PRINT THIS PAGE Institutional Investor Profile: André P Jaeggi, Managing Director, Adveq23/05/2007. Source: AltAssets. 
André Jaeggi on why Adveq prefers fund managers who take an active role in their portfolio companies, on the need for a diversified investor base, on why European venture is attractive, on investor discipline and on opportunities across the emerging markets.  Adveq is a Zurich, Switzerland-based private equity fund of funds manager with close to $3bn under management. The firm was founded in 1997 by Bruno E Raschle and has since grown into one of the major, globally recognised fund of funds managers. The number of employees has increased from one in 1997 to over 50 today.
Prior to joining Adveq in 1998, André Jaeggi was the managing director of Prevista Investment Foundation, an investment foundation for Swiss pension plans. Before that, he was the head of the Investment Institute of Finanz und Wirtschaft in Zurich and editor and deputy editor in chief of Finanz und Wirtschaft in Zurich and New York.
It is Adveq's ten-year anniversary this year. What has changed at the firm since you started out?
'Our strategy has remained largely unchanged over the past ten years. It is more that the market in which we operate has seen quite a number of dramatic changes, we have seen cycles come and go.
When we started out in 1997 we were in the midst of the up-cycle of the venture capital industry. Then it collapsed a few years later, although the venture market - in the US and Europe - is gradually recovering now. The buy-out business went the other way: in 1997 it was far from booming and now we are seeing mega funds and mega deals. This shows you how cyclical these markets are.
We have also seen various industry sectors becoming very popular with investors or falling out of favour. Life sciences, for example, was a sector that many people would not invest in seven years ago. In the meantime, it has become an attractive target. The telecoms sector, on the other hand, has gone the other way on investors' popularity scales.
The key lesson we have learned over the firm's history is, therefore, that it is best for a fund of funds - and also the investors in a fund of funds - to deploy money across the different segments of private equity and to do so on an ongoing basis.'
What do you think of venture capital in Europe?
'Interest in European venture seems very low at the moment and we believe that is a mistake. There are some very attractive opportunities out there and we would certainly like to build on our venture portfolio if we find more high quality managers. The buy-out frenzy will come to a cyclical end at some point and it is always better to have investments spread across the asset class.'
From which programmes are you currently investing?
'Adveq Europe III, focused on investments in buy-out and expansion financing, and to a lesser extent on venture capital, closed in December 2006 on €350m. When you look at the European mid market, or even the smaller end of that market, you will see that the investment pace has clearly started to slow down, compared to what it was last year. Many fund managers think that the prices being paid are too high and that is why they are investing much more selectively. As a consequence, capital calls are slower to come and our funds of funds may take slightly longer to be fully committed and drawn down. It is hard to say whether this is positive or negative because you never know exactly where you are in a cycle.
Our overall European portfolio currently comprises two thirds small to mid-market buy-out funds, seven to eight per cent venture capital funds and the remainder are larger buy-out funds.
Also in 2006, we closed our first Adveq Opportunity fund, a $170m vehicle investing in funds focused on special situations such as distressed debt or turnarounds, mainly in the US. In 2007, Adveq has launched the second fund in this programme, Adveq Opportunity II.
Another new vehicle, Adveq Technology V, is a fund of funds focused on venture capital and technology buy-outs in the US. It closed on $425m in January 2007.
Finally, Adveq established an Asia-focused fund of funds progamme in 2006, and is currently raising its first fund, Adveq Asia I.'
When did you start looking at Asia?
'We have always considered private equity as a global business. Money does not know any frontiers and that is why we do not know any frontiers either. We made our first investment in a Hong Kong-based, Greater China-focused buy-out fund in 1998, and added the first Japanese venture capital fund to our portfolio in 1999, followed by another Japanese venture fund in 2000. To date, our experience in Asia has been good overall, although not every investment in the region has worked out the way we would have liked.
While we have always looked at Asia, to date we have had only a very limited amount of capital available for investments in the region. With both the Adveq Europe and the Adveq Technology programmes we have had the option to invest up to ten per cent outside of the core region. This exposure has allowed us on the one hand to get a better understanding of the markets in Asia, and on the other hand to respond to a demand from our clients who have increasingly been asking for more exposure to Asia.
In addition to our direct involvement in Asia we have also had indirect exposure to the region via some of the US managers in our technology fund portfolio.
Our first Asian fund of funds was not widely marketed; it was something we did with our existing investors. The second one, which will launch in 2008, will obviously be marketed much wider and is expected to be more sizable. Thanks to the fact that we already have a foot in the door, we should be able to increase our placement capacity with some of the very best Asian managers. Our Asian portfolio will consist of about 50 per cent buy-outs, with the remainder split between development capital, and venture and special situations.'
Are there any plans for other emerging markets-focused funds of funds?
'I do not think the time has come yet for an Africa or Latin America-focused fund of funds. Currently there do not appear to be enough good quality fund managers in those regions, but they are regions we keep an eye on. The situation in the Middle East is similar. As a rule, we prefer to wait until the emerging markets really are emerging, instead of guessing what might happen.
Outside of Asia, the other emerging market we already have exposure to is CEE. We have not yet done any CEE funds but some of the European funds in our portfolio have invested in various companies across the region.'
Has your investor base changed over the past ten years?
'Yes, quite significantly. We started out in the German-speaking part of Europe because that was where our original network was. We initially built our investor base within the small to mid-sized insurance sector, but then the sector was hit by the 2001 liquidity crisis. That was when we started actively developing our investor base in other regions. Up until then we had done that only very opportunistically.
We realised that we needed investors who were exposed to different liquidity cycles. From then onwards we targeted Australia and New Zealand with our marketing campaign. We employed an agent in Australia in order to have a permanent point of contact for our investors. Another focus of our marketing activities has been the Nordic region, from Iceland to Finland. We also have investors from Canada, the US, and the UK.
Investors from the German-speaking region now account for less than 30 per cent of the capital we manage. Investors from Australia/New Zealand account for more than 20 per cent, investors from the Nordic region are also in the double-digit range, while investors from the UK and the US account for smaller amounts.'
How would you describe the competition in the fund of funds market?
'Fierce but fair. The fund of funds market has become quite an open market. When we started our business there were about 60 or 70 funds of funds in the world. Today there are more than 150. There is still space for new funds of funds targeting very specific markets - geographies or industry sectors.'
What are the features of your due diligence process?
'One thing that distinguishes us from some of our competitors is that we would never outsource any part of our due diligence.
Also, everybody will tell you due diligence is about referencing, referencing, referencing - and yes, it is, it is about talking to CEOs and CFOs, but the ability to cross-reference also matters. The operational background of our investment professionals helps us identify exactly how a GP adds value to portfolio companies and who the key people are in a team.
In addition to that, we spend time analysing the business model of a fund manager, how he runs his business and how he handles administration. It helps us get a better idea of factors that could influence a fund's performance in the future, such as retention or succession issues.'
What makes a good GP?
'A good GP should not just set milestones for portfolio companies but work with the management to achieve these milestones, even if that might involve interim management. We are aware that this type of work will almost by definition lead to longer holding periods. However, we believe that it is better to have a more protected portfolio because nobody knows when the cycle will turn. Those managers who focus on quick flips are likely to loose out when we hit a down-cycle.'
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