LP Talking Head: Taking a View: LGT Capital Partners

What is LGT Capital Partners’ strategy for investment in private equity funds?

Since 1997, LGT Capital Partners has invested globally in all areas of private equity. The firm identified very early in the process that the European private equity market throughout this decade would expand as funds in that space had a great potential to deliver attractive returns by creating value in privately held European companies. The firm has aligned its strategy with that belief and has become a significant investor in the European small and middle-market buyout segment.

What is your main focus and how do you view the investment climate at the moment?

LGT Capital Partners focuses on the small and middle market where there are a growing number of country-specific and regional funds in a crowded, opaque space. The European private equity market activity has continued to grow and is dominated by middle market transactions with 80% of the volume in transactions of less than €250m. This segment of the market has historically outperformed other private equity segments. This outperformance can be explained by the following reasons: the smaller end of the buyout market presents natural barriers to entry, such as languages, tax treatments, accounting procedures and regulations. It is also less driven by financing liquidity and has had historically lower entry multiples, hence offering more opportunities for operational and managerial improvements. LGT Capital Partners believes it is a safer choice in the current environment and will continue to invest significantly in that space.

How would you describe the current trends in the larger end of the buyout market?

LGT Capital Partners has pursued investments with some of the top tier, pan-European funds with generally highly restricted access. The firm is, however, more cautious in deploying capital at this end of the market, as mega pan-European funds operate in an aggressively priced large deal environment, where auction processes have kept purchase multiples on average at higher levels.

What are your views on European venture as opposed to buyout?

European venture returns have so far been disappointing, but it is starting to change, as the European venture capital industry went through a massive restructuring and downsizing process. European venture presents the opportunity to access top managers in a market that is significantly less funded, less crowded and less competitive than in the US. In this space, there are a number of teams with significant experience who LGT Capital Partners believes will offer attractive returns going forward.

What is your due diligence procedure?

Needless to say that manager selection is paramount to achieving superior performance. It is not just about picking the best managers, it is also very much about avoiding the bottom of the pack. Hence, a cornerstone of the successful selection of high quality fund managers results in the application of a disciplined and extensive due diligence process, which focuses on both quantitative and qualitative elements. LGT Capital Partners achieves this via a combination of detailed, bottom-up analysis and the application of top-down evaluation of the opportunities and capacity offered by individual markets.

How do you get access to oversubscribed funds?

LGT Capital Partners’ investment process is geared towards the early identification of target funds, well ahead of fund raising, supported by extensive local and regional market coverage. LGT Capital Partners’ team of 24 professionals representing 18 nationalities is structured along geographical lines in order to strengthen relationships with European private equity managers leveraging on language and cultural affinity in each European market. This enables us to follow a proactive approach and secure a significant allocation early in the process, often before managers are engaged in fund raising.

How do you put together your investment portfolio?

LGT Capital Partners believes it is very important to manage funds of a size which reflects our perception of the market opportunities over a designated investment period. The firm also strongly believes that it is important to structure well diversified fund-of-funds, but that each investment is meaningful in the context of the overall return of the fund-of-funds vehicle. In addition, the firm follows a core-satellite approach focusing the heart of the portfolio on established and successful managers while diversifying this exposure with new emerging teams.

Does that mean that you do first-time funds?

LGT Capital Partners is a sought-after sponsor of first-time funds and its European portfolios often include newly established teams or spin-outs from existing teams. The firm is recognised for its active search and backing of emerging teams and as such it has dedicated significant resources to discover new and talented private equity fund managers with pre-existing and proven track records.

How would you describe the investment environment for institutional investors in private equity today?

As investor demand for private equity funds has grown sharply, the capacity of the leading managers to accept new investors is decreasing. There is also a continual widening of the performance gap between top and bottom quartile funds within a decentralised market with limited transparency.

How can you help?

Against this background, LGT Capital Partners’ primary investment philosophy is to seek the delivery of attractive returns to investors by identifying and gaining meaningful access to high quality funds in a manner which would be difficult for them to replicate without the commitment of significant human and financial resources. Over the past 10 years, the firm has demonstrated its capacity to be a partner of choice for institutional investors around the world.

Alexandre Covello: CV

Alexandre Covello, a French national, joined LGT Capital Partners in 2004 as vice-president in charge of business development for Southern Europe. Covello had previously gained significant private equity investment experience both as a fund-of-funds manager at Finama Private Equity and in direct investments with Nascendo Ventures, a Geneva-based venture capital firm. Prior to moving into private equity and venture capital, Covello was a securities and M&A attorney with the New York law firm of Skadden, Arps, Slate, Meagher & Flom LLP and started his career as a strategy consultant with Mercer Management Consulting in Paris. Covello graduated (cum laude) from the Institut d’Etudes Politiques de Paris and holds a Master of Law from Paris University Law School (Pantheon-Sorbonne).

LGT Capital Partners

LGT Capital Partners is a manager of private equity fund investments dedicated to providing value-added alternative investment programmes and services to institutional investors. The firm has over 70 professionals who manage more than US$8bn in alternative investments, including over US$5bn in private equity commitments and over US$bn in hedge fund investments. LGT Capital Partners is headquartered near Zurich, in Pfaeffikon, Switzerland.