Ardian has won a mandate to build a portfolio for Legal & General’s Private Market Asset Fund.
The vehicle, which forms part of L&G’s Lifetime Advantage Fund, is designed to provide L&G’s 5.6 million UK defined contribution (DC) members greater access to private markets.
Ardian’s co-investment team will build a portfolio of holdings in a diversified mix of private companies across general partner (GP) sponsors, sectors, regions and company size to bolster the fund’s private markets allocations.
Martin Dietz, head of diversified strategies at L&G, told IPE that the current target size for the Ardian mandate is around £140m (€160m) to £280m.
“But this will grow. This is very much a growing proposition,” Dietz said.
“We look for providers that give us private equity exposure in a way that works for our DC clients, our portfolio and that are broadly aligned with our ESG and sustainability beliefs. Ardian fits that brief.”
Lesley-Ann Morgan, global head of DC at L&G, said: “We run two main default funds for clients, one has a relatively small amount of private markets allocation in it, but the other one, the L&G Private Market Asset Fund has a 15% allocation [to private markets] and this has been really gaining attraction from new clients coming in.”
She added that one of the benefits of the co-investment approach is that it opens up opportunities for DC funds to gain access to high-quality investments that may otherwise not be possible.
Morgan said: “We’re at good scale, and we’ve been able to get there reasonably quickly. That means we have been able to do good quality co investments. This is the future of where DC funds need to get to, because that actually means that we can do this much more cost-effectively for members.”
Dietz added: “I think this is really where the UK DC market is changing. It was all about the lowest fee, and now people care more about value for money. So, can we get extra returns if we pay a little bit more?
“The difference is quite small, a few basis points more that people would have to pay for a private market solution. And we need to make the case to every single employer and to the consultants that the extra fees are worth it.”
“We need to make the case to every single employer and to the consultants that the extra fees are worth it”
Martin Dietz, head of diversified strategies at L&G
He continued: “We want the liquidity premium coming through and we’re clearly targeting asset classes that give strong returns and some diversification versus equities, and we want to clearly target strong providers and some alpha as well.”
Patrick Kocsi, co-head of private equity co-investment at Ardian, commented: “This [mandate] is focused on private equity co-investments to give L&G clients access to private equity transactions across the globe.
“We have relationships with over 600 private equity firms globally, and through those relationships, we’re going to select the best transactions across [their] deal flow. Typically, we do less than one out of 10 transactions that we are offered. So, we’re trying to be very selective, while looking for broad diversification across geography, company, size, and industry.”
Kocsi added that Ardian’s $134bn private equity group is experienced in designing private markets separately managed accounts (SMAs) for institutional investors, “so we are well placed to tailor the structure for the UK DC market”.
