April 9, 2014
Interviewed by: Tom Franco
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Ardian is the New AXA Private Equity

Vladimir Colas of Paris-based investment management firm Ardian (formerly AXA Private Equity) describes the firm’s move to independent status, its roots in the European middle market, and its approach to primary and co-investing. He also describes important trends in the private equity secondary market.

Vladimir Colas of Paris-based investment management firm Ardian (formerly AXA Private Equity) describes the firm’s move to independent status, its roots in the European middle market, and its approach to primary and co-investing. He also describes important trends in the private equity secondary market.

Ardian is the New AXA Private Equity

With Vladimir Colas of Ardian

Tom Franco, CD&R:

We’re here with Vlad Colas from Ardian to discuss co-investments, secondaries and other aspects of private equity. Vlad, tell us about Ardian. How would you describe the business as it’s transformed from AXA Private Equity? What’s changed and what’s the same?

Vladimir Colas, Ardian:

It’s a very exciting new chapter for us. It’s a natural evolution for our group. We were founded in 1996. We had $100 million under management. Now, we’re close to $50 billion under management. We have 300 people. Becoming independent was a natural evolution for us.

What’s changed is the ownership of the management company.  We’re now majority-owned by the employees, almost all of the employees. Out of the 320 employees, almost 300 participated in the spinouts. We’re all very excited to become owners of the company.  

What hasn’t changed is all the rest. AXA hasn’t sold its private equity holdings. They’re still our client. We’re still a mostly third-party management company. More than two-thirds of the capital we manage is third party: pension funds, sovereign wealth funds, insurance companies around the world. The investment process, the investment committees and the funds we manage—nothing has changed. In fact, the LPs were very supportive of the spinout.

Franco: How would you describe the business?  

Colas: It’s a multi-strategy business within private equity. We manage close to $50 billion, of which we have a large fund-of-funds program, which is around $25 billion of the capital we manage. Within the fund-of-funds program, we have primary and secondary expertise. We have a large direct activity focused mostly on Europe. We have a mid-markets buyer group active in continental Europe. We have a growth equity team. We have a large co-investment program, which is active in North America, Europe and Asia. That direct activity is roughly $11 billion. In addition to that, we have a private debt practice also focused on continental Europe and North America for roughly $4 billion. Finally, a direct infrastructure practice where we do brownfield and greenfield projects mostly in continental Europe.  

Franco: It’s a broad platform. Clearly, co-investment is quite important to Ardian. How would you describe the value you bring to GPs in the co-investment context?

Colas: It’s a very important aspect of our investments. When we make primary commitments with a private equity manager, we hope to build a much broader relationship. We like to have co-investments and to provide private debt, in some cases, to make secondary acquisitions or to help a manager open some doors for add-on acquisitions in industries or countries where we have specific knowledge.  

Specifically, on the co-investment side, we have strong positioning because, as I mentioned, we’re a direct group but we’re also a fund-of-funds group, so we have both expertise in-house and we’ve had them since the beginning.  

On the co-investment side, we try to add value by giving access to our managers, to our network of CEOs and industry experts we have, particularly in Europe, through our direct activity or by opening doors we have through our large fund-of-funds networks. We’re investors in more than 900 funds. We have 120 advisory board seats and, through that, we have access to a lot of people. 

Franco: Going forward, how do you see the co-investment environment evolving? Talk about your direct investment activities.  

Colas: Now, on the co-investment side, if you want to have access to the right co-investments, you need to be adding even more value than in the past.

If you’re just a passive co-investor, it’s becoming more difficult, in our view. In terms of direct programs in Europe, we’ve been a direct firm from the beginning. In fact, we were founded as a direct buyout shop in 1996; those are our roots. In the U.S., our direct program is mostly done through co-investments but we’ve been fairly active in the space.

Franco: You also mentioned secondary activity. What are the underlying trends driving the secondary market? Can you dimensionalize the market for me?

