One of the keys to success when starting a new private equity firm is to separate ownership of the management company from ownership of the fund, according to secondaries industry pioneer Jeremy Coller.
Speaking at the IPEM 2017 conference in Cannes on Wednesday, Coller said that having more than “one or maximum two entities” owning a firm is “the biggest mistake that spin-outs or [those] founding a GP can make”.
“Probably the biggest mistake a lot of groups that start GPs [make] is they start with four general partners, four equal partners,” Coller said.
“I don’t know any group, any really successful private equity group, that has been successful with four equal private equity owners. You need ownership. You either need one or maximum two entities to own a GP to start a business and be successful.”
Coller said having one entity allowed a firm to “build out a vision” at the beginning of its life, and that further down the road “you get to a certain point and then it’s the right time to become a partnership”.
“I think groups do need to become multi-shareholder over time. We’ll have to do that when I get grey hair.”
Coller stressed the need to “be generous with the carry” to motivate and align both investors and the investment team.
“You need partners of a fund. The carry is real currency and ownership of a fund”.
Speaking of the single ownership of Coller Capital, and the fact that he is the only key man for its funds, Coller said he tells LPs that it is crucial for them to have an advocate within the firm.
“If the owner is the LP advocate, he’s protecting and he’s accountable for everything that happens.”