How can institutional investors launch or better execute their private equity programmes? In what ways can they get around a lack of resources to take advantage of co-investment opportunities? How can LPs build venture capital exposure at scale?
Wanting to solve questions like these is why the three senior members of Future Fund‘s private equity team launched their own firm earlier this month.
The trio are Steve Byrom, who had been head of PE since 2007, investment director Jasmina Osmanovic and director David Simons. With around 27 combined years of experience investing in private equity at the A$148.8 billion ($107 billion; €95 billion) Australian sovereign wealth fund, the three have set up Potentum Partners, an investment consultancy and fund manager.
“The three of us feel we’ve done something different in how we’ve approached private equity investing as an LP and we feel we’ve built Future Fund a differentiated but very successful PE programme,” Byrom, who launched the fund’s private equity strategy, told Private Equity International. “We’d like to take what we’ve learned and our differentiated approach to PE investing and help other large institutions deal with the problems they face and try to do PE at scale.”
Potentum – which Byrom describes as meaning “he or she is powerful” in Latin – plans to run between five and seven managed accounts for large institutional investors as well as help educate and train staff in setting up programmes to invest in the asset class, similar to an outsourced CIO for private equity.
Some LPs face challenges with accessing certain alternative strategies and outsourcing this to a discretionary manager can help, Byrom said.
“If you’re doing venture co-investment or co-investment in general, it’s very important to have discretion in decision making,” he said. “You’ve got to be able to move quickly and sometimes these organisations don’t do co-investments because they can’t move quickly.”
Potentum has secured funding for around two years of runway from individuals at “high quality” private equity GPs around the world, Byrom added.
The trio’s motivation for launching their own shop stems from having seen a “wide variety of LP models” aimed at accessing PE and VC and having heard frustrations from GPs that some investors don’t seem to be getting their programmes right, Byrom said.
“It’s through all those conversations that we thought, we can take what we’ve learned and build something that helps those organisations execute and build really great PE programmes,” he said.
Stewart Tillyard, Future Fund’s unlisted property head, has taken over as acting head of private equity while the SWF recruits , a spokesman for the Melbourne-based fund confirmed. There are five remaining members in the PE unit and the asset class remains an “important part of our diversified portfolio”, the spokesman said.
Future Fund’s total portfolio outperformed its benchmark by almost 3 percentage points over the last 10 years, delivering a 9.2 percent annual return as of 30 September. Private equity, for which the SWF does not publish performance results, grew by 3 percentage points to 14.8 percent of its total portfolio compared with a year earlier.
Potentum plans to be global in focus, with Simons set to relocate to New York towards the middle half of next year and either Byrom or Osmanovic moving to Europe if the need arises in its client base.
“We’re planning to look at markets where there are large pools of capital that haven’t really done private equity. There are large LPs out there that don’t have a good disruption or innovation programme,” Byrom added.