mast image

Impact Investing

IPE special report May 2018

Sections

In like Flintshire

Related Categories

After local government reorganisation in Wales in 1996, Clwyd county council ceased to exist. Its pension fund covers employees working for authorities previously included in the county, such as Flintshire and Wrexham, and some parts of Conwy. So the fund is still taking on new members.
Flintshire is the lead authority for the management of the fund, which was worth £559m (e836m) at 31 March 2004.
Around 5% of the Clwyd Pension Fund is invested in private equity, with 10 managers including Westport, Granville and Charterhouse. This includes both initial investments and follow-on funds.
The fund made its first investments in private equity in the early 1980s, with the objective of maximising returns within acceptable levels of risk.
In the early 1990s, after a few years of mixed returns and experiences, the fund adminstrators carried out a review of investment strategy.
This resulted in decisions to:
q Set up an inhouse private equity group;
q Carry out research to identify private equity managers with a proven
track record;
q Support the managers selected, rather than invest in ad hoc funds;
q Invest in fund of funds, plus three specific funds run by proven managers;
q Invest on a larger scale (between £1m and £5m) but in fewer funds;
q Invest first within the UK, then work outwards to Europe and then the US;
q Gradually build up a substantial portfolio.
Since 1994, a further £90m has been committed in addition to the initial £6m. The fund continues to monitor private equity investment opportunities on an ongoing basis, with the aim of investing between £5m and £10m each year.
“Our experience has mirrored the results of studies by the BVCA and NAPF,” says Dave Bamber, assistant treasurer, Flintshire county council. “These prove that since the early 1990s, cumulative private equity returns
have outperformed all principal comparator asset classes. Over the past
10 years, private equity has certainly been the fund’s best performing asset class.”
According to Bamber, the first four investments, made in 1994, will return three times the amount invested – ie, £18m from the initial £6m.
“All four investments produced very early successful exits and distributions,” he says. “This ensures that maximum net cash flow barely reached 50% of the amounts committed. This is probably extreme, but the current portfolio built up since that time is displaying similar, if less extreme, characteristics.” This has contributed to a relative outperformance by the fund.
Over the past one-, three- and five-year periods, the Clwyd Pension Fund has achieved upper quartile performance in comparison with other local government pension schemes, according to The WM Company.
Bamber agrees with the conclusions of the studies that the risks of investing in private equity funds are far lower than is perceived by many investors,
as long as they build up a diversified portfolio.
He also says that the cash flow profile is more attractive than is generally assumed, offering strong positive cash flows from as early as two years after the first drawdown.
Bamber says: “The main lesson we have learned is that which private equity funds you choose is more significant than whether you invest in the asset class at all.”
Turning to the future, he says: “The outlook for strong returns continues to be good, particularly among the UK managed private equity funds.”

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2435

    Asset class: CLOs.
    Asset region: Global.
    Size: USD 50m.
    Closing date: 2018-05-22.

  • QN-2436

    Asset class: Real Estate - Core Open-ended Real Estate Equity Fund (non-listed).
    Asset region: Asia Pacific.
    Size: Approx. CHF 70-100m per investment.
    Closing date: 2018-05-25.

  • QN-2438

    Asset class: High Yield Bonds.
    Asset region: US.
    Size: USD 300 million.
    Closing date: 2018-05-25.

Begin Your Search Here