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Institutional Investor Profile: Marc Brugger, Director, LFPE
05/09/2007. Source: AltAssets. 
Marc Brugger on why LFPE was established as a Western-Europe-focused fund of funds manager, on the future of the firm, on the buy-out segment, on venture capital, and on LFPE's portfolio construction strategy.  Geneva, Switzerland-based La Financière Patrimoniale Européenne acts as an advisor to a Luxemburg-based fund of funds, which will invest in small and mid-cap buy-out funds and also alongside LFPE directly into companies based in Europe, primarily in the German-speaking and the Benelux countries, Southern Europe and the Northern European countries.
LFPE was established by private equity investment firm La Financière Patrimoniale d'Investissement (LFPI Group), a Lazard-sponsored business. LFPI is a specialist in the French market and plans to use LFPE to expand its business beyond France and become a pan-European player.
Initially, LFPE's objective is to raise between €200m and €250m, primarily from institutional investors and high-net-worth individuals. The firm held a first closing on approximately €100m on 27 April. A second closing is expected to happen by the end of this year and a final closing in 2008.
Brugger joined LFPE in January 2007 to lead the establishment of the new fund and build a new team. The Geneva-based team is currently comprised of five people. Previously, Brugger spent seven years at KfW Bankengruppe in Germany. From 2004 to 2006 he was a vice president at KfW and head of co-investments and co-head of fund financing.
What is your investment focus?
'LFPE is LFPI's first fund of funds product and, therefore, we have chosen a low-risk, conservative approach, both in terms of geography and the type of fund we target. When we say we invest in Europe, we mean Western Europe in the first place.
Most likely, we will neither invest in France nor in the UK. For France, the obvious reason is that we will not invest money in companies that compete with our parent organisation. The UK is not an attractive market for us because it is a very established private equity market and although our investment volume is quite considerable, we think that we would not be able to play a major role in the UK market.
As we were putting together our business plan we were analysing country by country the relevant macro-economic data, the private equity cultures, and the quality of teams operating across each of the countries.
Many investors consider the "Old Europe" as one homogenous investment territory - a theory with which we disagree. There are so many differences between one country and another in Europe and that is why, in our view, a country-specific approach makes more sense than a pan-European one. We tend to choose local managers with local teams consisting of many native speakers. However, we also look at a few of the pan-European players.'
What would your ideal portfolio look like?
'The German-speaking region will dominate our portfolio. Italy and the Nordic region will each take another big chunk of the fund's capital, followed by the Iberian Peninsula and, with a smaller allocation, the Benelux region.
I expect that we will have between 12 and 15 funds in our first portfolio. We seek funds with a target size ranging from €100m to €500m. Typically, we will invest €10-15m per fund.
Currently we have two German buy-out funds in our portfolio, one Portuguese and one Italian private equity fund as well as one larger fund from the Nordics. I can disclose the names of two of them: the Portuguese fund is Explorer II and the Italian fund is Consilium Private Equity Fund, the second fund raised by Milan-based Consilium.
We need diversification in our portfolio and that is why it is unlikely that we will do any industry sector-specific funds.'
What is your appetite for co-investments?
'Our dual focus is on fund investments and co-investments. Having said that, co-investment opportunities can be very attractive and as an investor with a direct investment background we are well equipped to do them if the right opportunity comes our way. We would consider a co-investment when, for example, one of our chosen fund managers approaches us with an investment that would be slightly too big for them or when the investment has any "French angle". We can help them out with both an equity or a mezzanine investment.'
Are you interested in secondaries?
'We have looked at one or two secondaries transactions in the past but have not pursued them. Our mandate allows us to carry out secondaries transactions and we will continue to investigate opportunities on an opportunistic basis.'
What is your appetite for first-time funds?
'We would look at them. In fact, we are currently looking at one particular fund that can be classed as a first-time fund. However, it is important to us that the managers have a track record in private equity investing and have worked together in the past.'
How do you conduct your due diligence?
'We focus on really getting to know the teams and judging how they could fit into our network. LFPI's team in Paris assists us with our due diligence.
When we started out we created a database of funds that are falling into our scope. Our database now contains about 300 European funds. We have weekly review meeting in which we discuss where we are with each fund and what the next steps should be.
Those of the funds that look more attractive we get in contact with and, usually, we arrange a first meeting. We do a round of interviews and analyse the PPM and the terms and conditions.
Depending on how far we progress with a certain fund, we have a higher or lower number of interviews. If we are keen on a fund we speak to all key managers and all the investment professionals. It is key to our strategy that we do almost all of our due diligence in-house. The only part that we outsource is legals and tax review of a fund's documentation.
Once we have completed our due diligence, we present a 60-to-80-page report to the investment committee for final approval.'
Why would you reject a fund?
'Underperformance in the past and team issues are the main reasons why we have rejected funds. At least on two occasions we found the team highly attractive, but it was too dependent on one particular senior professional. Succession issues can also be difficult. In addition, we do not like it when there are holes in the investment track record and the team's explanation for these holes in not satisfactory.'
What does the future hold for private equity?
'The private equity industry has not yet peaked. There may be a cyclical downturn coming, but it will only be temporary.
I believe the large buy-out segment is a bit overheated and venture does not get the attention it deserves.'
If you expand in the future, where would that be?
'If, overall, the private equity market still looks the same in five years from now, I expect we will expand into new geographies rather than other private equity segments. We believe the mid-market brings good returns and it is the private equity segment we know best. Interesting regions for us in the future are likely to be Central and Eastern Europe and Asia.'
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