Private equity and alternative investments are increasingly becoming an important asset class for family offices and high net worth individuals. Difficult market access and increased regulation make successful investments just as difficult as the question of whether investments still make sense at current valuations. Markus Hill spoke on behalf of FONDSBOUTIQUEN.DE with Rainer Herber, responsible for the investment division of Deutsche Oppenheim Family Office AG, about the current challenges for investments, product selection, and professional networking.
Hill: How would you summarize the past year concerning private equity shortly and explicitly?
Herber: The private equity year 2018 was the year of superlatives!
Hill: That is a statement! What do you mean by that?
Herber: In 2018 we have seen record-breaking numbers of private equity transactions due to, among other things, missing interest rates and the flood of capital from central banks. One example of this is the sale of the heating cost meter reader Techem, which Macquarie sold in May for EUR 4.6 billion to a consortium consisting of Partners Group, two pension funds, and Techem management. At the same time, there were record inflows – financial investor EQT raised EUR 10.75 billion for new buy-outs. And this further underlines the boom, especially in investments in German SMEs, are the openings of German offices of many private equity houses, most notably KKR and Oakley.
Hill: Hence, all the signs are pointing to profit?
Herber: The asset class is showing a positive performance, which is associated with high risk, meaning that despite the continuing positive trend, there have been a few unpleasant surprises. Emeram lost the well-known fashion company Bench. The British parent company had to file for bankruptcy in May. The fashion industry with its seasonal business and highly fluctuating cash flows also contaminated the portfolios of other private equity houses in the year of the summer of the century. EQT, for example, lost patience with fashion house CBR in February after eleven years and sold it to British restructurer Alteri. The reluctance of private equity to invest in this line of business is noticeable, despite the sharp drop in company valuations of fashion labels. Likewise worth noting: The Franconian yacht builder Bavaria is probably the most famous crisis case and had become a symbol of the private equity bubble during the financial crisis. After heavy losses, Bain sold the highly indebted company to the two hedge funds Anchorage and Oaktree. This was not successful. In April, Bavaria Yachtbau company went bankrupt after ten years of crisis.
Hill: What does that mean for investment management and your clients?
Herber: Well, the economic forecasts are clouding over, the investments were bought at a high level. A constellation in which investments in private equity or alternative investments are generally based on experienced partners who have already proven their ability to manage in past poorly performing cycles. Also, a focus should be placed on diversification in general and the maturities of the individual funds in particular. This smooths out valuation peaks in a PE portfolio.
Hill: How do you proceed here? What do you offer clients of Deutsche Oppenheim Family Office?
Herber: First of all, I would like to say that the area of equity investments is particularly challenging due to the tightened regulatory environment. On the one hand, the area of alternative investments is dominated by institutional investors, which makes access for private investors even more difficult in addition to the regulatory requirements. Deutsche Oppenheim also offers investment advisory services in the area of alternative investments, albeit for a significantly restricted investment universe focusing on private equity buyouts, residential real estate, and infrastructure. As one of the leading multi-family offices, we have geared our services in the area of equity investments to the initial situations of our clients. Here we often see the difficulties of accessing an extremely untransparent market or historically grown portfolios without a defined strategy. The consequences may be that market opportunities are not taken advantage of in the first place or that there is an increased risk of loss. In addition to highly selective investment advice, we have focused on a „best-in-class“ network in the area of investments. All in the spirit of a platform concept. This enables us to bring our clients together with tested, first-class partners for the strategic orientation of a new or existing portfolio on the one hand, and with partners with a concrete product range on the other, and to grant exclusive access to this interesting asset class. Deutsche Oppenheim complements all this with individually tailored investment reporting and controlling. Our clients benefit from working with Deutsche Oppenheim in the area of investments because they can be sure that they are working with proven partners, that they have exclusive access to products and markets, and that our investment reporting provides them with an efficient tool for managing their investment portfolio.
Hill: Many thanks for the interview.
Rainer Herber is a business lawyer and has been responsible for fund and partner selection and investment advice for alternative investments at Deutsche Oppenheim since November 2017.