PRINT THIS PAGE Institutional Investor Profile: Jeremy Golding, Founder and Managing Director, Golding Capital Partners24/01/2007. Source: AltAssets. 
Jeremy Golding on his firm's focus on providing innovative private equity investment solutions for German institutional investors, on the growing importance of the German private equity market, and on his team's differentiated approach.  Munich-based Golding Capital Partners focuses on providing fund of funds solutions for German institutional investors (primarily insurance companies, banks and pension funds). The firm manages over €1.1bn in capital and invests in venture capital, buy-out and mezzanine funds on a global basis.
Whilst the core business remains predominantly focused on buy-out investments, Golding Capital Partners recently responded to demand from German investors by launching three generations of mezzanine funds of funds: Mezzanine I (closed on €200m in May 2005, now fully committed), Mezzanine II (closed on €238m in June 2006), and Golding Mezzanine SICAV III (€250m original target). Golding Mezzanine SICAV III held a second closing on €300m in December 2006 and the final closing is expected to take place this month for those investors awaiting final internal approvals. A parallel vehicle for private investors called GCP Mezzanine will remain open until June. The firm also manages numerous Managed Accounts for individual institutional investors requiring customised vehicles as well as 'White Label' funds of funds for German financial institutions such as Credit Suisse (Deutschland).
The Golding Capital Partners team counts 24 people, ten of which are involved in the investment process. The firm is run by four partners operating out of two offices - one in Munich and one in San Francisco. The San Francisco office was opened in 2004 to help the firm access emerging venture funds across the US.
Prior to founding Golding Capital Partners, Jeremy Golding worked at General Electric, GE Capital, Boston Consulting Group and KPMG. He has an MBA from INSEAD.
Why did your firm decide to focus solely on German institutional investors?
'Having spent a substantial part of my career in Germany, I had a good insight into the German market and understood the needs and requirements of German investors. Our hypothesis in 2000 was that there would be substantial and growing demand for private equity as an asset class in Germany. That hypothesis, which incidentally remains true today, prompted the founding of an advisory and management company to provide innovative solutions that would enable German institutional investors to overcome legal, tax and regulatory hurdles to investing in the growing alternative asset class.
When we started back in 2000 very few institutional investors in Germany had detailed insights into the workings of private equity and were reluctant to put money into the asset class. We quickly realised that any business model for the firm had to be based on advisory work as well as the actual investment side. That is why most of our professionals have a strategic consulting background.
Initially, we invested most of our time on business development. It was pioneering work to a certain extent: explaining the basic dynamics of private equity, developing the market, educating potential investors and, at the same time, creating a business model that worked for this particular market. Throughout those early pioneering years our objective was to position ourselves as a leading private equity advisor ready for the moment when investor interest would awaken. So when the German market finally picked up about 18 months ago we by then had all the tools, resources, products and relationships in place to be able to provide innovative customised private equity solutions.'
In what way does your model differ from models implemented by other private equity fund of funds managers?
'If you think of Germany, you would probably think of tax issues, and you are right in doing so. Germany has very complex tax, legal, regulatory and supervisory issues, and investors also have to comply with stringent guidelines and regulations imposed by the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht - German Financial Supervisory Authority). In addition, there is the new private equity legislation currently being drafted and expected to be passed in 2008. These factors contribute to an environment which often makes it difficult for smaller institutions or relative newcomers to invest in these perceived risky asset classes.
Our research has shown that mezzanine fund of funds products are an ideal solution for German pension funds, insurance companies and other institutional investors because they offer risk-adjusted returns and the advantage of earlier distributions. A special feature of our latest investment vehicle, Golding Mezzanine SICAV III, is the five per cent coupon for investors that we have negotiated with a leading German bank provided non-recourse financing. The coupon guarantees investors, at least under normal conditions, a five per cent return per annum for five years and thus effectively eliminates the J-Curve effect.
The J-Curve poses a problem for German insurance companies and pension funds because whilst they are under pressure to improve long-term returns, they still need to be able to generate ongoing and immediate investment profits in order to match their ongoing and short-term policy liabilities.'
What is your investment strategy?
'While diversification is very important to us, we regard ourselves as an opportunistic global investor. We invest in the full range of private equity funds, from small regionally-focused venture and mezzanine funds to the larger buy-out funds. We tend to invest mainly in generalist funds, but also in a few country-specific funds, and in first-time funds under the right circumstances.
Currently our total portfolio comprises about 40 per cent buy-out funds, 40 per cent mezzanine funds and 20 per cent venture capital funds. Approximately 70 per cent of our capital is allocated to Europe (primarily Western Europe), 30 per cent to the US with small allocations to Asia and Israel. For Asia, our exposure is currently primarily through global GPs with a presence in Asia rather than through specifically Asia-based GPs.