Colas: It’s a very important market of ours. Through our fund-of-funds platform, we deploy roughly $2 billion a year on the secondary side and we’ve done so for the past four years. We deploy around $1 billion on the primary side. Both are very strong legs to our platform.  

With the secondary market, it’s hard to tell the exact size but it’s between $25 and $30 billion, as far as we can tell. A lot of it is not public, so it could be larger, but that’s a fair estimate. It’s driven by a few things, including regulation.

Regulation is making it more expensive for banks and financial institutions to hold private equity; in some cases, it’s almost impossible. That’s clearly one of the drivers. In our view, it’s probably 50% to 60% of the deal flow now, but not only that. You have some strategic shifts; some pension funds deciding to go direct, for example, will want to sell some portfolios of funds. You have some pension funds or sovereign wealth groups that have portfolios that now have become maybe a bit too diversified and they want to rationalize and focus on a certain number of relationships. That has led to some sales.  

More generally, we feel the private equity class now is no longer an alternative asset class. It’s a several trillion-dollar industry and, as such, it needs a robust used market or secondary market. We think that flow will continue for several years.

Franco: How do you think about the synergies between the primary-fund business and the secondary-fund business?

Colas: In our view, it’s key. That’s why everybody on our team does both.  We’re structured by general partners and you always follow your general partner, whether they’re raising capital or if there’s a secondary piece to buy in that fund. It’s very important because the knowledge of the assets is key in this market, especially in a market where you have to move faster and faster. 

As I said, we have a database of 900 funds. That’s more than 10,000 companies. Every quarter, we update our knowledge of 350 of those 900 funds. We do a very detailed pricing of each of the companies and each of those funds so that we can track our general partners every quarter precisely. That’s very helpful for both sides of the business. It’s helpful on the secondary side, of course. When you have a deal with a seller, you can move quicker if you already have that knowledge. But also, when you’re due diligencing your general partner when they’re raising their new fund, you’ve been able to track over time how they’ve done quarter after quarter compared to expectations. That’s a very useful tool for us.  

Franco: Tell us how the secondary market is likely to change. What innovations do you see coming down the pike?

Colas: We’ve seen more and more demand from the LP side on the secondary market for exposure to new assets classes through the secondary market: energy, real estate and infrastructure. We have a lot of demand for those types of assets on the secondary side as coming from LPs who already have exposure to those programs and want to increase, specifically, some exposure to energy, for example. Or, it’s coming from LPs who have not been present in those specific sectors and want to ramp up and want some vintage diversification, mitigate the J curve. So, they have asked us to work on secondaries, specifically for those asset classes. 

That’s a new development, which is exciting for us. We think it’ll grow quite fast. We’ve seen also more and more GP restructurings, as they’re called. We’ve been cautious on that side of the secondary market, but more and more people are saying it will be an integral part of the secondary market going forward. 

We’ve also seen the use of leverage increase. We’ve used leverage since the beginning of our secondary practice in 1999. Anecdotally speaking, with lenders and other players in the market, that’s becoming more mainstream now.

Franco: Earlier, you talked about Ardian’s roots in the middle market in Europe. Can you talk about that marketplace, what you see as the opportunities, particularly in this post-financial crisis, post-great recession environment?

Colas: Historically, where we’ve done very well was taking companies that were country-specific. Our roots were originally in France, so taking French companies and making European leaders out of them. Now, we have an established practice in Germany and Italy as well. On the direct side, that’s the strategy—to take smaller companies and help them go past their borders and become European leaders or world leaders. That’s been a strong practice for us.  

On the investment side now in Europe, it’s a good time for us to be putting capital to work. Our direct buyout team has been very active over the past couple of years. Part of it is the view that was prevalent for a few years that France or even Italy or, in some cases, Germany was maybe not as attractive and was risky and that environment created attractive investment opportunities at lower prices. That view is changing and people are coming back into these markets. We were there all along and have done some good deals in that space. It’s a very attractive space for the middle market now, in our view.

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