Gordon: Guardian Life doesn’t bail after one weak fund

  • Guardian’s Gordon avoids dropping GPs with a weak fund
  • Firms work harder to prove themselves after a tough run
  • LP ups PE allocation to 3 pct from 2.5 pct

Limited partner Maurice Gordon said he’s reluctant to drop support for a GP after one weak fund because he sometimes sees a positive bump in their next fund as they work harder to prove themselves.

Gordon, managing director and head of private equity for Guardian Life Insurance Co, offered the observation during his keynote address at Buyouts’ PartnerConnect Southwest 2016 conference in Dallas, based on years of working with PE firms. But he said he’s not seen much hard data about it.

Gordon said he takes the time to develop multiyear relationships with PE firms, so if they hit bumps in the road, he usually understands what went wrong.

“Some LPs would say, ‘Hit the eject button.’ But if somebody is stumbling, we know how they act and we know how it happened,” Gordon said. “We say, ‘We’ll stick with you because we know you.’”

Usually after a down fund, the GP gets fired up.

“All of a sudden, he’s got the eye of the tiger in him,” Gordon said. “Sometimes that bounce-back fund can be really a good fund. … Over the years, we’ve noticed it.”

Overall, Gordon remains bullish on the asset class as demonstrated by Guardian Life’s move to increase its allocation to PE to 3 percent from 2.5 percent out of the insurer’s $50 billion of investable assets. The bump up translates to a target PE portfolio of $1.5 billion, up $250 million.

“For institutions private equity is the place to be,” Gordon said. “The returns have been great … the distributions have been the best anyone can remember. You can actually get some really good returns.”

Guardian decided to focus on relationships with 50 GPs across PE, including buyouts, private credit, venture capital, direct investments and real assets. Gordon and his staff of four meet four times a year to discuss the balance among these and other fund types.

Every year about 10 percent of the company’s 50 GPs relationships go away for a variety of reasons. “You’re always bringing in some new blood,” he said.

Guardian Life takes part in co-investments, more to develop relationships with GPs than for lower fees.

As a board member of the Institutional Limited Partners Association, he said he’s been working to weave in more standardized documents for LP agreements.

While President-elect Donald Trump said he plans to tax carried interest as regular income, Gordon said he’s not convinced the change will take place. Most GPs he’s talked to said any tax increase may be offset by a rollback in regulations and tax cuts elsewhere in the tax code that may be on the table, Gordon said.