Here's a gem of a question that I got at a PE FOF interview a couple weeks ago. Person asked me: "So what are your three favorite PE firms?" I was like, "Favorite in terms of what?" Interviewer said "Oh you know, their strategy and returns, etc..."
Frankly, I thought it was a bullshit question and didn't really have a good answer. I mean who has a favorite PE firm? You may have a dream job (KKR, TPG, Blackstone) which is lame anyway, but that's not what the question was. So how would you have answered this?
You're interviewing at FOF and call this question bullshit? Why? I mean it's your bloody job to invest in those firms ;) Anyways I guess its like he said about strategy etc. as you normally cannot know the real performance of the funds out there if you're not working in the industry. You can always argue that they invest in growth sectors and u like it because of A, B, C or whatever. In my opinion a good pick would be a decent mid-markt player, that's where the money's at right now.
I call the question bullshit because not being in the PE FOF industry, it's hard to know specific firms' strategies and returns, given that it's "Private" Equity.
First of all, returns for some firms are not that mysterious, thanks to Calpers: http://www.calpers.ca.gov/index.jsp?bc=/investments/assets/equities/aim…
Second, a lot of firms publicize what their basic strategy is. Even if it's basic info like "we seek investments in firms with 5-50m turnover" or "focus on environmental technologies".
Third, looking at recent transactions gives you a fair idea of where they are going and what their investment rationale might be.
I agree that this is a very open question but it's quite relevant for a FOF position, I think. Plus, it is so open that you can pick a diverse set of reasons why you like specific firms.
If you're interviewing with FoFs, it's not a bullshit answer - because that's what you'll be doing: assessing, reviewing and investing in PE funds. They want to assess whether you're actually interested in a career at the FoFs level or at the direct level (which FoFs are aware is the preferred destination of most people looking to go into PE).
You can say it might not be 'fair' given an analyst probably won't have knowledge of PE funds outside of the big ones, but it's a legit question. (I got this question more than once)
Ok fine, I'm not here to argue whether the question was bullshit or not. I'm curious to hear people's answers to the question.
Agreed, interested to hear some more answers
As a FoF investor, your favorite PE firm should be the one that gets you the highest risk-adjusted returns for the lowest fees
This isn't professional sports. You don't root for someone due to headquarters location or color scheme or whether they have a run-first or pass-first offensive strategy. It's all about the bottom line
I'll take a run at this since no one has answered yet:
Warburg - Great way to get exposure to majority of geographies, industries, and sectors (they'll do LBO, growth and some venture). They have deep sector experience across most verticals, and have generated fairly strong returns. Caveat this in a FoF interview that Warburg wouldnt be particuarly ideal for a FoF product, since most LPs can get this exposure themself, but as an LP, I'd look here.
Archer - Middle market in Australia. Great macro growth story in Australia coupled with middle market exposure, the mega space in Aussie has become crowded IMO. Check out their website, they have some decent info on current investments.
Andressen Horowitz - You should be able to pull tons of info as they guys are always in the press. But they've been making later stage, growth-like investments; lower risk than early stage venture, but still underwriting to 2-3x returns. Some negatives to their investment strategy and what they're doing, but a good risk-adjusted way to get exposure to the venture space.
I'll also add one:
Oaktree Capital Management. Particularly the upcoming European Principal Opportunities Fund. I think distressed/special situations is not yet as widespread in Europe as it is in the US and even without further aggravation of the economic situation, there's still lots of failing firms. Obviously it's more risky than traditional buyouts but OCM has a long standing track record with performance of 15%+.
Otherwise MM firms are very attractive but as a FOF I'd probably shy away from MM which are too far away from my geographical home.
KPS is a firm I have a lot of admiration for. They seem to really do all the things that every PE firm says they do.
Industrial Growth Partners. These guys focus exclusively on manufacturing. In the days where every MM PE firm claims to be able to provide operational value-add to their portfolio companies, IGP is one of the few firms that has the profiles and track record to back it up. My understanding is that they have generated very good returns lately and were able to raise a new fund incredibly quickly as a result. I'd definitely be an L.P. in their fund if I had the opportunity.
Sounds a lot like American Industrial Partners
Good stuff guys, keep em coming.
Berkshire - Has been in the middle market game for awhile. 4 out of the 5 last funds have been top decile for their vintage. Industry focus of consumer, retail, business services, transport, & industrial. They've never had a partner leave, and the average tenure at the MD level is 20 years+. Great franchise, and tend to see all the good deals. They have a knack for finding niche companies in the retail space (Bare Escentuals, Aritzia, Party City), then getting larger LBO firms to pay up for them. Risk is an increased fund size, they may be getting too big; plus fee/carry are at premium levels.
Hellman & Friedman
Bain Capital because who doesn't love Mitt Romney duh
Not to hijack this thread, but can someone please explain to me why FoFs still exist in this day and age? I have met a few FoF professionals in social settings and not one of them can articulate this to me, perhaps trying desperately to justify their own existence.
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