Private equity is expected to be the highest-returning asset class in our portfolios, and offers access to some of the most talented long-term investors and operators of private (non-public) companies. In contrast to the zero-sum game of public markets, we believe private equity is a superior form of capitalism as investors benefit from the manager’s ability to add value through strategic, operational and financial levers. Their corporate governance advantage, in combination with typically higher leverage than public companies and the ability to call capital when opportunities arise, results in an asset class illiquidity premium which we estimate to be approximately 400 bps over public equities over the long-term. We define the private equity asset class broadly to include leveraged buyouts (across all sizes of companies), growth equity, venture capital and distressed/turnaround strategies.
How We Invest
We are focused on private equity managers who have a demonstrated edge through a combination of deep sector expertise and post-acquisition operating value addition. In an increasingly competitive environment, we are focused on unique deal sourcing capabilities and operational expertise as the primary sources of differentiation as opposed to financial engineering. While we invest across a range of private equity strategies, we continue to favour less efficient markets or strategies which require distinctive capabilities to derive an edge. The core of our portfolios are focused on the lower middle market investors across both “buy-and-build” strategies and sector specialists in the consumer, industrial, technology and healthcare. We also include venture capital to gain exposure to innovation and potentially disruptive technologies. At certain points in the cycle, we will also increase our allocations to distressed managers who can acquire assets at a discount to intrinsic value.
Our best ideas in private equity are reflected in our series of multi-manager pooled vehicles which raise capital annually to invest in approximately 8-10 of the most compelling managers and co-investments across buyouts, growth equity, distressed/turnaround and venture capital. We also offer bespoke specialist mandates in private equity for large clients.
We co-invested with a technology-focused private equity partner in the carve-out of the software business from a large diversified technology company. Partners Capital performed an analysis on the revenue growth to verify the return potential prior to investing, in part through referencing the opportunity with our technology-focused partners in both public and private asset classes. As part of our due diligence, Partners Capital also concluded that the firm had the required operational capabilities to complete a complex restructuring and operational plan. The business had six different business lines, which our partner re-organized into two distinct companies, and in the process they have been able to unlock substantial cost savings and redesign each business’ go-to-market strategy. The business is currently performing ahead of plan.