors. About 80 per cent of the presentations we see that have not used an adviser I don’t think are good enough to put infront of institutional investors,” says Sachar.

Having both been in the seat of the institutional investor, Sachar and Jinnah have been clearly influenced by this experience in developing Almeida Capital’s pricing model for advisory and placement agent work. No retainers, no carried interest and only charging on deliverables i.e. that portion of the fund which is successfully raised. As far as the two are concerned carried interest is to incentivise the investing team and keep them together, not for the placement agent to take a cut of, as can often happen. Sachar is obviously also influenced by his time at McKinsey and says: “We have employed McKinsey professionalism throughout Almeida Capital, which comes down to adding value.” For now neither Sachar nor Jinnah believe they can do this by advising more than two or three funds on their fund placement each year so business will be limited but targeted. This is in spite of the fact that AltAssets has between 10 and 20 institutional investors on its database who have expressed a keeness to cornerstone new funds, so Almeida may broker some deals in the following months.

Of the desire to cornerstone Sachar says: “Some of the institutional investors feel let down by the brand names that have either not performed well or treated them badly and so want to feel some control, which is why they have expressed a desire to cornerstone new funds and in some cases take a stake in the management company.” A need to identify the brands of the future appears to be a common theme Sachar and Jinnah are hearing from institutional investors. Both believe the real area of excitement is the EURO300 million fund specialising either by sector or country. This belief is founded on their past investment experience in the sector and as such it is only VCs that fall into this category that Almeida Capital will assist in an advisory and placement agent capacity. This is also useful since it keeps the firm away from competing in the investment banks traditional placement agent territory, which is around the EURO500 million mark and above. Given the lack of direct competition and the interest Jinnah says Almeida has generated from the investment banking community, it’s possible that Almeida will collaborate with these firms in the future on fund raising activity.

In terms of its own fund raising a first round in December 2000 and a second in December 2001 Sachar says: “We would only take more money for strategic needs.” By this he means an anticipated move into the US and the Far East with the money coming from an investor that could help facilitate these moves. Most of Almeida’s funding details are not for public consumption although Bank of Scotland, which sponsors some of the research reports, is an acknowledged backer.

Industry background

Europe’s private equity and market is a crowded space, whether you’re talking about venture capital and buyout firms investing the industry’s money, the people that service those investors like accountants, lawyers, adviser and placement agents, right though to the number of publications, magazines and websites offering their opinion.

Provision of information to the private equity community in Europe has not been the preserve of independent publishers. Big brand names have long attempted to leverage their private equity businesses off research for the industry. Accountancy firm KPMG Corporate Finance produces regular snapshots of deal types and numbers in the buyout sector as does Deloitte & Touche, on a European basis, through its over a decade long collaboration with Barclays Private Equity in supporting the Centre of Management Buyout Research at the UK’s University of Nottingham. Deloitte & Touche also publishes a quarterly private equity confidence survey. Not to be outdone Ernst & Young is rumoured to be joining the band wagon in a deal to produce US, if not European, deal data in conjunction with VentureOne, which is part of Wickes Business Information. Venture Economics, publisher of EVCJ, produces US and European quarterly deal data, the former in conjunction with the US’ National Venture Capital Association (NVCA).

All of this research is largely numbers-driven meaning it’s quantitative and not qualitative. While quantitative is important, activity levels only go so far. Venture Economics is, arguably, in the qualitative space by producing private equity and venture capital fund performance data, broken down by country, sector and stage of investment, in conjunction with the NVCA and the European Venture Captial and Private Equity Association. However, it says a lot about the industry that Almeida Capital-AltAssets is attempting to demystify that Venture Economics is allowed only to publish this performance data in a non-disaggregated format. This means individual fund performance is only available if a venture capital or private equity firm desires to hand it out. A large constituent of venture capitalists are clearly only paying lip service to the current transparency debate in the industry if the furore caused by calPERS last summer when it published individual IRRs from the private equity, venture capital and mezzanine funds in its investment portfolio on its website, is used as a yardstick. The data was quickly removed after its presence and significance was widely commented on by magazines and newspapers.

But where does all this leave institutional investors? Richard Sachar and Jamille Jinnah recognised the problem first hand during the time when they both invested in private equity on behalf of institutions. The problem namely being that until recently no one has tackled the subject of private equity from the institutional investors’ view point. The pension and fund management press have tried but complaints are generally that private equity is a niche for those specialist publications and that as a consequence few address the subject well and with confidence.