Wilshire Private Markets Weathers Change At The Top

Wilshire Private Markets Group

Year entered alternatives: 1984

Investment strategy: Direct, secondary and co-invest relationships in buyouts, distress and venture capital in North America, Europe and Asia-Pacific

Key officers: Kevin Nee, president of Wilshire Private Markets Group; Karl Beinkampen, chief investment officer; Gary Gabriel, managing director responsible for the Asia-Pacific region

Assets under management: $6.2 billion

Target allocation to private equity: 60 percent plus

Number of investment professionals: 40

Web address: http://www.wilshire.com/BusinessUnits/Asset/Markets/

Buyout shops on the hunt for capital are likely to find a significantly different set of faces at fund-of-funds shop Wilshire Private Markets Group than they encountered a couple of years ago.

With a series of executive changes, the fund of funds group has a new look, but Kevin Nee, who was appointed president of Wilshire Private Markets in June 2009, said the group’s focus remains the same. “We have a very research-driven approach toward making our investment decisions. We use a comprehensive due diligence process,” he told Buyouts.

Wilshire Private Markets was established in 1984 as the private equity research arm of the Santa Monica, Calif., investment consulting firm Wilshire Associates Inc., which is probably best known for its broad-based Wilshire 5000 stock market index.

Wilshire Associates says all of its business units rely on its strong analytics foundation. Wilshire Private Markets has been raising funds of funds since at least 1997. It has a staff of 40 investing professionals with offices in Pittsburgh, where the group is based, Santa Monica, Amsterdam, Tokyo and Canberra.

Since the arrival of Nee, a former a managing director at the investment manager BlackRock Inc., Wilshire Private Markets has weathered a succession of high-level personnel changes. Jeff Ennis, the group’s chief investment officer and a member its management committee during the latest, $615 million fundraise in 2009, departed about six months after that fund closed. Last July, the group brought in a new CIO, Karl Beinkampen, a 21-year veteran of the buyouts industry who had most recently built a $7 billion private equity fund of funds business at the investment bank Morgan Stanley following that unit’s inception in 2000.

Wilshire Private Markets was not without a CIO during that six-month interval; Nee said he took on those duties himself.

More recently, the head of Wilshire Private Markets’s Australian office for the past 10 years, Ovidio Iglesias, left the group last June with two other partners, Grant Fleming and Bill Humphrey, to form a new Australian firm, Continuity Capital Partners. Wilshire Private Markets responded by hiring Gary Gabriel to be its managing director responsible for the Asia-Pacific region. Gabriel had been head of private markets at the $67 billion Future Fund Management Agency, Australia’s sovereign wealth fund.

“With Gary’s hiring, we’re bringing on board one of the more experienced investment professionals in the Asia-Pacific region,” Nee said.

The group is investing now from two 2009 vintage funds: Wilshire Private Markets Fund VIII, a $615 million domestic fund of funds, and Wilshire Global Private Markets Fund VIII, a $400 million international fund of funds, according to the Thomson One database managed by Buyouts parent company Thomson Reuters. Nee would not discuss the status of the funds or the group’s plans for future fundraising. Historically, the group has made investments of $10 million to $25 million across its range of strategies.

What Wilshire Wants

Over time the group has gathered $5.5 billion in discretionary assets from a client base in the United States, Europe, Asia and Australia, Nee said. (Besides its comingled funds of funds, the group also provides customized separate accounts for pension funds, endowments, foundations and financial institutions.) In its history Wilshire Private Markets has made 400 investments, with three fifths of them as primary partnerships with general partners. Wilshire Private Markets also buys commitments from other limited partners in the secondary market, and it co-invests alongside its GPs.

“The locations of our people reflect our client base and they reflect our investment mandates,” Nee said. “We’re investing in the U.S., Europe, Asia and Australia, and we’re doing it with people who are local experts in private equity, so we’re on the ground in all the different places where we invest.”

Wilshire Private Markets begins its diligence process with sourcing to cover the universe of private equity offerings in a given year, he said.

“We look for teams that are pursuing transactions in less efficient spaces. We look for teams that are able to purchase portfolio companies at less expensive prices. We look for teams that have demonstrated an ability to grow the top line of their portfolio companies. We look for managers who have shown an ability to increase cash flow within their portfolio companies, and who have been able to do that without excessive leverage, and help their management teams within portfolio companies grow by doing something other than just providing capital,” Nee said. “When we have interest in a manager, we spend considerable time with them in our offices and in their offices. We focus a great amount of attention on what a manager has been able to accomplish with their portfolio companies.”

Beyond quantitative measures, the group spends time with portfolio company CEOs to determine the value that the manager brought to them, Nee said. The group also speaks to lenders of those companies and to other LPs who invest with the managers.

“Local teams are responsible for the due diligence on the managers that are local to them, but we work together collaboratively across offices,” Nee said. For example, the European staff is responsible for cultivating investment opportunities in that region, but the group also brings in investment professionals from the United States before final decision making by the group’s global investment committee. “There’s a very broad perspective that is brought to our final investment decisions.”

The group favors smaller fund managers, with assets under management of $1.5 billion or less. About 60 percent of its primary investments are with buyout shops serving the mid-market and small market. It also invests in distress, special situations such as direct lending, early-stage venture capital and growth capital. Nee mentioned several U.S. buyout shops whom the group has favored in the past, including H.I.G. Capital, Endeavour Capital, Brockway Moran & Partners, Berkshire Partners and Sorenson Capital.

Like many investors, Wilshire Private Markets plans to narrow the group of GPs that it works with, but at the same time, the group also is interested in looking at emerging managers, especially alumni of firms it has invested with in the past who are forming new shops, Nee said.

“Our portfolios will be more concentrated going forward,” he said. “We have a stable of good managers whom we have invested in repeatedly over time, but nobody gets an automatic re-up from us. We re-underwrite each new investment opportunity.”