Our latest investment vehicle, Golding Mezzanine SICAV III, is expected to build a portfolio of 30 per cent buy-out funds and 70 per cent mezzanine funds. The fund is expected to provide exposure to around 300 portfolio investments through approximately 25 fund investments.
To date Golding Capital Partners has invested in funds managed by Alta Partners, Apax Partners, Audax Group, Bain Capital (US as well as Europe), The Carlyle Group, Charterhouse, Cognetas, CVC Capital Partners, EQT, Francisco Partners, Highland Capital Partners, Hutton Collins, ICG, Key Principal Partners, Landmark Partners, Oak Investment Partners, Sofinnova Ventures, Summit Partners, Thomas H. Lee Partners and Welsh, Carson, Anderson & Stowe.'
Do you make co-investments?
'We have made co-investments in the past which have proven highly successful, but these have tended to be more for specific mandates. Co-investments require a different skill set from the core fund of funds business. However, we are now planning to increase our resources to be able to look at more co-investment opportunities in the future. You always have to understand why you are offered a co-investment deal - is it because a transaction is so big that the GP needs to syndicate down or because the GP is not quite sure about an investment and wants to diversify the risk?'
What is your opinion on first-time funds raised by first-time teams?
'We are open to first-time funds if they are being raised by reasonably experienced partners. It helps significantly if we have been introduced to the prospective teams well in advance of the proposed fundraising or have known them through our network for some time already. It is also positive if some of the new team members have had experience of working together, particularly under stress conditions, so the team does not break apart at the first crisis. We have made a number of investments in first-time teams already, both on the venture and buy-out side. But the make-up of the team is paramount.'
Is access much of an issue for you?
'Our average bite size is generally in the range of €20-25m, and for that investment size access does not tend to be that much of an issue. However, looking forward, we see the need to differentiate ourselves from other investors to avoid access problems. We position ourselves as an added value investor to our GPs. We offer our resources, whether it be team, deal flow, network, local know-how, to our GPs and they often view us as an additional valuable source of expertise.'
How do you conduct your due diligence?
'We have an open-door policy whereby every fund usually gets the chance to meet us at least once because we feel the need to know what is happening in the market. Ideally, our due diligence process starts a long time before the first meeting. We aim at completing the bulk of the due diligence and forming a view before a fund actually comes to market. Actually, we often find the best time to meet a team is straight after the closing of their latest fund - that is when you can talk to the team without any pressure. If necessary, of course we can be highly efficient and complete our due diligence within a couple of weeks but we prefer it when we have enough elapsed time over a longer period. It is important for us to meet most of the team, from the senior to the junior in order to develop a clear view of the group dynamics and this is usually not possible in any meaningful way in a shorter time frame.
Our due diligence is based on the 'past, present and future approach'. This entails a detailed analysis of the team's past track record, the skill sets and motivation of the current team members coupled with an assessment of the strategy for the future fund.
During the initial meetings we typically try to establish early on what the critical issues are with that particular fund. It is not always productive to try and cover every single angle and possible aspect. Every team has their few critical issues and this is where we prefer to dig deep and ensure we can get comfortable with these issues. An increasingly important part of our due diligence are reference checks, but invariably not those on the official reference lists. We make more use of informal references from within our extensive network of GPs, LPs, advisors within the industry, which tend to be more valuable, constructive and insightful. We believe strongly in building long-term relationships. When we finally decide to invest in a team our expectation is that we are investing not just in a single fund, but rather in a whole generation of future successful funds.'
What is the role of your Advisory Board?
'We have a very active Advisory Board of six senior advisors, all of whom are highly respected and successful businessmen in their own right, with a wealth of experience in various fields of German financial services. Their role is primarily to advise us on strategic issues and also to act as sparring partners particularly giving insights and inputs on new product development relating to their respective areas of expertise. We have three senior advisors covering the insurance sector: Jochen Aymanns is a former CEO of Gerling Life Insurance and co-founder of MLP; Dr Michael Bachmann was formerly an executive board member of Generali Lloyd Life Insurance; and Dr Hans-Wilmar von Stockhausen is a former executive board member of Munich Re in Munich. Dr Klaus von Lindeiner is a former finance director of Wacker Chemie and was responsible for its pension fund at the time. In the banking sector we are advised by Peter von der Heydt, former managing partner of Delbrück & Co. Privatbankiers and currently Advisory Board member of Delbrück Bethmann Maffei as well as Dr Sieghardt Rometsch, until recently chairman and partner of HSBC Trinkaus & Burkhardt and currently chairman of the banks' Advisory Board.'
What advice would you give to an institutional investor new to the asset class?
'Take your time, do your own research, form your own opinion and do not just go with the crowd. Even though it may look easy at the beginning, do not be tempted to do everything yourself. Do not be afraid of seeking advice from experienced fund of funds managers or external consultants at the outset: learn from them and build up your expertise gradually over time.'
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