The advantages of a Vintage offer
Summary
Written transcription
Louis Flamand: As I said in a previous episode, you can't do market timing in private equity, so the winning investment program is to invest roughly the same amounts in private equity every year, in a disciplined way. This is what the Altaroc offer makes possible. This is the advantage of offering vintage funds of funds. We offer our customers a diversified portfolio of 5 to 7 funds each year, and via our Re-Up program, our customers can build up an optimal private equity investment program. We believe this is a better approach than most institutional investors who have a bias or portfolio approach to market timing. Let me explain. Institutional investors will, for example, build up a highly diversified portfolio with 40 funds, and then follow these 40 managers and re-engage with them when they raise a successor fund. The problem with this approach is that it leads institutional investors to commit higher amounts in years when many of their managers are raising funds, and to commit lower amounts when few managers are raising funds. However, if we look at the historical performance of private equity, we can see that vintages with the highest amounts raised have tended to perform less well than vintages with the lowest amounts raised. For example, institutional investors often invested much more in 2005 and 2007, the worst vintages, than in 2010 or 2011, which were much better vintages, whereas by committing the same amount each year to our vintage funds of funds, our customers would have been just as exposed to the 2005 to 2007 vintage as to the 2010 to 2011 vintage.
Louis Flamand: But the operational constraints of our vintage strategy are twofold: 1. We have to find funds to invest in every year, and in some years, the range of exceptional managers available for subscription may be limited. But this is not a disadvantage for Altaroc, as we only have 5 to 7 funds to select from around the world each year. This means we can remain highly selective, even in years when the number of fund-raisings is more limited. The other constraint ofAltaroc 's concentrated strategy is that it requires an enormous amount of work. We need to 1. know the private equity market inside out, 2. be in regular contact with all the top managers to find out exactly when they will be raising their next fund. Their timing depends on their pace of investment, which is not easily predictable. That's why we have to talk to them constantly. But even if our selective, vintage approach requires a gold-digger's fine-tooth comb, it has a very precise aim: to enable you to build an optimal long-term private equity investment program, by committing roughly the same amounts to our exceptional funds every year.
