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Institutional Investor Profile: Wolf-Dietrich von Wrede, Managing Director, Swift Capital Partners
21/11/2007. Source: AltAssets. 
Wolf-Dietrich von Wrede on his team's focus on the European buy-out segment, on networks and experience, on the importance of continuously staying in touch with GPs and on recent trends and developments in the buy-out business.  Hamburg-based Swift Capital Partners, a member of the HSH Nordbank Group, is a fund of funds manager focused on the European buy-out segment with well over €1bn in assets under management. The Swift team has been responsible for establishing the private equity fund of funds business within HSH Nordbank since 1999.
Until recently Swift focused on managing a private equity fund portfolio solely on behalf of HSH Nordbank. In 2005 Swift established a fund of funds programme for high-net-worth individuals (the Quartett series), which is issued on an annual basis. Having built a track record over eight years, Swift has now launched a fund of funds which is being marketed to third-party institutional investors across Europe, with a focus on the German-speaking region. HSH Nordbank co-invests on a 1:1 ratio alongside all of Swift's product lines.
Swift Capital Partners Institutional, the new fund of funds for third-party institutional clients, has a target of €200m and a hard cap of €250m. The fund is expected to close in 2008.
Wolf-Dietrich von Wrede joined Swift Capital Partners early in 2007. Previously, he worked for Deutsche Bank, Franz Haniel & Cie., Allianz Capital Partners and a German private equity fund of funds manager.
What type of investments does Swift look for?
'Since 2000 we have been investing about €150m per annum. Swift has invested in more than 50 European buy-out funds over the years, from the very small ones with a target size of €100m via mid-sized buy-out funds to large pan-European funds. Some of the smaller funds are regional or country-focused vehicles that are not easy to get access to. The ticket size per fund starts at €10m and goes up to €50m.
Generally, Swift looks for commercial and stable teams with a superior track record. On an opportunistic basis we also invest in venture funds.
Across all of our fund investments Swift has built a top-quartile track record over the past eight years.
Fund managers we have invested with to date include Alchemy Partners, Altor Equity Partners, CVC Capital Partners, Deutsche Beteiligungs AG, Chequers, EQT, Graphite Capital, ISIS, Investitori Associati and TDR Capital.'
What is your target allocation?
'We do not have any fixed allocation, but looking at the investments we have done so far, roughly one third of our commitments have been to large buy-out funds, one third to mid-sized buy-out funds and one third to small buy-out funds and special situation funds. The regional focus is solely across Europe.
With our institutional fund of funds we aim to build a portfolio of between ten and 15 European private equity funds. The fund of funds will commit €10-€30m per fund, and HSH Nordbank will co-invest into each fund.'
Do you think in the future you will broaden your geographic focus?
'There are many attractive funds in the European market which are on our radar screen and we feel comfortable putting our capital to work across Europe. We are experts in this market, have long-standing relationships with basically all the players in this market and we are based here. Also, we speak the language of the teams and are able to classify the respective tax, legal and economic framework. Furthermore, we prefer to be able to reach all of our fund managers within a few hours' travel time so that we can arrange meetings on short notice, if necessary. I always question that investors can target other markets as successfully as their home markets, especially if they do not have regional offices run by locals with the according regional networks. Another reason for investing in the European market is very limited currency exposure. If you have been investing in USD over the past years you will not find it easy to outperform the exchange rate development. However, the exchange rate can also be a performance booster. But we do not like to gamble.
One region in which we may well be expanding soon is Central and Eastern Europe, which we have been monitoring for a long time. Currently, our only exposure to the region is through some of the pan-European funds in our portfolio.'
How do you find out about good investment opportunities?
'Our database contains over 900 European private equity funds and we have analysed each and every single one of them. We have committed to approximately 50 funds since 1999. Every year, Swift reviews approximately 100 new funds and on average Swift invests in about six to eight funds per year.'
How do you conduct your due diligence?
'There is no real start to or end of our due diligence process as we are in permanent contact with GPs. We do not like surprises and that is why we observe fund managers before they are in the market, analyse the funds in the market and, once we have made a commitment, monitor our funds. Monitoring and supporting the funds in our portfolio is a very important aspect of our strategy.
As part of our due diligence we look at factors including: team, strategy, terms and conditions, performance and fund management. We always keep a list of the firms that are expected to raise a fund over the next two years. We take a look at their initial documentation and select the ones we want to take to the next stage in our due diligence process.
When we look at the strategy, we assess the market in which the fund operates, how we think the market will develop over the fund's life cycle, the fund's industry sector and geographic focus (Is the focus too narrow/too broad? Are there enough deals in those sectors/geographies?) and the team's skill sets (to work out whether we believe that the team can execute its strategy).
Our next focus is the team. We like entrepreneurial teams, teams that are structured well. There should be a balance in the team. It is not a good thing when the team depends too much on one individual or when the compensation structure is not balanced. We track each team member's individual investment track record.
Performance checks are done by talking to the managers of present and past portfolio companies. Talking to the management enables us to find out how their companies have benefited from being (partially) owned by the private equity firm. Did the firm provide access to its networks, management skills and industry sector knowledge? We also analyse the portfolio - realised and unrealised - in great detail. Does the portfolio still look impressive when we ignore the best and the worst deals, or does the success of the portfolio depend on the top one or two deals? We dig deep into how exactly the fund manager adds value to its portfolio and who the individuals in the team are who create the most value.
We need to be satisfied that the fund management team will stay together and work well together. We look for hungry individuals, teams with vision.
Our due diligence process requires a lot of resources. We benefit from Swift's and HSH Nordbank's extensive networks. Swift is an individual entity within the bank with its own corporate identity (www.scpartners.de)'.
Is access an issue for you?
'Over the past few years access has become a real issue in private equity. It is another reason why we focus so much on building relationships with managers because that is what helps us overcome access issues. It is also helpful that we have been investing significant amounts every single year since 2000 into private equity. We claim that we have all the relevant European private equity managers on our radar and we also tend to believe that the reverse is true, in that many GPs also have a list with their most favoured LPs.'
Do you do first-time funds?
'We have made selected commitments to first-time funds, but not when they are raised by first-time teams.'
Do you invest directly?
'We do not invest directly into companies and we do not do co-investments. We are true believers in diversification on a fund of fund level.'
Do you have an interest in secondaries?
'We have not done any secondaries transactions yet, but that does not mean we will not do them in the future, if the opportunity is right.'
How do you think the market will change in the future?
'We are observing what is happening at the larger end of the buy-out segment right now. However, we are not too worried about the credit crunch as we regard it as a market correction rather than a major negative development for the private equity industry.'
What advice would you give to a new private equity investor?
'Private equity is a long-term asset class. Think very carefully and thoroughly about your allocation and investment strategy. You will need to build your portfolio consistently over time and you will have to make commitments in every single time period. Do not stop investing. Be flexible and do not feel like you are being forced to allocate certain amounts of capital at certain times if you do not find the right GPs. Do not have the illusion that you can time the market. If you find the right GPs and also gain access to their funds you will have established a situation in which you will have a stable portfolio that is long-term cash generative.
Following the crowd usually is not a good idea. Trends come and go - what you need is a consistent long-term strategy. This is exactly the path that Swift has been following for many years to construct the HSH Private Equity Portfolio. Today private equity as an asset class is a stable and major contributor to the bank's performance.'
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