October 12, 2015
Interviewed by: Tom Franco
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Allianz Adds ‘Spice’ to its Portfolio

There are generalist fund managers and what Allianz Capital Partners calls “spice” or specialist managers. Allianz’s Susanne Forsingdal says there’s a difference between the two, and that there is room for both in a well-rounded portfolio.

There are generalist fund managers and what Allianz Capital Partners calls “spice” or specialist managers. Allianz’s Susanne Forsingdal says there’s a difference between the two, and that there is room for both in a well-rounded portfolio.

Allianz Adds “Spice” to its Portfolio
With Susanne Forsingdal of Allianz Capital Partners

Dan Feder, Washington University Investment Management Company: Hello. We’re here with Susanne Forsingdal of Allianz today. Welcome. Could you tell us a bit about the private equity program at Allianz?

Susanne Forsingdal, Allianz Capital Partners: The program at Allianz for private equity is quite stable—it’s been in place since the late ‘90s. The current program that we are investing out of runs through 2018 and the plan is to make commitment to private equity funds of around 1.2 billion Euro a year, with a split—one-third, one-third, one-third—on North America, Europe and Asia.

The way we have organized ourselves is we’re really a captive fund of funds within Allianz, so even though all the capital comes from the balance sheet of Allianz, we run more or less as a fundof  fund group internally with the group. We have offices in New York, Munich and Singapore to primarily focus on investment opportunities in those regions.

Feder: You said this is about one-third, one-third, one-third, across those very broad regions. Are there differences in types of investments? Is it more buyout in the U.S. and more growth and venture in Asia? What are the tendencies across the regions?

Forsingdal: No question. The North American market is the deepest and broadest market—[it’s] where we see more mature opportunities. That’s also where our focus is. The way we try to get to returns that are better than average is by picking managers that are somewhat differentiated from the crowd. About 50% of our commitments go to what we call “base managers”—the managers that have a long track record, wellestablished managers.

Tom Franco, Clayton, Dubilier & Rice: How do you develop faith in a manager? Once you lose faith, can you ever get it back?

Forsingdal: I think you can. First of all, I think the way you develop faith is over time—rarely would we make a commitment to a manager we’ve just recently met. Most of the time, we will have met a manager over several years and maybe even done due diligence on a fund before. We actually execute and make a commitment to a manager, particularly if you end up making a commitment, make several commitments. We have a number of those funds in our portfolio. It’s getting easier and easier to make a new commitment.

That said, of course, you always have to compare the returns and the faith you have in the manager to what other options you see in the market. On the question of whether you can restore your faith if you decided at one point in time to opt out, I think definitely so. I think there’s still an easier path for some of the managers we’ve committed to in the past. If we stay in close contact and we see an improvement of whatever it was we were not comfortable with, we are definitely in a position where we would be able to commit to a new fund.

Feder: Just on the quality of manager, you have a fairly substantial co-invest, direct investment program. When you’re pursuing director or co-investment opportunities and you’re simultaneously looking at managers and trying to pick high quality managers, to what extent do you feel you have to balance between getting access to a specific type of opportunities or opportunity set with investing with the very best manager?

Forsingdal: Part of what you are asking is would we make a commitment to a manager if we feel there would be a high chance or likelihood of them offering us co-investment? The answer to that is “no.” The first pick we make is to the front manager. That is, even though co-investment definitely is attractive to us, it’s not the main reason we make a commitment.

Feder: When investing in funds, it strikes me [that] you’re not really investing in funds, you’re investing in the things the fund’s investing in. And the only reason to invest in a fund is to get an operational efficient access to those exposures. If that’s the case, then why start with the funds and look down, why not start with the stuff you want and look up?

Forsingdal: Yeah, that’s a good question. Of course, when we are doing due diligence on a manager, part of it is looking at the underlying assets and all the investments they made in the past, and [asking if] these investments be comfortable investing directly, or even co-investing in, in the future.

Franco: Your question implies that managers are specialized—that…in fact, the exposures would be defined. That’s inherent in your question: what about generalist managers? Or do you think generalist managers have guard rails, too?

Forsingdal: Going back to the question of what we are looking at in the different regions, the base manager is about 50% of our program, the other 50% is what we call “spice managers.” That’s where the base managers would typically be generalist funds, where the broad exposure in North America, where the spice managers can be very specialized, either in a particular sector, a geography or a local fund with local networks. Or it could be a fund that looks at distressed investing, more hairy deals, whatever it is.

Typically, for a fund to enter into our spice portfolio, they would have to have some very clear differentiator.

Feder: The terminology almost seems to apply that those managers ought to have more potential upside? Or not?

Forsingdal: That’s true. We would not commit to a spice manager unless we felt they would be able to outperform our portfolio. That said, in reality, our base managers have slightly outperformed our spice managers so far. I think some of it is due to volatility in the spice manager category. Another reason is as a spice manager develops and maybe grows in size and so on, they sometimes move into the base manager portfolio. Those would be the better-performing funds.

Franco: Obviously, you evaluate the base managers and the spice managers differently?

Forsingdal: We do. There’s a different return expectation and risk expectation for the two different categories, where we would expect higher risk in the spice category but also expect higher returns.

Feder: I would think that’s sort of jumping across regions in Asia, that there would be perhaps more growth orientation in the markets you’re investing in.

Forsingdal: Exactly.

Franco: What’s the case for backing a new fund or a new team, emerging managers, so to speak?

Forsingdal: I think the basics are the same as when we look at managers that have been in place for a while—it really comes down to the trust and the faith in the comfort that this manager will be able to build a strong program. And the reason you would back a spin-out manager is because typically they would have some track record from the past. What we do prefer is the manager, is a group of members of a team that have worked together in the past as well—that makes it easier. It’s definitely more difficult if people are coming from all kinds of different experiences or backgrounds.

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