1) Tell us about Thrivent Financial for Lutherans.
Basically we’re a mutual insurance company that sells life insurance and annuities and because we focus on a particular affinity group we are a tax-free entity. There are 100 other fraternal benefit societies like ours, but we’re by far the largest in the category by a big factor.
2) Give us a sense for the scope of the investment program there.
Today we manage over $80B in assets, making us the largest of the Fortune 500 financial services companies that, as I like to joke, no one has ever heard of. The vast majority of that is managed in-house, predominantly in public fixed income, but some private fixed income, along with equities, asset-backed securities, real estate and private equity. It’s a typical, conservative insurance company portfolio that’s designed to generate income to back-stop the insurance policies that are being sold.
3) Tell us about the alternative investment program at Thrivent Financial.
We manage about $2.5 billion in total, $2 billion or so in fund investments and the rest in direct investments in PE-backed companies. It’s predominantly focused on the U.S. middle market, since it’s just too hard to manage a lot of international funds out of Minneapolis. We want to make at least 2x our money or a 20 percent IRR, on both our fund investments and direct investments. In evaluating funds we’re looking for consistent performance. We’re looking for a consistent strategy. We’re looking for good people, which is the hardest one of all. In this business not everyone has the same ethical make-up. We’re trying to ferret out the really good people from the really bad people.
4) Where do you see the best opportunities in alternatives right now?
It hasn’t changed in the seven years I’ve been here, it hasn’t change in the 10 years prior to that. The best opportunities we still see are in backing lower middle-market companies in the United States. There’s no shortage of companies to look at. You’re dealing with the largest market in the world. It’s still the most inefficient market of almost any you could invest in. It’s those inefficiencies that drive the opportunities. The biggest pitfall in this market is finding good management for these businesses. We’re dealing with businesses that could have revenues anywhere from $50 million to $200 million a year. The A-plus management team doesn’t always find its way into that world, so you have to make sure that you’ve got the best management that you can find.
5) Who are some of your favorite people in this business?
Two groups come to mind immediately. The folks at Baird Capital Partners, and the team at SunTx Capital in Dallas. What is it about them? It’s so simple. They’ve never lied to me. When they tell me they’re going to do something, they do it. When we disagree, we can have a discussion and come to a rational conclusion. They treat me like we actually are a partner. Too many PE firms look at the word limited partner and they only see one word. Limited. They forget the partner.
By David Toll. Edited for space.