The Virginia firm, which manages $1 billion over two funds of funds that back small buyout shops, will soon begin marketing a European fund and a global diversified fund. The European fund is expected to attract commitments of between $300 million and $400 million; the diversified fund is expected to be twice as big.
“Not many people focus on this part of the marketplace in Europe,” said Lou Moelchert, a founder of Private Advisors. “There’s a demand for our area of expertise from a great number of sophisticated limited partners that don’t have the time to devote to finding the strongest partnerships.”
As in the United States, Europe has plenty of hard-to-access managers, according to the firm, among them Stockholm-based
To break into top shops abroad, Private Advisors has an ace up its sleeve: newly hired Jens Bisgaard-Frantzen, who founded and served as the longtime CEO of ATP Private Equity Partners, Denmark’s largest institutional investor with assets of roughly $65 billion. Not only can Bisgaard-Frantzen leverage a wealth of contacts but he is also building a formidable team around him. So far he has enlisted Matthew Baker, also formerly of ATP, and Jennifer Buckley, who previously led GE’s private equity practice in London for seven years. The three will be joined by several junior investing professionals in London, and two senior managers who’ve yet to be hired, and who will join seven investment professionals based in Richmond.
Bisgaard-Frantzen plans to continue identifying the most desirable small and mid-market buyout funds in the Western end of Europe, including Scandinavia, the Benelux countries, and the United Kingdom. Some of his favorite firms include
Going global marks a dramatic move for a firm whose conservative nature reflects that of Moelchert, an investor who isn’t big on fads or big gambles.
Part of Moelchert’s restraint owes to his modest upbringing in a tiny Georgia town where his father owned a hardware store. And partly it stems from how long Moelchert has been in the business. The 66-year-old was schooled as an LP at the
It’s not the searing, well-documented, explosion in assets that
University of Richmond’s administrators were so happy with Moelchert’s performance that when he formed Private Advisors in 1997 they asked him to continue managing the endowment concurrently. Only when the assets of Private Advisors demanded his full-time attention did Moelchert insist that the school find a replacement. “What you learn is that to be successful over time, you have to be more concerned about losing too much money in the downturn than in shooting out the lights during a bubble,” he said.
Moelchert’s conservative approach informs the investment strategy of Private Advisors, which currently manages $4 billion, including $3 billion in hedge fund assets, and $1 billion across two U.S. private equity funds of funds — and is nearing the close of its third, according to one LP.
On the buyout side, Private Advisors’s team sticks with small firms that back companies with annual revenues of $150 million or less. They do this for a few reasons, said Moelchert, beginning with the comparative safety of the smaller end of the market. “If you find talented GPs, you get venture-like returns for significantly less risk,” he said. The team is also value conscious, “and we think what you pay for an asset going in has an awful lot to do with how much profit you’re going to make when you sell it.” Finally, Moelchert thinks its small-buyout fund GPs can have a more direct impact in helping their portfolio companies mature and reach the next level than they could were they dealing with larger, lumbering entities.
Private Advisors is selective. Of the slightly more than 700 funds that meet its investing criteria, the firm closely examines the PPMs of between 70 to 90 funds every year, and commits to between five and eight. On average, its GPs manage around $230 million in assets on average, said Moelchert.
Private Advisors also has its distinct likes and dislikes. If a firm is managing assets that are out of favor, for example, the team is all ears. Moelchert points to Denver-based Resource Capital, which specializes in mining and natural resources, as one of its favorite firms. Though its managers came out of the global investment bank N.M. Rothschild & Sons in 1998, they had trouble drumming up interest in the midst of the dot.com craze. They got through to Moelchert, though, and today, Private Advisors, which has enjoyed “exceptional returns” from its involvement with the firm, is its biggest investor.
Moelchert also likes managers who know how to invest in a downturn. “In today’s market, we really believe that if we aren’t in a recession, we’re very near. So we’re tending to focus on partnerships that can work with companies experiencing difficulty.”
Naturally, too, Private Advisors—which has more than 1,000 LPs, 80 percent of which are institutional investors—tries to identify talented teams. Moelchert particularly likes Chicago-based Roundtable Healthcare Partners, whose managers came out of Baxter Healthcare Corp. six years ago and have also produced strong rates of return for Private Advisors.
Unsurprisingly, given Moelchert’s conservative philosophy, Private Advisors is far less enthusiastic about emerging managers unless they’ve spun out of a previous partnership with a good track record intact. “We’d be very leery of backing a new team that hasn’t invested together before. It would take a pretty special situation,” he said. Funds that have inched up from the small end of the marketplace need not apply, either. Moelchert much prefers the “large group of fund managers who know what their expertise is and decided to stay [small] and didn’t grow assets under management in recent years just because they could.”
And as someone who has been investing in alternative assets since the early 1980s, Moelchert has developed a nose for managers who “call in rich.” As he explains it: “If they make so much money that we sense they aren’t as engaged as they used to be or that their motivations have changed, we’ll move on” to other fund managers.
Indeed, Private Advisors once fired a GP and then led the firm’s other LPs to take over the partnership and wind it down. “We had a fiduciary responsibility to our own LPs,” said Moelchert.
At a Glance
Focus: Small to lower middle market funds
Located: Richmond, Virginia; London
Private Equity Assets Under Management: $1 billion
Angelo, Gordon & Co.
Brockway Moran & Partners Inc.
Endeavor Capital Inc.
Industrial Growth Partners
Littlejohn & Co.
Prospect Partners LLC
Roundtable Healthcare Partners