GPs must adapt to raise capital from HNWIs - AVCJ Forum

"We've seen GPs with fantastic offerings become very frustrated when we aren't doing anything. That's because the offering doesn't make sense practically or it's not delivered in the right way," said Martin Randall, head of alternatives at wealth manager LGT Crestone, told the AVCJ Australia & New Zealand Forum. LGT Crestone has AUD 24bn (USD 16.5bn) in assets and AUD 3.5bn in alternatives

"The other key consideration is communication. Engaging with a superannuation fund is materially different to engaging with wealth platforms and their clients. Communication tends to be higher-level but more frequent."

HNWIs generally want to increase their alternatives exposure and there are now ways do it that address longstanding concerns around capital calls and liquidity. In recent years, multi-strategy investment managers have rolled out semi-liquid evergreen structures and these have become the primary means for Australian private wealth platforms to offer global private equity exposure.

However, fund-of-funds, model portfolios, and highly bespoke solutions remain part of the industry as wealth managers look to meet the needs of clients that vary considerably by quantum of wealth, level of sophistication, and investment priorities. Familiarity with the asset class also varies among advisors that bring clients to these platforms.

Perpetual Private has AUD 19bn in assets and alternatives account for AUD 1.4bn of an AUD 8bn discretionary management portfolio. Alternatives consumes 50% of the firm's governance budget because of the time and resources required for due diligence and investment management, but this is deemed worthwhile because of the diversification it brings to the overall portfolio.

At the same time, Perpetual is mindful as to what it brings to clients, given some element of education is normally required. This applies not only to direct fund investments but also to evergreen products where unit prices represent a combination of net asset value and fees.

"Valuations are non-frequent, so you are representing client portfolios based on what could be stale valuations," said Kyle Lidbury, head of investment research at Perpetual. "There are implications to this because of compliance and regulations around what you put in front of a client. Most financial advisors don't know what DPI [distributions to paid-in], TVPI [total value to paid-in], or IRRs are."

There is often a difference between how HNWIs perceive alternatives based on what they see in the media and the reality of what kind of exposure they can properly understand and reasonably expect. Tim Peters, CIO of Walsh Bay Partners, estimates he spends 90% of his time on education and most clients cannot absorb more than three investment ideas within alternatives every year.

"You must understand where you are coming from and where your client is coming from. Then you ask, ‘What is the lowest-hanging fruit?' It's probably not explaining 25 different GPs every year. You would be doing that at a cost to some other part of your portfolio," he said.

When Gillian Gordon took on her role as head of alternative investments and responsible investing at JBWere, which has AUD 70bn in assets under advisory, she spent the first six months on education and ensuring the right systems and processes were in place across legal, tax, compliance, and operations. Only then did the firm start making investments in alternatives.

"Success is having a high-quality conversation with that client and ensuring they make an informed decision. Unlike superfunds, we face clients on a daily basis, and they have real challenges – people die, they get divorced, there is a lot of complexity to that," she said.

"It is an enormous undertaking every time we bring an alternative to the network. We just can't do many of these a year. Hopefully, that is becoming more understood by the industry."

Australia-based specialist healthcare investor Genesis Capital closed its debut fund last year on AUD 200m. It started out pitching to domestic institutional investors but then switched focus to HNWIs. Communicating with an LP base of 240 Australian entrepreneurs – each one is invested directly in the fund and the largest individual commitment is AUD 7.5m – required some innovative thinking.

"We laid out our pitch deck and talked about our track record, but we still had to return to that basic education. Even now, nine months after the close, we are still coming back to that process," said Michael Caristo, a partner at Genesis. Initiatives introduced by the firm include quarterly interactive webinars.

Genesis also sources investment opportunities through its LP network and relies on its expertise when conducting due diligence. Peters of Walsh Bay, which has a client base primarily comprising first-generation entrepreneurs, noted that these valuable contributions are part of the fabric of a new investor base for local GPs that no longer qualify for superannuation support.

"Aware Super, Australian Retirement Trust, and AustralianSuper wouldn't take a meeting for anything less than AUD 100m, let alone AUD 7.5m," Peters said. "That's where the opportunity is [for private wealth]: finding groups that have institutional rigour but are doing it on a smaller scale."

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• Topics
• Australasia
• Fundraising
• GPs
• LPs
• HNWIs
• Family office
• Australia
• Genesis Capital
• Crestone Wealth Management
• JBWere
• Perpetual Private
• Walsh Bay Partners