Running it all in-house
ATP Private Equity Partners (ATP PEP) is the private equity arm of the statutory pension provision fund ATP. It was set up in 2001.
“ATP wanted some exposure to private equity for the purposes of diversification, as well as for superior returns,” says Jens Bisgaard-Frantzen, managing partner, ATP PEP. “At that time, the pension fund had practically no exposure to private equity. The aim is to raise exposure to about 10% of the portfolio.”
At present, ATP has e40bn in total under management.
ATP PEP operates as a fund of funds manager, and currently runs two vehicles. The first is an open-ended fund, Innovation Fund ATP Private Equity, invested in a number of other funds, as well as some direct investments.
The other fund-of-funds, ATP PEP 1, has overe1bn under management, and has made further commitments of e750m, extended to 20 funds in 2003/4. It has a commitment of e1bn from ATP and Special Pensionfund (SP). A second similar vehicle is being considered.
The two existing schemes, ATP and SP, have a strategic allocation to private equity of up to 10%. In total, the ATP pension fund is committing about e1bn to ATP PEP every two years.
ATP PEP has a slightly unusual approach to diversification because it does not seek to control the geographical distribution of the funds it invests in. “We do not carry out asset allocation as such,” says Bisgaard-Frantzen. “We look for the best managers we can find in North America and Europe. So our asset allocation has been whatever compelling story we happen to invest in. It is the quality of managers which is the key.”
Not surprisingly, therefore, ATP PEP has few holdings in venture, preferring mid-market buyouts and secondary investments. Rather than use external consultants, it runs its funds in-house with a 15-strong team. Its staff includes investment bankers, equity researchers, accountants and lawyers.
“One of the lessons we have learned is that it is very important to have a team covering a lot of competences,” says Bisgaard-Frantzen. “Working in private equity is a complex process, and success depends on your ability to get round the pitfalls and to commit to the future top-quartile funds. The more information you have on the funds you are planning to invest with, the better you are likely to fare.”
He also says that ATP PEP is respected by the general partnerships: “From our feedback, we know that many general partnerships would like us to be in their funds, because we can provide a insight, an international network, a potential buyer of secondary interests and a stable investor for the long haul.”
Although he cautions that it is too early to judge returns, Bisgaard-Frantzen says ATP PEP has done “pretty well” out of the exits so far. “ATP PEP I has already done well: one example is one of the funds we have invested in which has made an IPO after two years, but that investment is still locked up,” he says. “When it is realized, in about six to nine months time, we expect the return to be worth eight times the original investment.”
The e110m originally invested by ATP PEP I has already grown toe125m. On average, however, Bisgaard-Frantzen says he expects ATP PEP to get back around twice the investment on the cost base of realised investments.
“The most important achievement so far is that we’ve begun to send money back to ATP,” he says. “They can see that this model is working, and are happy about the returns. Our target is between 17 and 25%, and we are on course to achieve that.”