LP Interview: SunSuper's Michael Weaver and HOSTPLUS' Neil Stanford

Q: How has the composition of your portfolio evolved from a private markets perspective over the last five years?

WEAVER: We have significantly increased our weighting to offshore markets in particular the US. Offshore exposure has moved from around 30% of the program five years ago to around 80% today.

STANFORD: Five years ago the HOSTPLUS private equity portfolio was almost exclusively fund-of-funds and the majority of this was invested with just two managers across 20 separate funds. The unfortunate side effect of this is fact that the fund has become over diversified. We estimate that we have exposure to more than 4,000 underlying portfolio companies.

Q: In terms of distributions, which markets performed best in 2014?

WEAVER: The US market was strong for us in terms of distributions. However, we also had a lot of Australian exposures providing nice exits.

STANFORD: Given that fund-of-funds still compose three quarters of the private equity asset class and the diversified nature of their distributions, this is not aspect that we currently focus on.

Q: As the superannuation industry and the funds operating in it grow in size, what does this mean for allocations to domestic managers?

WEAVER: We expect most local super funds will continue to move to a more global private equity focus though will keep exposure to a few local PE funds. However, as the super funds are becoming larger this means that while the domestic allocations will reduce as a percentage, the dollar allocations will remain the same or increase slightly.

STANFORD: This is already a problem for some of the bigger super funds that now can't feasibly make individual commitments less than A$100 million ($78 million) . This makes it particularly difficult for smaller domestic managers to raise capital. While HOSTPLUS is growing strongly, this is thankfully not an issue for us and we can be nimble. For example, the fund recently backed a A$200 million domestic life sciences venture capital manager.

Q: Are you seeking more co-investment deals, and if so, how will you develop your resources to effectively manage them?

WEAVER: Yes, we are actively co-investing alongside our preferred managers though it does take more internal resources to analyze the deals and consider whether or not they are investments we should be seeking more exposure to.

STANFORD: HOSTPLUS has definite aspirations to participate in co-investment deals in time and we are certainly moving in that direction, but I am also realistic that as a team of one we do not yet have the bandwidth, nor the internal investment processes, to deal with them properly.

Q: What do you see as the major issues or areas of interest for your funds from a private equity perspective?

WEAVER: Two key areas for us in analyzing GPs are competitive advantage and alignment. We critically consider whether a GP has a real advantage over its peers. This can sometimes be more obvious in the US where there is more specialization of managers - for example, a GP focused only on healthcare or on software buyouts - as opposed to a more generalist approach, which is more common in Australia given the shallower market size. Our alignment concerns are focused on whether the GPs are really motivated to seek the outperformance we need to justify private equity exposure for our fund.

STANFORD: HOSTPLUS wants to be a more proactive investor in private equity. It wants to get closer to the "coal face" of investments, but the fund has a number of legacy processes that limit what we can do. We are exploring various options such as separate accounts and dedicated co-investment funds. It would be helpful to understand how larger funds - such as those that are five years ahead of us in terms of growth - have tackled these sorts of problems.

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• Topics
• Australasia
• LPs
• Australia
• Performance
• LPs
• Co-investment