Profile: Adamantem Capital’s Rob Koczkar

From 2009 through 2010, Rob Koczkar was simultaneously pursuing distributed power provider Energy Developments for Pacific Equity Partners (PEP) and helping a charity consortium revive ABC Learning, a childcare center operator that had plunged into bankruptcy. “We had our third child in the middle of that,” he observes. “There was plenty going on.”

The two deals couldn’t be more different. Energy Developments was a hostile takeover that ebbed and flowed as PEP sought to overcome resistant minority shareholders. ABC came about because the company collapsed under the weight of its debt in 2008 after expanding aggressively to nearly 1,000 centers. Mission Australia, The Benevolent Society, Social Ventures Australia (SVA), and the Brotherhood of St Laurence acquired ABC out of receivership and turned it into a non-profit known as Goodstart Early Learning.

If Energy Developments represented Koczkar’s past, then ABC mapped out his future. He was invited to chair the newly created non-profit and within four years had left PEP to become CEO of SVA. A return to private equity came in 2016 when Koczkar established Adamantem Capital with Anthony Kerwick, a fellow PEP alumnus. However, aspects of what took him into the world of philanthropy have arguably shaped Adamantem as much as its middle-market investment proposition.

“One of the unique things about private equity is you are entrusted by investors to stand in their shoes and work very closely with the executive teams of the businesses you invest in,” he explains. “The idea I could come back, step into boardrooms again and use my learnings from SVA to help create companies that are environmentally and socially sustainable as well as being really good investments, was a really interesting proposition.”

Adamantem has since established itself as one of the most proactive midcap players in Asia on environment, social and governance (ESG) issues. It was the first local GP to employ a dedicated ESG officer; it wants to have 40% female representation across the firm by 2024, including at the leadership level; and it is committed to becoming carbon neutral at the GP level and putting portfolio companies on a path to doing the same.

Koczkar doesn’t claim sole credit for this approach; there are other ESG advocates at Adamantem, and irrespective of that, LPs increasingly want managers to incorporate it into the investment process and demonstrate tangible results. But it would be naïve to suggest that his experiences in the social sectors are not a strong contributing factor.

Seeing the world

Born to Australian immigrant parents, Koczkar’s plans to study medicine were curtailed by a last-minute change of heart and he opted for engineering at the University of Melbourne instead. This was inspired, at least in part, by an acquaintance who got a job designing rockets for space shuttles on completing his PhD. Koczkar’s summer placements in the oil industry were decidedly less interesting, so on graduation, he applied to consulting firms.

If these decisions suggest a pursuit of intellectual stimulation, there was an underlying recognition of the importance of job security. “My dad came to Australia as a refugee at the end of World War Two,” he reflects. “You’ve always got to figure out where your place in the world is going to be because sometimes stuff happens, and you don’t know how you’re going to move forward.”

Joining Bain & Company in the early 1990s presented opportunities to see the world. Koczkar enjoyed stints in Boston and Singapore, as well as numerous other trips working on projects for global clients. However, his next career move emanated from Bain’s Sydney office, where several partners had decided to launch a private equity firm. Koczkar was asked to join them, and PEP raised a debut fund of A$150 million ($117 million) in 1998 with support from Bain Capital.

After a couple of years, and having just turned 30, he began to get itchy feet. Koczkar and his wife had never lived overseas, so they moved to London in 2001. He found employment with TPG Capital, thanks to referrals from contacts at Bain Capital, and spent the next three years in the portfolio group, working on operational initiatives with companies across Europe.

“There were larger investments than at PEP – the clients were more like those at Bain & Company – and they were dealing with a lot of operational complexities,” he says. “This gave me a much clearer sense of what it is like to effect change at portfolio companies. TPG were always leaders in not just buying on a momentum basis but thinking about a business and what you could do with it, and then putting in resources and management to effect change.”

When raising Fund II, PEP offered him a route back to Australia, this time at managing director level. This proved more tempting than staying in Europe with TPG or accepting a job with one of TPG’s portfolio companies in North America.

Philanthropy plus

A decade later, he decided to move into philanthropy. This was an unusual career switch, especially at that age, but it was the definitive outcome of a gradual transition that Koczkar traces back to fatherhood. His eldest daughter was born in 2006, and while well-positioned to provide for her financially, he started questioning what values she would take from him and how she would assess his contribution to society.

Looking for answers, Koczkar was introduced to Toby Hall, then CEO of Mission Australia, one of the country’s oldest non-governmental organizations. Hall put him in touch with Lincoln Hopper, head of Mission Australia’s community services division and they would lunch once a quarter. When Mission Australia got involved in the ABC bid, which was essentially a leveraged buyout supported by bank debt and social capital notes, Koczkar brought a private equity skillset to the table.

He describes those lunches with Hopper as his bachelor’s degree in the social sector and ABC-Goodstart as his master’s. Credit is also given to the PEP leadership for supporting this part-time – though time-consuming – immersion in philanthropy.

Koczkar decided to leave PEP before taking the CEO role at SVA, although the social sector was always a likely destination. Michael Traill – who became SVA’s founding CEO in 2002 after 15 years with Macquarie Group’s PE arm – tapped him for the job on hearing he might be available.

