PRINT THIS PAGE Institutional Investor Profile: Christopher S Bödtker, CEO, LODH Private Equity ltd21/05/2008. Source: AltAssets. 
Christopher S Bödtker on European fund of funds and direct investments, on building diversified portfolios across the mid market and on the Euro Choice series' focus on Western and Eastern Europe.  Zurich, Switzerland-based LODH Private Equity Ltd, a specialist private equity manager, is a subsidiary of Geneva-based private banking Group Lombard Odier Darier Hentsch. LODH Private Equity Ltd has €1bn in assets under management on behalf of North American, European and Middle Eastern investors.
The manager's latest fund of funds, Euro Choice III, closed on €493m at the end of 2006. Its previous vehicle, Euro Choice II, closed on €232m in 2004. The team is now raising its fourth fund of funds, Euro Choice IV, with a target of €600m. The fund is expected to hold a first closing on between €200m and €300m next month and a final closing by the end of the year.
Christopher S Bödtker joined the Group in 1998 to set up the private equity arm. He started building the team in 1999, growing it to the 22 team members that are there today. Prior to this, Bödtker was an MD responsible for mezzanine, minority private equity and LBO financing at UBS. He worked at the investment bank for 13 years, in a range of capacities in Europe, Asia and the US.
What type of investments do you look for?
'We focus on European mid-market funds and on direct investments in the European mid market and that includes funds in both Eastern and Western Europe. We have done funds based in Central and Eastern Europe. Our main focus is on the EU countries, new and old, and on Switzerland and Norway.
Our aim is to have those top-quartile funds in our portfolio that invest where we see the best opportunities. We seek to be selective in areas of the market that are very competitive, for example in the upper end of the mid market in Germany, where both local and foreign money compete for deals.
Our direct investments comprise co-investments with our funds and joint investments together with other private equity investors.
For a long time now we have also been interested in turnaround and special situations funds. For this type of transaction it is difficult to find proven top-quartile managers. Another issue is that turnaround transactions usually do not require lots of capital and, therefore, these funds are not very big and, as a result, LPs cannot put larger amounts of capital into them.
Of each vehicle we raise we dedicate a minimum of 70 - 80 per cent to fund investments and the remainder we reserve for direct investments. We currently look to make between 15 and 25 fund investments per Euro Choice fund.'
How many private equity managers do you have in your portfolio?
'Currently, we have over 30 managers in our Euro Choice portfolios and in many cases we are invested in more than one fund per manager. We typically invest anything between €10m to €40m per fund, although we can easily go up to about €75m. Our average bite size has over the past few years crept up to €30m plus. The increase in bite size is largely due to the increase in the size of underlying funds, although we have not gone up as much in per cent as the funds in the market have.
However, the important thing for us is not so much the bite size - all we are interested in is being with top-quartile managers and I am pleased to say that in our previous funds we have had more than 80 per cent top-quartile performers.'
How do you find out about good investments?
'We use our deep and long-standing local networks to source opportunities. We talk to very many serious players at all levels in each country. I am sure we can say that we know pretty much most players in the various marketplaces. This is what gives us an edge to invest with top-quartile managers and have a diversified portfolio.'
How do you conduct your due diligence?
'We look at each European country and track the funds in those countries, from the very small to the very large mid-market buy-out funds. We define larger mid-market funds as those with a size of between €500m and €1bn, medium-sized mid-market funds with a size of between €250m and €500m and smaller mid-market funds up to €250m. The mid market is still concentrated well below the €1bn mark. About 80 per cent of the underlying corporate deals that mid-market buy-out funds invest in have an enterprise value of no more than €400m.
Every fund we look at is benchmarked in the same ways as any other one we look at. We ensure that we are very methodological and thorough in our approach. When we get to the stage in our review process when we select funds to go to the next stage, our data needs to be comparable.
We always refer to our due diligence as a 360º analysis because once we do deeper due diligence on a fund we look at the fund's strategy, the coherence between the firm's old and new strategy, the team's ability to execute that strategy and then identify what is unique about their strategy and how it fits in with local and European market developments. We analyse individual track records and do a significant number of reference checks. We talk to portfolio companies to find out how a team really adds value. Of course, at the end you look at the terms and conditions. In a year we look at over a hundred new funds.'
What is your opinion on sector-specific funds?
'The vast majority of the funds in our portfolio are generalist funds or funds that focus on a certain range of industry sectors. There are not that many true sector-focused funds around as most sectors are too small and only few sectors are ripe enough in their consolidation process to warrant a pure European-wide sector approach.'
How much capital do you invest per year?
'On a range basis, anywhere from €100m to €300m, across five to 12 deals.'
How difficult is it to get access to managers in the mid market?
'Access is very restricted. It is very difficult for those investors who come late to the game to gain access to proven top quartile managers.'
What is your appetite for first-time funds?
'We only invest in managers with a proven track record. It is important to us that the managers have worked together, have built a joint track record and that they know private equity. The easiest first-time fund for us to do would be a spin-out. Another situation that we like is when a team has previously invested from their own balance sheet or from "family and friends" or some local source of private capital and now they are raising their first institutional fund.'
Are you interested in secondaries transactions?
'We look at secondaries opportunities on an opportunistic basis. Our objective is not to manage the J-Curve - that is something our investors are better at. Our investors are sophisticated; they do their own asst allocation with private equity as well as managing J-Curves and cash flow balances. We therefore look only at secondary deals when they are value-enhancing opportunities involving managers we have already invested with.'
What is especially important to you in today's economic climate?
'A manager's ability to finance his transactions. Anything highly leveraged that depends strongly on bank syndication has become very difficult.'
What is your wish for the near-term future?
'It is that the re-pricing of equity makes it way through the system so that the market can pick up again.'
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