PRINT THIS PAGE Institutional Investor Profile: Charles Soulignac, Chairman and CEO, Fondinvest Capital31/01/2007. Source: AltAssets. 
Charles Soulignac on Fondinvest's independence from Caisse des Dépôts, on the firm's primary and secondary fund investments, and on the qualities a good GP should be able to demonstrate.  France-based private equity fund of funds manager Fondinvest Capital has managed a total of €1.2bn in three primary funds of funds, three secondary funds of funds and two discretionary fund programmes for institutional investors. The Fondinvest team counts 16 members, including seven investment directors.
Soulignac joined the Caisse des Dépôts in 1989 to manage the firm's private equity investments in funds. At the time, the Caisse des Dépôts did all its investments in the asset class from its own balance sheet. Soulignac took over the management of a portfolio of 30 investments in France, some investments in the US and some in Europe.
In 1993 Fondinvest decided to raise money from third-party investors, while also continuing to receive capital for investment from the Caisse des Dépôts. A year later, the Caisse des Dépôts established Fondinvest as its subsidiary and went on the fundraising trail. The years 1994/1995 were difficult years for fundraising in France, but it was a good time for secondaries acquisitions. That was why Fondinvest started raising capital from third parties for investment in primary as well as secondary funds.
Fondinvest recently completed its own management buy-out. What has changed since your firm has become independent?
'Not that much because we have always operated relatively independently from the Caisse des Dépôts. Caisse des Dépôts used to own 80 per cent of our business and the remainder was owned by two other investors: Ecureuil Vie and Bank of Boston.
Fondinvest became independent from its former majority shareholder in October 2006. The management team now holds 65 per cent of the company, while the Caisse des Dépôts has retained a 15 per cent minority stake in Fondinvest, and Ecureuil Vie and Bank of Boston continue to hold a ten per cent stake each. Caisse des Dépôts will continue to invest 15 per cent of the capital of each fund of funds.'
What is your investor base?
'About 30 per cent of the capital raised by our funds to date came from investors in France including Caisse des Dépôts, 20 per cent from investors based in other European countries and 50 per cent from non-European, mainly US investors.'
What type of investments do you look for?
'Our current fund of funds on the primary side, Fondinvest V, and our current secondaries fund of funds, Fondinvest VI, are coming close to the end of their investment cycles. We expect to start fundraising for both a new primary and a new secondary fund of funds later this year. Currently we have €700m of assets under management on the primary business side and €500m on the secondary side.
On the primary investment side we only invest in Europe because we feel we need to be very close to the funds to do this business. The funds in our portfolio typically have a size of between €100m and €1.5bn, although we have also done some large mega funds for the programmes we manage. Per fund we usually invest €5-30m. Our largest investment to date was €40m. We commit about €100m per year in up to seven funds.
We prefer generalist funds because that way we avoid over-concentration in particular industry sectors. Currently our exposure through the funds in our portfolio is 35 to 40 per cent UK, 30 per cent France, and other European countries form the remainder. In the past we did not do much in Germany. However, the situation in Germany is changing and we expect to do a lot more in the country in the future. We also see interesting opportunities in Spain and Italy. Fondinvest has invested in over 200 private equity funds to date.
Our focus on the secondaries side is on Europe, the US and Asia, and we also consider opportunities in other parts of the world. We invest about 20 per cent in the US, 70 per cent in Europe (25 per cent of which is in France) and ten per cent in the rest of the world.
Some other players in the market combine primary and secondary investments in one fund. We keep our primary business separate from our secondary business because we believe you need to look at them individually to make better investment decisions. As a French national I may say that when you mix a good white wine with a good red wine you do not necessarily get a good rosé wine.'
How do you put together your portfolio?
'The main driver for us is performance. We do not have a fixed allocation because we are keen to have enough flexibility to allow us to invest only in the very best fund managers. Having said that, diversification is also very important to us.'
Do you invest in CEE and in Asia?
'In the future we will probably invest in Central and Eastern Europe, but to date, our only exposure to the region is through some pan-European funds that make directly or indirectly selective investments in CEE.
Asia is still a very young market for private equity investors. We have done some secondaries deals in Asia and we continue to look at Asia with interest. However, I do not see it as the role of a fund of funds to enter riskier regions early.'
What do you look for in a good private equity manager?
'A good team is a team that provides its investors with regular performance.'
How do you conduct your due diligence?
'We have our own fund calendar and we pretty much know when which firms raise their next investment vehicles. Our preference is a long-term view; when someone comes to us with a PPM two months before they close their fund - and we have never met them - we would usually pass on that opportunity. Fondinvest is in a good position to compare various funds as we have investment experience with so many of them.
During our due diligence process we analyse the teams' track records and the context in which they have achieved their track records. We spend time with each member of the investment team and have meetings with CEOs of former portfolio companies.
Another important point is team dynamics. When I started out in this business, people used to say that the team members' skills needed to complement each other. Today I believe everything is a team effort - it is not so much what the individual team member contributes. However, we need to see how each team member is linked to the activities of the company. Do they want to continue with the business? Are they compensated according to their contribution to the business? Are they hungry enough? On the financial side, we also want to see some commitment from the team.
Strategy, in terms of geographic/industry focus and stage of investment, also needs to be right. Last but not least, we need to feel comfortable with all the legal aspects, that is terms and conditions, etc, and for us, this is a crucial matter.'
What is your appetite for first-time funds?
'We do not do first-time funds raised by first-time teams but we do spin-outs. It is crucial that we can clearly see what the individuals have achieved in the past.'
Are you interested in co-investments?
'We have decided not to do co-investments. Today GPs are flushed with cash and I do not understand why you would want to share something that is good with someone else. Another point is that when we make our investment decisions, we believe we should only go for the very best funds and not necessarily for funds that tempt us with co-investment opportunities because they may not be as good as some of their peers in the market.'
What advice would you give to a new private equity investor?
'You have to understand the private equity business or get help with your investment decisions if you want to be successful in this asset class. Bear in mind that about 20 per cent of private equity funds in Europe have a negative return. You need to be careful to avoid them.
This is an asset class where you need to have time - time to understand the processes and time to wait for your returns. Secondaries could help you see returns sooner.'
Copyright © 2007 AltAssets
|
