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Institutional Investor Profile: Greg Uebele, Assistant Investment Officer: Private Equity, Ohio Public Employees Retirement System (OPERS)

Uebele on working with consultant groups, on the dangers of a misalignment of interest between GPs and LPs, on the importance of remembering the fundamentals of supply and demand and on managing returns expectations in the future.

Why does OPERS invest in private equity?
'We primarily invest in private equity because of the higher returns that the asset class offers. The other main reason is for the diversification it provides to an investment portfolio.'

What type of investments do you look for?
'We have a very broad mandate. Our current allocation model allows for a 55 per cent exposure to buyouts, 25 per cent to venture and 20 per cent to special situations such as distressed debt, mezzanine and secondaries. The geographical break down is approximately 3 to 1, US to international. Outside of the US, our investments tend to be in Europe. We are allowed to invest in emerging markets, but we tend to do so only on a very limited basis.'

What are your views on the venture market at the moment?
'We have a long-term perspective when it comes to the venture capital market. We always have our eyes peeled for interesting opportunities. To date, we have made just one venture commitment but we are always on the look-out.'

What size of investment do you typically make?
'Our range is typically between $50m and $100m. Obviously it is a little more difficult to get that type of commitment into venture funds, so in that area we are more likely to invest between $25m and $50m. We have a commitment pacing of around $600m a year.'

What is your current exposure to the secondaries market?
'We have not purchased any secondaries interests directly, but we are committed to a Coller Capital fund.'

How do you go about putting together a private equity portfolio?
'When we began our global private equity programme, the first thing that we did was to launch a consultant search, which ultimately led to us selecting Pacific Corporate Group as our advisor. Their support really exhibits itself on three fronts. One is strategy and policy, another is non-discretionary due diligence and then the third element is portfolio monitoring and reporting. So our portfolio construction is a joint effort between our consultant and in house team.'

How would you describe your appetite for first time funds?
'When we launched our global programme, our strategy was to build a core portfolio of fund investments and then to work our way out. Our initial appetite, therefore, was not very high for first time funds. As time progresses that appetite may change and I would anticipate that we would have a greater interest in emerging managers in the future. We have not yet invested in any first time funds.'

How do you find out about good investment opportunities?
'We have no problems with finding out about good investment opportunities because they come and find us. However, that is obviously not always the best way to source deals. Again, we rely heavily on Pacific Corporate Group for sourcing opportunities. Our in house team also has its own wide network of contacts.'

How does your due diligence process actually work?
'Our due diligence process is fairly typical of the way large institutional investors tend to work with consultants. We speak regularly with Pacific Corporate Group regarding investment opportunities and how best to prioritise our work. Beyond that is just a straightforward process of narrowing down the opportunities in front of us. It is a pretty standard funnel approach.'

What qualities do you look for in a fund manager?
'Like everybody else we are trying to achieve the best returns we can for the appropriate risk. As a result we are looking for established teams, a proper alignment of interests, and genuine competitive advantages. But it is important to remember that we are never looking an opportunity in isolation but always in the context of our total portfolio construction.'

What would put you off investing in a fund?
'We don't have a list of deal breakers as such, but a misalignment of interests would certainly put us off investing in a fund, even if the team looks like it could generate some very attractive returns.'

What advice would you give a new investor in private equity?
'I would encourage new investors to speak with experienced professionals and work discreetly in the space.'

What would you say is the biggest mistake that you have ever made as a private equity investor?
'It is very easy to point to mistakes in hindsight. But OPERS has only made ten commitments to date and those commitments will not be proven for many years. So all I can say is time will tell.'

What do you think is the biggest issue in the private equity industry at the moment?
'I think that it is essential that investors keep their eye on the basics of supply and demand. After all, we have seen what can happen to returns when those fundamentals get out of balance. Given the escalating appetite for the asset class, I think that this is a very real concern for the future.'

What are your views on the disclosure debate?
'As a public fund, OPERS is right in the midst of the disclosure debate and as a responsible institutional investor, I think we are able to understand the issues from both sides. But ultimately I would say that the story has pretty much been concluded. Everyone knows where they stand now. We are subject to public records requests but we cannot release information that would harm the general partner. I think, on balance, that this increased awareness is probably a good thing for the industry.'

How do you think the private equity industry will evolve going into the future?
'The private equity industry is maturing all the time and a more mature market is likely to mean a more efficient market going forward. Ironically this may actually make our jobs a little bit harder. It will become more difficult to identify the really top tier general partners of the future. That said, there will always be those groups that do outperform and that have genuine competitive advantages. But I expect that returns may fall somewhat and we will have to manage our expectations accordingly.'

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