PRINT THIS PAGE Institutional Investor Profile: David Currie, CEO, Private Equity Investments, Standard Life Investments06/06/2007. Source: AltAssets. 
David Currie on his team's focus on buy-out investments, on why he would select certain fund managers, on the Private Equity Investments group's expansion in the US, and on his team's opportunistic approach.  Edinburgh, Scotland-based Standard Life Investments' private equity activities are handled by its subsidiary, Standard Life Investments (Private Equity) Ltd. It offers its clients private equity investment opportunities through funds of funds, bespoke arrangements and retail products. Standard Life started investing in private equity funds back in the early 1980s.
With a team comprising 31 private equity professionals in the Edinburgh office and six in the Boston office, Standard Life Investments Private Equity manages €4.5bn in assets at present. Its main investment focus is on buy-out funds.
The product portfolio for Europe includes the European Strategic Partners vehicles (ESP, ESP II, ESP 2004 and ESP 2006). ESP closed on €868m in October 2000; ESP II had a final closing on €1.09bn in January 2004; ESP 2004 (and related segregated mandates) raised a total of €1.225bn in 2005; and ESP 2006 held a second closing on €296m in May 2006. The new vehicle is expected to close by summer 2007. ESP and ESP II are now fully invested.
Standard Life also manages retail funds such as the Standard Life European Private Equity Trust. The European investment vehicles have some flexibility to invest outside Europe although this is generally with European managers who have a wider investment remit. In addition to that, Standard Life uses its North American Strategic Partners 2006 fund to invest in US buyout funds and its North America-focused co-investment vehicle, the $74m North American Strategic Partners fund, for investments directly into unquoted equities in the region.
David Currie has 28 years of private equity investment experience, including nine years at 3i and seven years at Abu Dhabi Investment Authority. He joined Standard Life Investments nine years ago.
What type of investments do you look for?
'We mainly invest in mid-market funds in Europe, but we also have some of the large pan-European buy-out funds in our portfolio. We have an allocation to expansion capital, but we do not do venture capital. We have not invested in a venture capital fund since 2000. We feel that we cannot get the same consistent performance from European venture funds as we get from European buy-out funds. However, we will continue to look at opportunities in the venture market.
Historically our focus has been on Western Europe. About 90 per cent of our committed capital is currently allocated to Western European managers. Through the funds we select within Western Europe, the UK is the largest part of our portfolio but, our activity in France and Germany is gradually increasing, and, in addition to that, we are also invested in funds based across Europe. The pan-European managers in our portfolio tend to invest in most European countries, including some in the Central European region. When we look at country-focused managers we compare their performance in that country with the performance of pan-European managers in that country as well as other country-focused managers in that country.
We are focused on performance and do not believe in predetermined country allocations. We prefer to be free to look for the best opportunities wherever they may be, and if there are no good opportunities that we can see in a particular country in Europe then we will not invest in that country. Diversification for the sake of it is not our policy.
Our US operation only started about four years ago and that is why it is still smaller, but our Boston team is adding to our US portfolio.
We never put more than ten per cent of a portfolio into any one manager or any one co-investment. We expect to have around 20 funds in a portfolio, and around 15 to 20 co-investments.
We have invested in funds including 3i Eurofund V, Advent Global Private Equity IV, Barclays Private Equity European Fund, Candover 2005 Fund, Charterhouse VII and VIII, CVC Europe III, Duke Street Capital V Fund, HgCapital 5, Permira IV, Third and Fourth Cinven Fund and TowerBrook Investors II.'
What is your average bite size?
'Our bite size varies hugely from vehicle to vehicle. Typically, we would not commit less than €20m to a fund. Across several vehicles we have done investments of more than €200m with a single fund manager.'
Do you co-invest?
'We do co-investments because we find them attractive and because we have people with direct investment experience in our team, which we feel is key to sourcing the best co-investment opportunities. In 2006 we did nine co-investments in Europe and five in the US.
Our investors can choose between a vehicle that does up to 30 per cent co-investments in addition to fund investments and a vehicle that does only fund investments. Effectively, it is one fund with two sleeves.'
How many investments do you make per year?
'We typically commit to between five and ten funds in a year, but we do not set targets - the number of commitments and the amount of capital we commit depends entirely on the quality of opportunities in the market in a given year.
In 2006 we saw a lot of activity in the European buy-out market, with many larger funds out fundraising. We committed €1,250m to European funds and about €250m to co-investments in Europe last year.'
What is the break-down of your investor base?
'Overall, about 40 per cent of our capital comes from the US and Canada, 40 per cent from the UK, ten per cent from other European countries, and ten per cent from the Rest of the World category - with a significant portion coming from the Middle East, and also from clients based in Australia, Asia and Latin America.'
How do you conduct your due diligence?
'We have many established relationships and contacts and that allows us to get access to most of the very best fund managers. In addition to that, we spend a lot of time travelling to meet new managers and trying to identify future star managers. Our due diligence focuses very much on people aspects. We meet the team members and research their track record very thoroughly. We look at a team's strategy and its ability to execute that strategy.
The first step in our due diligence process is a review of the many opportunities in the market. We quickly identify those that look the most attractive ones on paper and our team then prepares an initial report on each of those funds.
Based on the report, the investment committee decides whether we engage in step two, the detailed due diligence. At the end of the process, the investment committee reviews all the information and makes a final decision.'
What do you look for in a good private equity manager?
'People with in-depth private equity investment experience, people who are very good at assessing business opportunities and who are able to work out how they can maximise the performance of their portfolio companies.'
Has access ever been an issue for you?
'I am pleased to say that it has not been an issue for us. In the more recent past we have not just managed to get access to all the funds we have been keen on getting into, but we also have managed to get our desired allocation.'
Why would you reject a fund?
'Sometimes there is something in the terms that we find hard to accept, other times we feel that although a particular fund manager is good, there are better opportunities available to us.
We also come across teams which last time round looked pretty good, but four or five years later some of the people are getting a bit older and less enthusiastic and possibly they are facing succession issues.'
What is your appetite for first-time funds?
'We do invest in first-time funds, but we prefer it when at least some of the people have worked together before. That makes it easier to believe that a team is likely to stay together and is able to work well together.'
Do you invest in distressed debt funds?
'We have not invested in distressed funds yet. There has not been much activity in the European distressed debt market until fairly recently.'
Would you consider acquiring an LP stake in a fund from a fellow LP?
'We have done secondary deals in the past, but not recently. We find that the pricing is quite unattractive at the moment.'
What is your opinion on private equity investments in the emerging markets?
'We are keeping an eye on what is happening in Asia and we have also been looking at the CEE region for a while. To date, we have not invested in a fund based in a country in the emerging markets.'
What are the biggest issues facing the private equity industry at the moment?
'There are probably two big issues. One is the level of debt that can be obtained for deals. I think everyone just wonders for how long this can continue. Prices that people pay may get to a point where returns could get less attractive.
The other issue is concerning what has recently been discussed in the media: the openness and accountability of private equity. The industry probably got caught by surprise by its own growth. Until recently, the companies that private equity firms were buying were not big enough to attract the same media attention as companies such as the AA or HCA attract. Some media reports have suggested that governments provide private equity players with a more favourable regulatory framework than public equity players, but that is not the case. It is just that private equity players are currently better at maximising opportunities. Private equity players now face the task to bring across the positive messages about private equity investing.
My outlook for the industry is very positive. I expect it will continue to do well for quite some time, funds will get bigger and so will deals, and more players will evolve into truly global players.'
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