Albert: LPs will flock to established FoFs

Kevin Albert, a veteran of the private equity fund placement business, believes limited partners disappointed with their private equity portfolios will be flocking to well-established fund of funds groups.

“We’ve been through a very rocky period in private equity. A lot of investors big, small and in between, maybe don’t have the lifetime returns they thought they’d have from this asset class,” Albert told PEO in an interview Wednesday.

“If they compare those returns to a big fund of funds operation like Pantheon, it will occur to them even post fees they could have improved their portfolio returns had they allocated some or all of their capital to a fund of funds manager,” Albert said.

Not every one is perfect, there will be some mistakes, whether you're a fund of funds or a pension fund, but I think history will now show that fund of funds managers make fewer mistakes. Kevin Albert

Basically, fund of funds managers make fewer mistakes than a limited partner like a pension making commitments on its own, he said.

“Not every one is perfect, there will be some mistakes, whether you’re a fund of funds or a pension fund, but I think history will now show that fund of funds managers make fewer mistakes,” he said.

Pantheon announced Thursday that it had hired Albert as partner and global head of business development. Albert had been a managing director at Elevation Partners since 2005.

Elevation’s future ability to raise funds has been thrown into uncertainty, as LPs chose to deny the firm an extension of the soon-expiring investment period. Albert said the uncertainty around Elevation's fundraising future motivated his decision to leave the firm.

“[The firm] was told by investors [it] needed to concentrate on the portfolio, get some realisations and return cash to them and hopefully in a year if that all works [the firm] would be able to go out and raise capital and have a Fund II,” Albert said.

“The indeterminate nature of when and if caused me to be very open to a terrific opportunity when it came along,” he said.

Albert worked for 24 years at Merrill Lynch as head of the private equity fund placement division, and is widely credited with helping to establish a private equity placement business in the US. At Merrill Lynch, Albert got used to placing 10 to 15 funds a year, work that changed after Elevation raised its first fund, he said.

Kevin Albert

“The last four or five years was a real change of pace for me,” he said. “I was basically getting the calls about helping people answer questions about their capital account, much different than being out in the market and sitting in on marketing meetings, and helping close funds.”

At Pantheon, because it is a fund of funds, raising funds will be an ongoing activity, he said. According to market sources, Pantheon at the moment is raising its fourth global secondaries fund, which has collected around $2.1 billion, and is in the market with two Asia-focused funds. Pantheon declined to comment.

“The thing that’s both appealing about being at a fund of funds, but that makes it a little tricky, is that you’re almost always raising something,” he said. “It’s very different from being at a GP where you raise a fund, take care of investors for four or five years, and then raise another fund. It’s more like my life at Merrill, where you were launching one [fund] in the middle of another and closing one all at the same time.”

Albert will lead a team of at least 25 people in what the firm calls client services, which includes fundraising and investor relations type activities.

The sources of capital have changed continuously since Albert started working in the business, from an

Fund of funds are often the first step a new investor will take, whether small or large, it's a good way to ride the fund of funds manager to see who they choose to put into the fund. Albert

almost absolute concentration in the US, to LPs in Europe, and then Japan in the 1990s, to today with new investors emerging in Asia and Latin America, he said.

“It changes and where you have to concentrate changes,” he said. Working with new investors requires more time, because there is an element of education involved in working with young LPs, he said.

“They’re new so they’re looking for people willing to take the time to educate them, share information and help them network,” he said. “Fund of funds are often the first step a new investor will take, whether small or large, it’s a good way to ride the fund of funds manager to see who they choose to put in the fund. If you’re contemplating setting up your own programme, you can learn a lot.”