The private equity fund-of-funds arm of Denmark’s largest pension fund is opening up its latest investment fund to external investors for the first time, with the management team having struck a deal accepting lower and more market-related incentives, but gaining the benefit of more clients.
ATP, which manages a DKK934bn (€125bn) statutory scheme encompassing most of the Danish labour force, announced this morning that its subsidiary ATP Private Equity Partners (ATP PEP) has established a seventh fund, with a capital commitment of €800m from the pension fund.
For the first time, ATP said it was giving the ATP PEP team the opportunity to seek interest “among other like-minded institutional investors to participate in a parallel fund to ATP PEP VII.”
Mikkel Svenstrup, ATP’s CIO, said: ”This is in order to ensure a longer lasting business model where ATP achieves further savings and can still maintain a strong and competent investment team.”
The Danish pension fund said it was currently working to obtain the necessary regulatory approval to invest on behalf of other investors.
ATP has come under pressure in the last few years in public debate regarding the high level of bonuses paid to its private equity team, and two years ago, it acted to address concerns.
The pension fund halved the cap on annual compensation to the 11-strong team at the independent fund of funds PE subsidiary to DKK50m from DKK100m, and reduced the carried interest governing the cut of investment profits that partners receive to 2.5% from 5%.
For this latest fund, ATP has tightened incentive programmes still further introducing a public market equivalent (PME) performance measure, which effectively means ATP PEP will need to beat the public equities market before being rewarded for performance even if they reach a hurdle rate of 8%.
ATP PEP has for years agreed to a fixed management fee of seven basis points initially. Torben Vangstrup, managing partner at ATP PEP, told IPE the fixed fee makes the fund very cheap for ATP compared to other private equity funds.
“We are not gaining anything from the management fee – it just covers our fees,” he said.
However, the parallel fund that other investors can join will have terms that are negotiated separately.
“What we’re getting is the positivity of having an incentive scheme which is separate for the parallel fund, which may be closer to what you see in the market,” he said, adding that ATP would still have a say on the level at which it would be capped.
Vangstrup said there would be a hard cap on external investments in fund seven of €800m, but that the partnership would ideally like to have between €300m and €400m from “institutional investors who share with ATP the same kind of values in what is important when we invest, like ESG and tax policies.”
Explaining why it was better to restrict the size of the parallel fund, he said: “We want to be able to stick to our investment strategy and not break the model.”
The investment strategy for ATP PEP VII will be largely identical to the previous funds, ATP said, with a special focus on PE funds in Europe and North America and co-investments with these funds.
ATP PEP VII will start investing immediately, it said.
Since ATP PEP was set up in 2002, the pension fund said it had made total commitments of more than €10bn in PE.