While SVA’s core mandate was to invest in projects that generate education and employment opportunities for disadvantaged Australians, it had expanded into consulting and impact investment. Koczkar’s first task was to define a unifying objective for the organization (creating an Australia where all peoples and communities can thrive) and establish what that entailed (by focusing on housing, education, employment, working with First Australian communities).

The “How do we do that?” question was harder to address because the industry dynamics had changed. “We declared victory on the idea of venture philanthropy. We found many others were doing it: foundations had been established, professional trustees were there, and people were backing social entrepreneurs with risk capital,” he explains. “We didn’t have to do that anymore. What we could do was invest in system-change infrastructure.”

The best example of this is Evidence for Learning, a comprehensive online resource that aggregates the best educational research from around the world and makes it available to teachers. It proved so popular that the government has taken on responsibility for the project and committed A$250 million in funding. Through initiatives like these, SVA positioned itself in between policy and frontline service delivery, ensuring resources are allocated in a way that delivers the best social return.

The organization’s impact investment assets under management grew from threefold to A$120 million during Koczkar’s tenure and headcount rose from 60 to 100. Notably, the consulting team tripled in size as the emphasis shifted from working directly with entrepreneurs – because others were doing that – to the strategy and advocacy space.

There and back again

If a recognition of the impact philanthropy can have on the way governments spend money was one key learning from SVA, the other was that creating a community that is both environmentally sustainable and accessible to all involves engaging with multiple stakeholders. Philanthropy, while effective in influencing government, had less of a grip on the corporate sector. Investors were the key players in that constituency – and this led to a return to private equity with Adamantem.

Koczkar and Kerwick stayed in touch after they left PEP, and the former was aware of the latter’s evolving middle-market thesis. The idea was to target companies that needed a supportive shareholder and capital partner, working alongside other stakeholders to deliver growth. It wouldn’t be a pure buyout strategy; they were also willing to back smaller listed businesses facing growth bottlenecks. Koczkar felt that his combination of PE and social sector experience could contribute to this strategy.

Adamantem raised A$608 million for its first fund, making investments that range from aged care provider Heritage Lifecare to horse feed manufacturer Hygain Holdings to data analytics business Servian. Earlier this year, Servian became the first exit. By then, Fund II was already up against its A$725 million target, having received strong support from new investors despite travel restrictions limiting the scope for on-site due diligence. A final close of A$790 million is expected in June.

“One of the great things about leaving a firm and having a couple of years out is you get to reinterpret all your experiences,” says Koczkar. “Anthony and I did that in two dimensions. First, we were honest with ourselves about where we had been lucky and where we had been good in terms of outcomes. Second, we distilled down what parts of the process had evolved over time and were important to our replicating deals that had a high probability of being financially successful.”

They emerged with clear criteria as to what they wanted to invest in – companies with enterprise valuations of A$100-500 million, focusing on consumer staples, B2B services, healthcare services – and how they would effect change. ESG also came into focus, partly because they identified past investments in which risks around climate change, regulation, workforce dynamics and consumer preferences hadn’t been properly identified, and they got away with it.

Integrated approach

While it has taken time to reach a scale at which dedicated resources could be justified, ESG was incorporated into Adamantem’s strategy from day one. Its impact can be gauged in investment opportunities passed up – such as an agricultural supply chain business with substantial fixed infrastructure likely to be left stranded as climate change prompts farms to move south – as well as the proactive stances on issues like emissions reduction and workplace diversity.

“We talk about responsible investing in terms of environmental sustainability, participation, and transparency. Many different conversations are happening in different geographies, driven by mum-and-dad investor dialogues,” Koczkar observes. “There is a momentum among consumers, employees and investors that creates a positive opportunity for companies to embrace positions on the environmental and social sustainability curve, which gives them a positive market position as well. That didn’t exist 15 years ago.”

Regarding climate change, independent consultants have already conducted measurements of scope-one and scope-two emissions, which cover direct emissions and emissions from purchased energy, of Fund I portfolio companies with a view to developing a 10-year net-zero glide path for each one. Some of them – as well as Adamantem itself – have already achieved net-zero. The same will happen for Fund II.

Koczkar puts it in the broader context of due diligence evolution. The starting point for private equity investors used to be interviewing the CEO and finance director of the target business, but now proactive distribution of vendor due diligence packs is commonplace in Australia. While ESG oversight is further down the curve, whoever acquires a Fund II portfolio company a few years from now will not pay a premium unless they see granular information.

Adamantem’s approach has already gained notable traction with LPs, with Australia’s Clean Energy Finance Corporation (CEFC) agreeing to invest A$80 million in Fund II – its first commitment to a private equity vehicle. This was partly based on studying Adamantem’s Fund I record on emissions reduction and concluding the organizations are philosophically aligned. Early initiatives include the creation of an emissions reduction sub-committee below the Fund II LP advisory committee (LPAC).

“We put in the fund charter that they would be on the committee alongside at least one other LPAC member,” he adds. “In the end, eight of the nine institutions on our LPAC wanted to be on the committee – some because they had something to say and others because they wanted to learn. We are already contributing to the debate by creating this transparency and visibility.”

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• Topics
• Australasia
• GPs
• Australia
• Adamantem Capital
• Pacific Equity Partners
• ESG