Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Perennial hunts instos for private growth fund
Perennial’s new private growth fund is swinging for the institutional market as more and more companies steer clear of public markets amidst conditions.
“The number of companies looking to stay private for longer has exploded,” says Ryan Sohn,
portfolio manager for Perennial’s new Private Growth Ventures fund. “There’s a need for patient, private capital, and that’s what we’re looking to provide.”
While Sohn, who started out in Perennial’s microcap team as it began to invest in the pre-IPO market four years ago, believes that there’s “certainly a place for listing”, and many companies will (capital that would normally be raised over six months can be found in six hours, and public ownership gives them brand recognition), there’s much more rigor to deal with, and one little earnings miss can have big consequences.
“Particularly now, it’s extremely volatile,” Sohn says. “Operationally you need to be ready for that, so I think businesses are choosing to stay private for longer so that they have the operational efficiencies, they can forecast appropriately, and they’ve got the robustness to be a listed business before they come on to the market.”
The fund’s team consists of Sohn; Brendan Lyons, portfolio manager and head of private investments; Karen Chan, who jumped ship from her role as head of emerging companies at Investec; Melbourne-based James McQueen, who joined as senior investment and legal principal after Perennial ran into him on the other side of a number of their transactions; and Andrew Smith, Perennial’s head of smaller companies and microcaps.
Sohn says the new fund, which is aiming to raise $200 million, isn’t “wedded to a sector”. Still, the companies it’s targeting tend to be B2B software businesses – the sort of thing they can test out themselves – or consumer facing businesses where they’ve seen the product out in the market and “understand it quite well.”
Perennial has had one dedicated institutional mandate for its previous private to public strategy – which was targeted more towards high net worth and family office investors – but the private growth ventures fund has garnered more institutional interest.
“It’s the first strategy we’ve really opened up to the institutional market, and the interest is strong,” Sohn says. “It’s a differentiated offering to private equity and venture capital, and I think as the market evolves – as we’ve seen in the US – growth capital is an incredibly prominent strategy that will have a lot of institutional support.”
“We think it’s very nascent here and that we’ll be the first to properly enter that market… We think an institution that’s looking to deploy anywhere from $20 to $100 million into a strategy, this is a great spot for them.”
And Sohn believes choppy market conditions will be a boon for Perennial as offshore players that might consider porting their strategies to the antipodes get cold feet.
“We think the volatility in the market is going to create the perfect storm for us,” Sohn says. “It’s going to keep those bigger offshore growth funds closer to home and more reluctant to step into Australia as quickly and pay the extreme multiples that were being paid at the end of last year, which widens that gap and places a greater emphasis on the need for a domestic private capital provider.”
