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Institutional Investor Profile: David G Proctor, Senior Vice President, Wind River Holdings10/05/2006. Source: AltAssets. 
David G Proctor on fund selection, due diligence and on the necessity to really understand how fund managers add value to their portfolio companies.  King of Prussia, Pennsylvania-based Wind River Holdings, formerly known as The AMC Group, manages a series of assets that are owned by a series of trusts. The trusts currently have a value of approximately $1bn. The beneficiaries of those trusts are two brothers: one of them, Russell Ball, is CEO of Wind River Holdings; the other brother is an active board member.
Wind River invests in both private equity/venture capital funds and into companies directly. The bite size for fund investments is in the range of $1-5m.
David Proctor's background is in corporate finance. Proctor is a former vice president of sales and marketing with Philadelphia Mixing Solutions, one of Wind River's operating companies. Prior to joining Wind River, Proctor was first vice president of investment banking with Janney Montgomery Scott in Philadelphia.
How much capital do you currently have committed to private equity/venture capital funds?
'We currently have about $50m committed to private equity and venture capital funds. This represents about 15 per cent of our available capital. The balance is invested in marketable securities. We have a real estate portfolio and a direct company investment portfolio.
Wind River started investing in private equity funds about seven years ago. Since then the amount that we have committed to funds has not changed significantly, and it is unlikely to change in the foreseeable future.'
Have you increased the amount of capital invested directly into companies?
'Yes, we have been increasing the amount. A few years ago we determined that our primary business is to invest directly in control positions in companies, and to take a longer-term perspective that affects both how we evaluate an investment opportunity and how we position ourselves as owners of the business. The reason for the increased emphasis on company investments is that we believe that way we achieve greater control over our investments through greater visibility.'
On the fund investment side, what type of investments do you look for?
'Wind River has an opportunistic investment strategy, and we always look for a high level of diversification. Generally, our portfolio consists of one third venture capital funds and two thirds buy-out funds. We invest mainly in generalist but also in specialist funds. Our firm targets funds across the US.'
Are you interested in co-investments?
'Periodically we co-invest alongside our funds. Sometimes the availability of co-investment opportunities could be a reason why we decide to invest in one and not in the other of two good funds. Co-investments have a role in our portfolio but I would not overemphasise it.'
What is your appetite for first-time funds?
'We do look at first-time funds but we would generally avoid investing in those first-time funds that are raised by first-time teams.'
How do you find out about good investments?
'We have a good knowledge of who is raising funds and when. We look at between 50 and 100 funds a year.'
How do you conduct your due diligence?
'The key factor in our due diligence process is that we try to really understand where the fund managers add value. In today's markets it is one thing for funds to have great networks and great deal flow but it is another thing for them to have a very clear ability to add value to their portfolio companies. We look for examples of how the fund managers have created value in the past. We want to know how genuine and sustainable their strategy is in terms of adding value.
The first step in our due diligence process is that we take a close look at the PPM and evaluate all the material that the fund manager has sent to us. If we are interested, we review the firm's track record, the investment strategy and how the strategy matches the firm's actual activities. We analyse in detail where their strategy has in fact created value, beyond shifts in the market.
We have six people in our team and everybody gets involved in the due diligence on those funds that we believe are good. Initially, one or two people evaluate a firm's track record. If their decision is a positive one, we go into deeper due diligence, which gradually involves the whole team. At that stage we analyse the firm's present and past portfolios, and talk to the management of portfolio companies.
At the final stage, every commitment needs to be approved by our CEO, our president and our CFO.
The due diligence process typically takes between three and six months but it can also last up to nine months, depending on how complex the due diligence process needs to be. We only commit to a fund if we are convinced that it is the right decision.
For re-investments, our due diligence process is significantly shorter because we already know the manager well.'
What are the qualities of a good GP?
'Good GPs understand the market they are targeting and translate their competitive advantage into creating value.
Other qualities of a good GP are all the standard qualities such as integrity, good communication and transparency.'
What would put you off investing with a certain GP?
'We will not invest in a fund if we do not believe that the team has a competitive advantage or if we believe that the firm will not be able to utilise its competitive advantage to add value. To give you an example, some managers claim that their competitive advantage is that they have good deal flow, but a lot of people have good deal flow and that is not necessarily a differentiator.'
What advice would you give to a new private equity investor?
'Be clear about your investment objective, and be careful - there are a lot of people in the market today and some are better than others.'
Copyright © 2006 AltAssets
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