LP Corner: Taking a view: Feri

What are German institutions’ attitudes to private equity investment?

There are very few large German institutions with significant private equity investments. This is due to several reasons: the lack of a major capital-based pension system; heavy regulation especially in the insurance industry; and traditionally quite conservative asset allocations among German institutions with almost all of the assets invested in bonds. This changed to some extent in the late 1990s when many German institutions increased their exposure to stocks at the peak of valuations, but were then forced to sell at low prices. Hence they have not profited significantly from the recent upturn in stock markets and as a consequence still have a fairly low risk tolerance.

Private equity as an asset class used to be perceived as very risky given that many institutions did their first investments in the late 1990s and invested back then disproportionately high amounts in venture capital. This perception has changed since the successes of some mega buyout deals in Germany. Also the press coverage of private equity has increased significantly over the last few years. The growing importance of consultants is another factor that may lead to higher private equity allocations in the future. Realistically, however, we can never expect private equity allocations of German institutional investors ever becoming as high as they are in the US, Scandinavia or The Netherlands.

How would you describe the investment environment in Germany today?

The investment environment for corporate spin-offs continues to be very good; investments in family-owned businesses are still rare, especially compared to the vast number of family-owned businesses in Germany. The recent debate about private equity in Germany has not really been harmful to the industry, since it was perceived to be politically motivated.

What is Feri’s investment strategy?

We invest on a worldwide basis, in different segments and strategies in order to achieve diversification. We, however, don’t intend to just mimic a private equity index but over or underweigh respective segments according to their relative attractiveness. For example, in European buyouts we follow a barbell strategy investing mainly in smaller buyouts and also in mega buyouts but we generally avoid the upper mid-market buyout segment where we think that the return/risk profile is currently the least attractive.

What do you look for in a fund manager?

We don’t focus on a single or only a few specific characteristics but analyse as many aspects as possible. For that purpose we have established a private equity fund rating that contains the most important ingredients in fund due diligence. The goal is to have an objective risk/return profile of a private equity fund. We use a database, which gives us the possibility of benchmarking an aspect of a particular fund against the universe of almost 2,000 funds that are contained in our database. A quality we like, for example, is fund managers with differentiated strategies in interesting markets that have been able to create value in different ways and circumstances and that are likely to be successful in the future because they are still motivated and because they profit from rather than become victims of market dynamics.

What size investments do you make?

We sometimes invest only a couple of million euros in riskier strategies or when committing to a fund for the first time, and up to €20m in funds we know better. Due to the flexibility in commitment amounts we are able to invest into a variety of funds, especially in small funds, or funds that wouldn’t easily accept new investors with larger commitments.

How do you assess the risks associated with firms you have never dealt with?

In my opinion the two most important types of risk in this situation are deal-related risks and management risks. Deal-related risks vary as much from manager to manager as returns do and they can be assessed by analysing the pricing of deals and the downside protection, which the managers implement into their deals. The main management risks we are concerned with are firstly whether the managers are still motivated to work hard, which can be found out in interviews or simply by analysing the level of the GP’s financial commitment into a new fund, and secondly, risks related to team dynamics, for example, in situations of succession or high team turnover. The team dynamics are usually very difficult to assess but we feel much more comfortable when the success of the firm does not rely on just one or two individuals and when the culture of the firm emphasises a certain sustainability.

How do you source your funds?

At the moment we probably know most of the funds in Europe as well as in North America that are relevant to us and also know when they come to market so that we can plan ahead. It still happens quite often that new quality groups emerge, either as spin-offs from larger funds or managers that become independent after having been captive. We usually also know about those funds early on through our network or just because these managers call us. Recently it has become more difficult to get allocations in some of the top groups. In those situations it is very important to talk to the managers before they start fundraising and then to be quick in the decision-making process. Additionally we can bring to the table that we have an entrepreneurial culture, including an extensive network of high net worth individuals, and a long-term strategy for investing in private equity.

What are Feri’s plans for the next year?

Next year we plan to invest in about 10 funds, we have some re-ups on the horizon but about half of the funds will be new relationships to us. We have already identified some of those funds but also have some room for opportunities that may emerge unexpectedly.


Feri was founded in 1988 and offers three main services to its clients: wealth management services for high net worth individuals; institutional advisory services, including institutional consulting as well as managed portfolios in various asset classes; and rating and research services, including country, capital markets, sector as well as fund research and rating. Feri has built up manager selection and fund-of-funds advisory capabilities in both traditional and alternative assets classes. Assets under management are in excess of €5bn, not including non-discretionary consulting mandates. Many clients, especially high net worth individuals, have a heavy focus on alternative asset classes with private equity allocations often ranging from 10% to 20%. The group is also part of a research partnership with the buyout group at Insead, focusing on value creation strategies for buyouts.

Bernd Kreuter: CV

Dr Bernd Kreuter is head of private equity at Feri. Feri manages money from ultra-high net worth individuals and families as well as institutional investors. Previously he worked at a corporate finance boutique and in the financial services division of SAP after being an assistant professor for computer science at Humboldt Universitaet zu Berlin.