Putting the funds to work
Private equity investment is not simply a matter of doing deals but of making sure you do the right deals, says Volkert Doeksen, chief executive officer of NIB Capital Private Equity.
Doeksen heads one of the largest dedicated private equity investors in the world, managing more than €14bn of funds provided by NIB Capital’s two founding shareholders, the Dutch pension funds ABP and PGGM.
NIB Capital Private Equity invests some 80% of these funds in private equity funds, either directly or through secondary transactions. Putting this money to work profitably is getting harder, Doeksen says. “This is not a market share game, where you are rated on how many deals you have done. We don’t want to do crazy deals where right from the inception we have difficulty trying to keep up with the company.
“If you don’t do a deal for a year that should not be a problem. When we lose auctions, we don’t cry over spilt milk. There are still plenty of good deals to be done.”
NIB Capital Private Equity was involved earlier this year in the €315m management buyout of Raet, formerly Getronics Human Resources Solutions, a leading payroll services provider in the Netherlands. And, together with a syndicate of leading private equity investors, it was involved in the acquisition of a €1.5bn private equity portfolio from Deutsche Bank.
The freedom to do these sort of deals stems from the decision last year by owners ABP and PGGM to operate NIB Capital Private Equity at arm’s length as a fully independent entity from NIB Capital Bank. ABP and PGGM have given NIB Capital Private Equity a mandate to pursue a broad strategy that covers a wide range of private equity transactions. “The mandate gives us the room to undertake secondary transactions,” says Doeksen.
The strength of NIBC Private Equity, he says, is its global reach. “We are uniquely equipped to operate worldwide.” Most of its funds – around 90% – are divided equally between Europe and the US. The remaining 10% is invested throughout the rest of the world, mainly in Asia at the moment.
In the Netherlands, Germany and Belgium, NIB Capital Private Equity acts as lead investor, investing directly. The rationale for the direct investment policy in these three countries was provided by the acquisition of private equity house Alpinvest in Germany in 2000 and its integration with Parnib, the equity investment company of De Nationale Investeringsbank. This meant that NIB Capital Private Equity had a ready-made infrastructure and network of contacts and relationships.
As a result, NIB Capital Private Equity’s direct investment activities are quite distinct from its global operations. “On the direct side, where we have our own teams in place, we are deliberately very focused on those three countries,” says Doeksen.
There are no plans to acquire further businesses in other European countries, like Alpinvest, to create a pan-European operation. “One country we could imagine would be France because it would be a very logical extension. But it’s really no more than a thought. It’s not an easy thing to do. It’s very difficult to string countries together, because you really need the strong teams in each country to be successful.”
Elsewhere in Europe and in the US, NIB Capital Private Equity co-invests alongside other private equity funds. “In most countries we invest in fund of funds, which means that we invest in top-tier other general partners’ funds, which in turn invest in local businesses. A large part of the operation is through fund selection. We have pre-set goals, which are still relatively flexible as to how we commit across the globe.”
The bulk of NIB Capital Private Equity assets is committed to funds of private equity funds. “Of the E14bn that we manage today about E11.5bn is used for the fund of fund business. So a large chunk is effectively outsourced to the general partners,” he says.
The general partners will choose where to invest. “To be honest it’s quite reactive in the sense that we don’t pick countries and then try to find deals,” he says “We target certain regions and leave it to the general partners to pick the deals there.”
Doeksen emphasises that NIB Capital Private Equity is content to take a back seat in co-investment. “We really work as a junior partner on deals. The big advantage of co-investment is that we will typically get an invitation because people need the assurance that you can move swiftly, that you won’t hold up the process and even better that you can actually add value.”
The priority is to put funds to work rather than accumulate further funds, he says. “ABP and PGGM are not very keen on us becoming an asset-gatherer in private equity. They have already given us a big chunk of money to invest, so they want us to focus on the investment business and make good returns rather than spend time raising even more money.
“They do however agree that it would be nice to have a couple of like-minded investors alongside to form something like a club with other big players who may want to use this vehicle for part or all of their private equity business. That’s something they would definitely be interested in exploring.”
One example of this kind of partnership is the Canada Pension Plan’s commitment of e100m to NIB Private Equity Late Stage Co-Investments II, to be drawn down over three years. The fund will focus primarily on western European co-investment opportunities, investing in parallel with top-tier lead investors.
ABP and PGGM have also given the private equity arm a mandate to develop its mezzanine activities: “We like the mezzanine business, which we set up in the US last year. We realised that banks were not willing to lend much in acquisition finance for US buy-outs and we figured that there would be a mezzanine come-back.
NIB is a limited partner in a mezzanine fund of TCW, the US subsidiary of SG Asset Management . “We hope to co-invest with these funds rather than do direct deals, “ Doeksen says. The next move is into the European market. “The plan is to be opportunistic in Europe.”