Lunch with Claus Mansfeldt (SwanCap Investment Management): Private equity has consistently outperformed other asset classes
Born in Norway but now a Danish national (“EU national by choice”), Claus Mansfeldt spent 28 years in London before co-launching the private equity firm SwanCap Investment Management in 2013 as a spin-off from long-time employer UniCredit. Over lunch in a private salon at Cercle Munster, the SwanCap chairman says the superiority of returns makes private equity (PE) compelling for investors over the long term.
What is your investment strategy at SwanCap?
SwanCap is a PE funds and co-investments manager that oversees €3 billion in four multi-investor funds and several single-investor funds, targeting best-in-class fund investments and co-investments in Europe and North America. We are industry-agnostic, but our deals are usually buy-outs of mature companies that are already profitable. As an example, say, a Belgian owner may consider to sell the family business for succession or strategic reasons, but often they also want to remain involved. An efficient means is to sell the business to a PE fund, via a new Luxembourg SPV, and then re-acquire e.g. 20% of such vehicle, with the controlling 80% stake now in PE hands. Such new majority owner will then e.g. internationalise the business better than the existing family, and create extra value for all. SwanCap’s strategy is to find the best PE managers doing the above and to invest in their funds. Including our years doing the same job at UniCredit, from which SwanCap spun-out in 2013 as one of the first handful AIFMs to receive authorisation in Luxembourg, our team has delivered an internal rate of return averaging 16% over two decades.
“The ultimate way to mitigate risk is to select the right people”
What exactly is a co-investment?
The PE funds we select all have restrictions on how they can invest - for example, not more than 10% of the fund’s commitments can be channelled to a single investment. Sometimes, when a deal otherwise meets all the right fund-criteria, but is a little too big, SwanCap may invest an additional amount directly into such deal. We have generated returns of 20% IRR by doing co-investments.
What is the particular appeal of private equity?
Private equity has consistently achieved returns superior to those of other asset classes, such as publicly-listed stocks. According to a JPMorgan report last year, PE outperformed stocks worldwide, by between 2% and 7% annually, with the higher outperformance over the long term. One of the most important questions investors need to ask is whether they may need to liquidate all their investments from one day to the next. If not, as with a pension scheme or an endowment, private equity is a compelling option. In the US, institutions tend to allocate 20% of their assets to private equity – Yale has a 40% allocation. A young German entrepreneur who sold his tech company told me recently that he loved traditional private equity because “you can’t do anything about it”. You’re not tempted to sell up when markets drop! Investors who sold everything in 2008 and are only coming back to the market now missed almost a decade of growth. Access to PE is an issue as you may require a minimum investment of as much as €10 million into a single fund, so many individual investors opt for a pooled approach: a fund of funds like ours, or via a private bank that creates a feeder for its clients. This way one can invest with a top-tier private equity firm such as France’s PAI, for example. Access is key! But Concentration is a risk, so PE manager and vintage diversification helps – for instance, investing 25% in 2019, 25% in 2020 and so on is a solid strategy. But the ultimate way to mitigate risk is to select the right people, regardless of the brand or size of the company they work for.
*16% overall internal rate of return
*20% IRR on co-investments
*€5 billion cumulative investment
*€1 billion co-investments
20 new fund investment commitments
10-15 new co-investments:
€3 billion in assets under management