Jeffrey Chang, a former executive with fund of funds Performance Equity Management, joined your team in November as a senior director focused on PE funds and co-investments. How’s the co-investment effort going?
He’s an experienced co-investment deal maker. I’ve done a lot of co-investing myself, along with Cheng Wang, principal. So we are now in the process of hiring a strategic partner to work with us to generate deal flow. We’ll decide who we’re going to choose in the next couple of months. We want to do about $40 million a year in co-investments, or about 20 percent of our annual private equity commitment. The No. 1 reason is to develop relationships with our partners and get a deep dive into how they do deals. A side benefit of it is the fees are lower.
Is your private equity portfolio where it needs to be in terms of types of funds?
We’ve got a broadly diversified portfolio, with an emphasis on middle-market GPs. We’ve got buyout and venture and growth, not only in the U.S., but around the globe. We like growth. We like small buyouts. We are finding some good opportunities in large buyouts. Right now, the best funds are all one-and-done closings. It’s very hard to get into the best funds. So we’re spending a lot of our time being proactive and building relationships so that we can get into the good funds. Since we’re a 154-year-old whole life insurance company with a lot of stability, a lot of sponsors find that attractive to know they have a stable partner to work with and we’re able to use that to our advantage.
Guardian’s allocation to private equity is 2.5 percent. Do you see that changing?
The 2.5 percent is a good percentage for us, but we are undergoing some strategic initiatives internally where that could possibly be adjusted upward. It’s too early in the process to determine what that would be. If you look at our mutual peer group, the 2.5 percent is a little bit smaller than some. Our peers will go from that to 5 percent and some are even higher.
Are you worried about thin returns from vintage 2015 private equity funds because of lofty deal prices?
It’s a concern, but you cannot play the vintage year game, where you try to figure out exactly what the best years are gonna be then under-allocate or over-allocate. It’s a very very hard game to play because nobody really knows where the market is going. But does 2015 seem a little toppy? Yes, I’d agree with that. We’re not saying in 2015 we’re cutting back our allocation. We want a stable allocation across all the vintage years.
You were elected to the Institutional Limited Partner Association board of directors and started your term this year. What are you working on?
To try to figure out how to do documents that are more standard both for LPs and GPs. Most other institutional investment asset classes have already done this. If you want to take a non-disclosure or confidentiality section, that kind of thing should be standard. It’s not like you’re ever going to get rid of negotiation. But standard clauses – with agreement on both sides – saves time and money. Why should you have 20 different confidentiality clauses? You should be able to have some standardization. I think we’ll see this type of initiative.