Unigestion is Eyeing Secondary, Sustainability and Mid-Market Fund Opps

Geneva-headquartered global fund manager Unigestion last year held a final closing on its secondary fund, a first close of its sustainability fund and is planning the launch of a European mid-market fund-of-funds. peHUB spoke to Unigestion’s head of private equity Hanspeter Bader to find out more about the $12.6 billion fund manager’s plans in the pipeline for the coming year.

You had a final closing of your secondary fund last year – could you tell us a bit about how investments from that fund are progressing and how you view opportunities in the secondaries market?

We had a final closing of Unigestion Secondary Opportunity II Fund last May. It is a small fund which had a target of 150 million euros ($197.2 million) but in the end reached 190 million euros.

Our strategy is to buy small transactions between 5 million euros and 25 million euros – with a focus on single fund transactions. We only back funds we know well or are already invested in that way we have access to superior information. We are looking for processes with limited competition – that is not widely-auctioned transactions. We would prefer funds at an inflexion point when the net asset value doesn’t fully reflect the value built up in the current portfolio – funds that are about 3 to 5 years old.

We began investing after the first closing and 80% of the fund is already invested in 17 underlying transactions which are all single fund transactions. By the end of this year the fund will be fully invested. The fund has already made distributions back to its investors returning 14% of drawn down capital.

About 65% of underlying funds are European funds, the rest are largely US funds balanced between small mid-market, some sector focused funds and a few large cap funds

You also reached a first close of Unigestion-Ethos Environmental Sustainability Fund last year. When do you anticipate a final close and are you seeing many opportunities in this sector?

This fund will be open until the end of this year. It launched in 2008 and the following years were challenging fundraising environments. We finally held the first close in June 2011 and are now at 68 million euros. We anticipate a final close of just over 100 million euros.

It has already started to invest and has committed to four funds. We are targeting between 10 and 12 commitments once fully invested and aiming to build a concentrated portfolio of top environmental sustainability fund managers.

The four funds we are committed to are HG Renewable Power which is focused on alternative energy in Europe; Element Partners, a US growth capital cleantech fund; Braemer Energy Ventures, a late stage US venture in energy efficiency and Tsing Capital, a Chinese venture fund focused on sustainable agriculture, sustainable transportation and energy efficiency.

As a whole we are allocating between 15 to 20% of our entire portfolio on Asia. So this fund will have 1-2 Asian fund commitments.

Environmental sustainability is a niche within private equity and given that institutional investors were cautious enough with private equity it has been tough getting the commitments but we got there in the end.

We are very happy with our first four commitments which is a chance to prove environmental sustainability is an attractive space to be in and it can generate the returns.

There are roughly 300-400 GPs worldwide who claim to be experts in the space. We have met with over 120 GPs so far focused on environmental sustainability. Out of these GPs we have identified an investible universe of between 30 and 40 that meet our requirements and out of these, after the due diligence process, we will select between 10 and 12.

What else does Unigestion have in the pipeline this year?

We are planning to raise a European focused small and mid-market buyout fund-of-funds to invest in 12 to 15 European small and mid-market GPs. The fund will be called Unigestion European Small and Mid-market Buyouts Fund. Our strategy will be largely primaries with 30% into secondaries and co-investments.

We think Europe is a very attractive marketplace in spite of, or perhaps because, of the current market environment. The European universe is highly fragmented in terms of language, culture, legal systems and, as all European travellers know, even electrical power sockets plugs of course! These basics create inefficiencies in the marketplace which can be overcome by the skills of international GPs. There is so much pessimism in Europe at the moment that there are bound to be good quality companies around at low valuations and ripe for the picking. We are pretty excited about lower mid-market opportunities in Europe at the moment.

In terms of deals, you want to buy inefficiency because that is where you can add value and secondly you want to buy low and that is what is going to happen in Europe in the coming year. From a risk/return perspective, Europe is an attractive place to be.

Image Credit: Unigestion.com.