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Interview of Matthieu Broquère and Priscilla Hüe, Cedrus & Partners as featured in Insight/Out #21
Interview with Matthieu Broquère, Head of Development and Priscilla Hüe, Country Head Luxembourg at Cedrus & Partners, a French investment advisory firm servicing to long-term investors.
Stephane Pesch: What is your approach to institutional fundraising?
Matthieu Broquère: Our industry has made great strides in these areas over the past few years.
First of all because, even if the amounts invested by the LP’s are increasing almost exponentially, the competition is raging between the GP’s to attract more and more money, with a “winner take all” situation. The biggest platforms are competing for billions and fundraising is an advanced position in the battle of PE.
Secondly, because investors have become more professional and are extremely demanding in terms of transparency from their GP’s. The investment processes and committees have become more complex. It is vital for LP’s to be able to explain everything in committees and therefore to carry out very in-depth Due Diligence.
Finally, because it is extremely trendy in the GP’s world to be able to conduct large fundraising in one or two quarters, when it’s not in months. It is seen by the market as a guarantee of having a big performer and GP’s tries to create scarcity as in the luxury fashion industry by reaching their hard cap as quickly as possible. When you have a demand which is two or three times bigger than your hard cap, you can be tough when it comes to speak about your management fees…
Investor Relations and Placement Agents, like their investment colleagues, have therefore to raise their ability to answer the needs of institutional investors.
SP: Do you approach other stakeholders during the fundraising period?
Priscilla Hüe: On the one hand, ticket size from institutional are getting bigger and bigger, and on the other hand, the market is becoming more and more competitive. This is creating a potential risk for GP’s, if one or two of their largest LP’s are not re-upping into the next vintage. To address this risk, they have to diversify their asset base and increase the number of LPs as well as their investment ticket.
While pension/sovereign funds and institutions represent the vast majority of the money invested in PE, GP’s seek to attract money from Family Offices, which have now teams dedicated to investments through funds.
The needs of these investors are quite different from those of institutional, both in terms of information, decision-making process and level of proximity. Large FO are looking for managers who share common DNA or are specialised in their industrial sectors. Thus, if they give less importance to the operational phases of Due Diligence, they will attach more focus to the quality of the relationship they have with GP’s, their ability to participate in boards or to carry out co-investments.
MB: GP’s seek to diversify their LP’s base by attracting FO but also to raise smart money with FO active in their privileged investment sectors, expecting it will convince some entrepreneurs to choose them thanks to the quality of their board. Because if they compete for raising money, they compete even more to make deals, especially in the VC space. Every edge is important.
SP: What trends do you identify on the market?
PH: The market is becoming more and more mature and in this context, GP’s have either to find new markets to address or innovate in terms of investment strategy. The latest big trends when it comes to fundraising is the fight for retail clients. All big players and newcomers from tech are trying to democratize private assets and want their piece of the big cake.
Our world of low interest rates makes the search for alternative returns compulsory for individuals. Private banks or French “Conseiller en gestion de patrimoine” have understood the interest in introducing the private market asset class into their clients’ portfolios: stable returns, low volatility, clients who are captive for 10 years…
Private investors are also in demand for these kind of deals now they know they are more accessible. Intermediaries are to be agile if they don’t want to lose them for more agile or downright tech intermediaries.
MB: Fund raising for this type of client is clearly very different from professional investors with two main trends.
First, by proposing big brands through feeders. It’s the old fashion way but it is used by a lot of intermediaries to reassure their clients and provide them access to well-known GP’s
Second, by creating their own products, wealth manager or private banks can onboard their clients in tailor-made solutions. Fundraising is more complicated but they can train their sales forces on their products to maximize the conversion rate and capture more fees.
But regulators are looking closely to this new products and we clearly think that one of the main thing you have to keep in mind during the process is the adequation for the clients to whom you offer the fund.
How do you adapt your fundraising process to clients’ needs?
MB: It is an adaptive process according to the typologies of the investors but with a major common point to be successful: it is necessary to understand their essential needs.
For institutional, it is transparency and process: you have to be very clear on the operational, technical, cost and governance aspects, provide them with a lot of data and a DDQ which covers all the market practice points.
For Family Office, it is the human relationship and the add-ons: you have to describe the team and meet them, talk about the pipe and co-invest capacities, discuss the boards despite lower tickets.
For individual, it is education: we need clear and didactical documents to evangelize the private asset classes and open the hood of markets which are sometimes seen as complicated black boxes.
PH: Finally, we would say that it takes more than knowing your funds, you have to believe in them and be convinced that they are the right answer to the needs of your clients. And so for that, you have to know your customers perfectly so as to only offer them solutions that are suited to their needs.
Cedrus & Partners is a French investment advisory firm that offers its services to long-term investors, from institutional investors, family offices to private banks and retail clients. We help our clients with all their investment concerns, and we support them in their search for yield in private markets: real estate, infrastructure financing, Private Equity, private debt and impact investing. And this through different business lines, from global consulting to tailor-made advice on specific needs, and to product engineering with the creation of tailor-made products in partnership with management companies.
