Q&A: Hamilton Lane's Mario Giannini

Q: What trends are you seeing in fundraising globally?

A: It is a very different world depending on who you are and what segment of the market you are in. If you are a mega-firm that raised $10 billion or more in the last cycle, you'll struggle to raise money. The market doesn't like mega-firms and that kind of mass capital isn't available in the current environment. If you are anything smaller - particularly one of those cult firms that people like - you'll be oversubscribed. If you're an emerging market firm and you have any kind of track record, you'll be oversubscribed. It's a schizophrenic environment.

Q: Are Asian LPs - notably sovereign wealth funds - playing a more significant role in global funds?

A: They weren't here in the last cycle in any meaningful degree and so you are really talking about a group going from almost zero to having resources that are equal to any of the large investors globally. They are a huge driver. They don't have a legacy portfolio and so they aren't constrained like some of the other institutional investors.

Q: In what ways are LPs asking more of the GPs in which they invest?

A: They are asking for lower fees; that is a given. They also want more choice in terms of geographical exposure, and this makes the global buyout funds less attractive. LPs are asking, ‘Do I really need a $20 billion global buyout fund when I can pick and choose?' It's like the mutual fund industry - do you need a big global fund when you can pick specialized funds?

Q: So where will US pension funds put their money?

A: The larger investors will still go with the pan-regionals, but even within that they are talking about toeholds - putting in $25-30 million to start relationships with firms that they think over 10-15 years will become big and accept more meaningful dollars. Some go with the fund-of-funds while others will create a basket of, for example, 10 allocations of $10 million. What the fund-of-funds had offered before was a diversified approach to every emerging market, but with the rise of some very large Asian funds investors recognize they have more choice.

Q: What about concessions in areas such as co-investment, separate accounts, and so on?

A: The Institutional Limited Partners Association (ILPA) created a battle between the GPs and LPs over terms, but in the next couple of years I think the battle will be between LPs. Some will demand extremely different treatment and others will ask themselves how they can deal with not being in the same boat. If I'm an LP and I know that you're essentially getting a fee break because you are cherry-picking certain investments, how do I feel about that? Those issues are all waiting to be played out.

Q: Are we going to see more LPs avoiding co-investment altogether and going direct?

A: I think you'll see a much more proactive set of investors. A lot of people are looking at the Canadian LP model and thinking about setting up in-house investment teams. If nothing else, you get rid of the fee structures. However, other investors have tried to enter this space and not succeeded. You need the right governance and compensation structures and, for many institutions, compensating people the way the Canadians do is just not feasible.

Q: Asia, and China in particular, is attracting a lot of capital. How much is too much?

A: While a lot of money will be made in private equity in Asia, more money will be lost here than in any other area. The market just isn't prepared for this much capital. The GPs may or may not be good investors - we don't know because they haven't been through all the cycles yet. More importantly, taking on that much capital isn't a trivial matter. You have to add a lot of people. They are building more offices and expanding their infrastructure, and some will manage it. But we have seen before that when you have a huge influx of demand coupled with people who don't really know how to build, it doesn't work.

Q: Does this point to consolidation in the industry?

A: We are going to see a lot of bad deals. GPs are like vampires, you cannot kill them. They live on forever because they have 10-year fee structures, so it's not an industry that consolidates well. Consolidation occurs because the best get more assets and diversify more.

Q: We are already seeing some diversification among the global firms. Where does it end?

A: It doesn't end. GPs have figured out two things. First, if your main fund is getting smaller and you can raise more funds to make up for it, you'll be okay. Second, diversification solves the problem of people not wanting a bunch of relationships. A global firm comes in and says it can take care of hedge funds, real estate, and so on. I don't see it ending any time soon - it is part of the evolution of the industry.

Q: Will Asian private equity firms follow suit?

A: Yes, ultimately. They will look the models that have succeeded globally and see that the firms had more than one platform - if private equity doesn't do so well, hedge funds will, or real estate will, or debt will. The Chinese firms are going to do this; the Indian firms are going to do this. Whether they succeed is a totally different matter. I don't know if they will go public as well but you figure at some point this will happen everywhere.

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• Topics
• Fundraising
• North America
• Southeast Asia
• Greater China
• LPs
• Asia
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• Hamilton Lane
• LPs