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Institutional Investor Profile: SPF Beheer bv11/10/2006. Source: AltAssets. 
SPF Beheer's private equity team talked to AltAssets about its investments in Europe and the US and about how the team's strategy has developed over the past five years. Utrecht-based SPF Beheer started investing in private equity funds in 2001, initially only through funds of funds. The firm's private equity team now counts four investment professionals - Jan Karstanje, Arno van den Heuvel, Peter Jan van der Linden and Marieke Mulder. They put together and manage a portfolio consisting of buy-out and venture investments in Europe and the US. SPF Beheer currently has €1.1bn committed to private equity funds.
SPF Beheer manages capital on behalf of four Dutch pension funds, including Stichting Spoorwegpensioenfonds (a pension fund for the railway sector), PNO Media (a public broadcasting pension fund), Pensioenfonds Horeca & Catering (a pension fund for the leisure sector) and Stichting Pensioenfonds Openbaar Vervoer (a public transport pension fund). In the medium term, SPF Beheer is looking to expand its client base in the Netherlands.
What type of investments do you look for?
'Our focus is on the buy-out space, from the small buy-out managers to the very large ones. We have a preference for the small buy-out space because we think this is where the best returns will be in the medium-term future. We do not have too many large buy-out managers in our portfolio. Their tendency to do club deals interferes with our portfolio diversification strategy. If you have four or five of the big funds in your portfolio, from a portfolio construction point of view there is not as much diversification as we would like to see.
About 60 per cent of our fund investments are in Europe and about 40 per cent in the US. In Europe, we select our buy-out managers ourselves, covering the whole spectrum. In the US, we recently started selecting the larger managers ourselves. For the smaller US GPs we use separate mandates.
To date we have not invested in Asia, but we are investigating options. We are not planning to invest in Asia over the next few months, though.
We have some venture capital funds in our portfolio, through three fund of funds investments. One of the venture capital funds of funds in our portfolio covers Europe and the other two cover the US. Currently we have no commitments to primary venture capital funds but that does not mean we cannot commit to them. It is just something we have chosen not to do for the time being.
In total, about five per cent of our portfolio is committed to venture funds, five per cent to distressed funds, 20 per cent to secondary funds, and the rest to buy-out funds.
Most of the funds in our portfolio are generalist funds. If there is a sector that is not very well represented in our portfolio, then we would also look at a sector-specific fund in that area.'
Do you invest directly?
'Direct investments are not part of our strategy. However we are thinking about adding co-investments to our private equity activities next year.'
What size of investments do you typically make?
'Depending on the size of the fund, we commit between €25m and €75m per buy-out fund.'
How do you find out about good investments?
'We observe the market, look at which managers are available, which managers are active and contact them to arrange meetings. Also, we have an open door policy so every manager is welcome to present their proposition.'
What does your due diligence process contain?
'Our due diligence process starts when we receive the PPM. We then meet with the manager at our offices and if we like their story we talk to more people at their offices. We intend to speak with most of the investment professionals at a GP and with their previous investors. We also carry out a cash-flow analysis. Before we make a final investment decision, we look at and, if possible, negotiate the terms with the GP. Due to the amount of capital currently available, there has been a power shift from the LP to the GP side and that makes negotiating fees and carry much harder.
The four private equity investment professionals in our team make a unanimous decision as to whether we should invest. If we decide to proceed we write an investment proposal, which needs to be signed off by our head of department. If he is happy with the fund, the investment proposal goes to our management. Once they have all approved a fund commitment, we sign the documentation.
When we know a GP from previous commitments the due diligence process is much shorter. It is more efficient because we know the group's investments and track record. However, we do not cut corners - we do a full due diligence on the fund, including cash-flow analysis and new meetings with partners to discuss portfolio companies.'
What do you look for in a good GP?
'A clear, hands-on strategy - we want to see that they really are involved with their portfolio companies. A good track record is also essential. We analyse whether they actually did what they said they would do with their previous funds.'
What would put you off investing in a certain fund?
'We do not like it if a team has a poor-performing investment in the portfolio and says we should not look at it because the team has changed strategy since and does not do this kind of investment anymore. Another reason for turning down a fund would be team instability.'
What is your appetite for first-time funds?
'We have some appetite for first-time funds, especially spin-outs. First-time funds raised by first-time teams are more difficult.'
What is your expected future allocation?
'The total amount that we can commit each year is between €300m and €350m, depending on the quality of the managers that are available.'
What advice would you give to a new private equity investor?
'Take your time, do not rush. When we decided to go into private equity, we started from scratch and that is why we chose to go with the fund of funds model. After two years we decided we had got the knowledge to do the fund investments ourselves. It all worked out very well for us. If you do not like that model, you could hire some people with experience in private equity fund investing and build up your portfolio without external support.'
What is the biggest issue in the private equity industry at the moment?
'Prices are too high. We think there will soon be some changes on the debt front.
On the deal structuring side, things will get increasingly complex in the Netherlands with heavier regulation. We believe our industry needs a higher degree of self-regulation rather than legal regulation.'
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