Can you describe your recent relationship with Siguler Guff?
During early 2015, we set up a separate account with Siguler Guff, which we seeded with $50 million to focus on LP secondary interests in managers who are executing distressed strategies. We did the underwriting about a year ago, and the first capital call was in March 2015. The account has a 10-year life, including a 3-year investment period and we allow the capital to be recycled. There are probably half a dozen separate investments at this point.
How has the investment paid off so far?
Six months from our first capital call, the separate account is fully invested. We’re tracking well in the triple-digit net internal rate of return and we’re close to a 1.6x multiple. We’ve received more than $11 million back already.
Why did you pick Siguler Guff?
I’ve had interactions with Siguler Guff for probably seven years and I’ve known the portfolio manager, Tony Cusano, since 2010. Tony and his team target smaller opportunities in distressed and special situations funds. It’s very difficult to underwrite special situations and distressed investments. That’s the beauty of the relationship with Siguler Guff. That’s the secret sauce. Tony knows all of the managers in the space and has found a way to buy the best assets through the secondaries market. It’s an expertise you cannot develop because the barriers to entry are high. We’re always looking for these nuggets of inefficiency where the domain expertise is very difficult to get.
How does it fit within your overall approach to secondaries?
We’re a long-standing investor in secondaries. We look at secondaries fairly broadly. When we’re looking at our portfolio, we look at how we can add incremental value regardless of our primary commitments. When I make primary commitments, I can add to that with secondaries.
Ultimately, what we want to do is kick the tyres on a fund. That’s the optimal situation for our staff. We look at private equity through different lenses – primary, co-investments and secondaries.
We have three different approaches to secondaries. We can invest directly in secondaries with the help of our consultant, Top Tier Capital Partners, a venture capital specialist, which is our sole relationship. When we selected a consultant, we actually had an eye on secondaries.
We have a very significant co-investment programme, which we manage through a relationship with BlackRock. We also do secondaries with BlackRock through a co-investment vehicle. We also have a broad secondaries platform, in which our relationship with Siguler Guff fits.
Which other relationships does your broad secondaries platform include?
In the broader platform, we have silos where we look at secondary opportunities. We started with Lexington Partners. That’s our beta exposure and the longest secondaries relationship. Then we break it down to more nuanced strategies. We have a relationship with Industry Ventures who does secondaries in venture assets, to add value incrementally with an alpha strategy. We also have a relationship with W Capital who tends to focus more on direct secondaries. I sit on both firms’ advisory boards. More recently, we started the separate account with Siguler Guff to focus on distressed and special situations assets. In total, we have close to $300 million in secondary investments.
What we like about secondaries is that you bring in your duration and you have a more near-term cashflow profile. That’s something I really appreciate. It fits really well with our overall private equity strategy. Concerning Siguler Guff more specifically, we anticipate adding additional capital to the strategy in the near term.