PRINT THIS PAGE Institutional Investor Profile: Jos van Gisbergen, Senior Fund Manager, Private Equity, Commodities and Infrastructure, MN Services12/12/2007. Source: AltAssets. 
Jos van Gisbergen on the importance of value creation, on financial engineering, on opportunities in Europe, on portfolio construction and on why greed is not always good.  MN Services is the administrator of insurance and collective provisions for the Dutch engineering industry. It became an independent entity in January 2001, with the aim of increasing its size threefold over four years, mainly through mergers and acquisitions.
Van Gisbergen is senior fund manager for private equity, commodities and infrastructure at MN. He was previously director of alternative investments, a position he held since 2000. Prior to MN, he held the position of investment manager/partner at venture capital firm Intercapital, which became part of AlpInvest in 1998.
How much of your overall capital is committed to private equity?
'At the moment, we have €3.5bn invested in or committed to private equity, not including investments in the infrastructure and mezzanine areas. We do not regard our mezzanine allocation as part of our private equity programme. We view it more as an alternative on the high yield market.'
What is your geographic focus?
'Historically, our focus has been on the US. When we started in 1987, this was where the private equity market was. They have some great returns over there and great teams too. However, we are starting to reconstruct our portfolio to make it more evenly weighted between the US and Europe, as European private equity is definitely becoming stronger.
Currently our portfolio consists of about 55 per cent US, 40 per cent Europe and five per cent rest of the world, which includes our investments in Asia and Latin America.'
Where do you see the opportunities in Europe going forward?
'We see great opportunities all over Europe. Returns in some part of Central and Eastern Europe can be fantastic. I hear people mentioning Russia more and more, but that really is a different ball game.
In the emerging markets we like to go with local players first to see if the market is suitable for us. If we realise that there is nothing there, we will just move away.'
What is your expected allocation for the coming year?
'For the coming year we expect to deploy anything from €500m to €1bn. Some of our smaller clients have a €4m or €5m allocation per year, our largest client looks to invest €500m in one year. For our mandates, we would usually suggest an allocation and then if the clients follow our advice we will start creating a programme for them for the coming year.'
What do you look for in a good manager?
'For us it is about skills, skills, skills. Of course, we look for the best people, a solid stable team; an organisation with a well-proven investment concept. They need to have a compelling strategy that they follow.
Financial engineering is impressive and what we have seen in the last cycle has seen this in the ascendance. But we are looking to build a stable, solid vehicle that can weather any storm.
We like to see teams that put their own money into their funds. This definitely gives us confidence. They must be able to demonstrate their track record, that they are able to improve.'
How do you carry out your due diligence?
'For us the main criteria when looking at a potential investment are: organisation, people, process, market, legal structure - the usual suspects. Increasingly, we are also looking to make a lot of references checks. We call people that are on the reference list as well as referees within our own network. These checks enable us to see if the team is stable and in good shape.'
Do you invest in first-time managers?
'We currently have several successful US first-time managers in our portfolio. I just had a meeting with an Italian firm that is raising its first fund. It is something we would be keen to do following the successes we have seen in the US. One of those success stories is Platinum Equity, which we invested in as a first-time fund.
It is about the manager and their reputation. With the more established funds, the market is usually aware of what is good and what is bad. I have frequent discussions with my assistant managers and they are able to identify who the exceptional managers are among the emerging ones.
What is worth considering is that with a first-time fund, with a team from a number of different places, you might have to put a great deal of effort into the due diligence because there may be integration issues, a working-relationship risk almost. Often it is just easier to back somebody that has done it before.'
Do you invest in distressed debt?
'We have some money in distressed debt, although we are not very keen to have too much in this area. From our research and looking at the balance sheets, there very well may be good periods to come, but there are also not enough players in that market for us to invest too much more at the moment.
I do not think we can underestimate the money that is available for distressed debt from the hedge fund industry. Essentially, it is a game of financial engineering, and while it can work very well, it means there is a lot of competition and that is not always the best way to operate, in our view.
On the distressed side, we look more at groups that can help troubled companies. Personally, I am a great fan of a model where you can help troubled companies but also use part of the money to get rid of their distressed rating. You can also use some of your money to make profits in a temperate market period.'
What do you think are the threats to the industry?
'One of the big threats is the greed of some people. With performance fees, much of the money ends up with only the big partners in the organisation. The stakeholders are not seeing the dividends. There has always been greed in the market. Historically, once greed is in place more greed will join it. You then have the social implications leading to unrest, which is diluting the whole market.
This attitude gives the industry a bad name, but it also upsets everyone in the market and particularly the stakeholders. Now a lot of stakeholders are increasingly unwilling to play the game any more. This just makes it harder for the rest of us.
I would like to see changes so that all stakeholders will benefit. If a private equity firm creates a great company, then obviously they should be rewarded. Everyone in the firm should benefit, not just a few members of management.'
How do you see the industry changing in the future?
'I think we are currently seeing more opposition to private equity in places like Germany, France and the Netherlands, with increased taxes and regulation coming into place. However, I think that in the short term not much will change and a lot depends on where we go in the cycle and how the market develops.
On the legislation side, regulations might stay in place and you might see protectionism like you see in Korea, China and Russia. I would not be surprised if that starts spilling over to the rest of Europe.
Over the coming years people who focus on value creation will do well. The people that depend on financial engineering, on how high a yield they can make, they will face problems. Even though there are good opportunities, if you depend too greatly on financial engineering, rather than genuine growth in underlying companies, then you might just find yourself with a problem exiting the investment. A lot of these people have not yet faced a downward cycle and I wonder what they will do when they do have to face it, when the music stops and the market gets more difficult and allocations continue creeping up.'
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