August 10, 2015
Interviewed by: David Snow
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New Technology and IR at Guardian

Guardian Life’s managing director and head of private equity, Maurice Gordon, explains what he looks for in a GP and how technology will improve transparency.

Guardian Life’s managing director and head of private equity, Maurice Gordon, explains what he looks for in a GP and how technology will improve transparency.

New Technology and IR at Guardian
With Maurice Gordon of Guardian Life

David Snow, Privcap: Today we’re joined by Maurice Gordon of Guardian Life. Maurice, welcome to Privcap today. Thanks for being here.

Maurice Gordon, Guardian Life: Okay thank you very much David, happy to be here.

Snow: Before a GP books a meeting with Guardian, what should they understand about the way that your vetting process operates?

Gordon: When a GP comes in, they really need to, first of all, show me [their] returns. You need to come prepared to show that you can really perform to get the investment returns that we need. We look at benchmarks such as PME [public market equivalents]—now they have six different kinds of PME. So I have lots of public market equivalent benchmarks to look at, but also [look at] how they’ve done in specific vintage years for their specific targeted strategy.

Snow: Would you prefer to see those in advance? You don’t necessarily need to book a meeting for someone to lay the numbers in front of you, correct?

Gordon: Right, that’s correct. We have a small group; although I would love to meet as many of the sponsors as I could, I don’t really have the luxury of taking lots of meetings with the GPs. So we do want to see the PPM, and the slides and the numbers so that we can look at the cash flows and do our analytics before the meeting. It makes a much, much more productive meeting in my view. So we get the information. We need to understand how the sponsor really adds value, what is his secret sauce. What does he do that others can’t do? We need to understand where the deal flow comes from. Why should somebody give you a really good deal compared to one of your other three or four sponsors that you’re competing against? So you need to have a very clear explanation of all of those factors.

Snow: Are you open to first-time funds or spin-out groups?

Gordon: We have done first-time funds, and we have done spin outs, but it is very difficult. To judge somebody is really the fire in their eye; that they can really get this done, you’re really betting on the individual for a first-time fund. And that’s very hard to do. So we have done it, [and] it’s been successful. Is that a core area of focus for us in today’s investment strategy? Not really. It’s just a tougher part of the segment. And with the money that we do have, we would rather see the empirical information and strategy laid out.

Snow: I have a question for you about the relationship with the managers that you have already committed to. And it has to do with reporting. What about the reporting [and] the IR process drives you crazy as far as sharing information, the timeliness of it, the quality of it—anything come to mind?

Gordon: What you touched upon is really a very transformational area right now. In the next five years the amount of data and transparency that you’re going to see is going to change dramatically. As you know, there are groups out there now that the sponsors can send information to. You collect all the information and then you’ll shoot it out to the limited partners in a secure and safe form. So the transparency and the reporting is going to be something that we think it’s very important, we’re asking about, and we’re looking forward to some of those changes. We just changed service providers. There are some great service providers as well as analytical engines out there now that you have the ability to do some very good analytics of your portfolio [with]. One of the things I like is that I can now look down at my 1,100 portfolio companies with some good transparency, and see how those specific industries and sectors are performing.

Snow: Talk about how you see this asset class evolving over the next, say five or 10 years. What are the most important trends?

Gordon: I think that the institutions are going to want to become more partners with the sponsors. And a few years ago where you had three different sponsors clubbing up, it didn’t always have a happy ending, right? When you have three very large egos in a room, three heads of very strong, dominant funds, sometimes it’s hard to get decisions made when things go bad. When everything is happy, things are going well, that’s good. But when things start getting tough it’s hard to be effective in your decision making.

A few years ago you would have club deals where you would have two or three sponsors with big name groups working together trying to purchase a company. When things were going well, everybody was happy and they worked together fine. When things started going bad or it was time to exit, then one guy thought they should exit, and the other guy didn’t and somebody else is in the middle of fundraising, somebody else is at the end—you had these inherent conflicts. And it was hard to make good, effective decisions. Going forward, you can have one sponsor and one or two other strong, knowledgeable co-investors that can all be aligned in making decisions on timing and exits and what kind of companies to buy. So [there’s] co-investing and everybody is trying to figure out how this is really going to evolve. But I think it’ll be along the lines [of] one sponsor’s strategic relationships and [what] better decisions can be made. So I think that’ll be one of the trends going forward.

Snow: Final question for you, and that has to do with what we just talked about—the increased transparency in the asset class, especially new tools for investors like allowing you to look more deeply into your portfolio and understand the underlying exposures better. Do you think that that increased transparency will actually cause more institutions to increase their allocations to private equity? Because they’ll simply be able to be more comfortable with it, and get their boards more comfortable with it?

Gordon: I think it will help. Of course, ultimately, it’ll depend on the returns. Along those lines, better transparency into returns, of course, help you understand this as something that we want to invest in. I’m really pretty excited about what you can do on your iPhone now—the transparency there, and to be able to see your portfolio, and the dynamics, and the diversification will certainly help increase capital into private equity, yes.

Snow: So, private equity—is there an app for that?

Gordon: No, there is going to be.

Snow: Not quite yet.

Gordon: Not quite. You can see what others are doing and where things are going. I do so much on my phone right now. I can envision what they could be having apps for. I just got elected to the ILPA board in January, and my job is to evaluate the apps for the phone in the new technology. So I’ll have some ideas on how we could possibly incorporate that.

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