Size matters for institutional commitments to PE

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Establishing a captive private equity fund investment programme is a luxury afforded to only the largest and most sophisticated institutional investors.

For this select group, investing at a level that moves the needle as part of a larger investment portfolio is a vital part of the strategy, according to Torben Vangstrup, managing partner of ATP Private Equity Partners (ATP PEP), the private equity arm of Danish pension group ATP.

He said, “You need to have the scale to do this right. If you want to access returns that are above average – and this needs to be the ambition, as otherwise you shouldn’t even be in the asset class – then the way [to do this] is by setting up a unit with a programme that is going to be taken seriously in the market,” he says. “People want to do business with us. They want us as co-investors. They recognise and appreciate that we are a long-term and committed investor in this asset class.”

ATP PEP was founded in 2001 with ATP as its sole LP. The fund of funds has, to date, approximately €7bn under management across five different funds and an annual investment programme of more than €500m.

He added,  “This is the aim, and obviously this is not available to everyone. The smaller pension funds or institutions may onlyhave a few employees looking at a range of asset classes. It is hard to gain the necessary profile in the market and simply to gain the necessary attention.”

This active approach extends to a co-investment capability, where again a lack of expertise and market exposure can mean a lack of access to the best deals. “We do co-investments because GPs recognise we will not be the bottleneck. We know the timelines within the business and we can work along with GPs and make it work.”

Clearly, for a smaller operation the challenge lies as much in the ability to manage the deal-flow as it is to take advantage of the prospective pipeline of deal opportunities.

He added, “If you are not investing on a regular basis, consistency is not there, which is very important in this business. It is important that the GP knows that if they do it right, there will not be a long discussion about whether you will back them next time around. These assurances are appreciated, and by building a presence of this kind you are able to operate in the most effective manner.”

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