Anne FossemalleOrganization: European Bank for Reconstruction and Development
City: London, UK
Title: Director, Equity Funds
Which school(s) did you attend?I obtained three masters degrees, one from Stanford University in the USA, as well as two from engineering schools in France: Institut National Agronomique Paris-Grignon and Ecole Nationale du Genie Rural des Eaux et des Forets, now both under the umbrella AgroParisTech.
How did you get your start in private equity?I started in private equity by making direct investments in banks in Central and Eastern Europe for EBRD. It was a fantastic experience. The investments ranged from small local owner managed banks to minority stakes alongside strategic investors; from a small bank in a small country, to the largest bank in the Czech Republic, or one of the largest private banks in Russia. I encountered all kinds of challenges, the more formative ones involved resolving shareholders disputes and poor corporate governance behaviour. I was EBRD's nominee director on many varied boards over the years. I then took responsibility for the team which makes and manages these investments at EBRD.
In 2009, I took responsibility for EBRD's Equity Funds team - our fund of funds activity - which is a responsibility I still have today. It is again a fascinating experience.
EBRD is the largest LP in its historical region of Central and Eastern Europe. We also invest in Turkey, Mongolia, North Africa and Greece. We manage an active portfolio of approximately 120 funds, with total commitments of €3.2B. We make approximately 10 new commitments every year for around €150-250MM. As the largest LP in our region, we publish our aggregated horizon return figures, which form the benchmark for this region. EBRD has (or had) a relationship with nearly all of the GPs in its region.
I am a member of the Board of Directors of Invest Europe (previously EVCA) as well as a member of its LP Platform Council. I am also Vice-chair of EMPEA's CEE/Turkey/CIS Council and a member of its DFI Council.
What was your most enjoyable private equity focused business trip?I have had many enjoyable private equity focused business trips! The first business trip to a country new to the EBRD’s countries of operations is always particularly exciting, and I have fond memories of my first trips to Turkey and later to Egypt.
When did you start participating in the ILPA's events and initiatives?EBRD has been informally involved with the ILPA since its early days as a networking club, and joined formally in 2006.
We started a more active involvement with the ILPA through its first-rate training courses in 2011, soon after these extended to Europe. We found that the ILPA Institute’s modules were of excellent quality with first class instructors. The modules allow for a progression over time, building participants' understanding in steps. It is also a great networking opportunity, allowing us to meet a good group of peers with varied backgrounds. The courses are also appropriately priced.
How does the ILPA help you be a more effective investor?The ILPA is the only association that represents institutional private equity investors and only institutional investors – so we all speak the same language!
The first manner in which the ILPA helps us is through training literally everyone on our team. Training ranges from attending the best-in-class educational programmes at the ILPA Institute as well as participating and listening to the topical and well-structured webcasts.
We refer potential GPs to the ILPA Principles and the Reporting Guidelines and encourage their adoption. We use the Best Practices and Tools ourselves and refer to much of the material provided during the ILPA Institute courses. During our review of fund proposals, we find that the Private Market Benchmarks are useful as are the value creation models and the annotated legal documentation.
The ILPA also facilitates networking through conferences and through Members' Edge. We hosted an ILPA event in our office last year. LP networking events help foster relationships and enable exchanges of views with other LPs who are tackling many of the same problems as us. Of course, there are some differences between European and US equity funds, but there are many common themes – a recent one being the disclosure of management fees and ‘hidden’ fees.
ILPA makes a great contribution to professionalize and raise the standards of Institutional LPs globally.
What are the challenges facing LPs today?LPs face many challenges today.
The global situation is itself extremely challenging and uncertain – macro-economics, geo-politics, commodity prices, etc. All of these make investors’ choices more challenging. The key is not to follow the herding element prevailing in private equity fund raising but to seek out those opportunities that can provide appropriate returns over the next 10-15 years.
Then, LPs face a real challenge when deciding where to invest capital and with which GP. Investors have to cover the entire universe, often with limited resources. It is also harder to obtain returns in a low interest environment. Their challenge is to build a diversified portfolio with high quality GPs who pursue disciplined, well defined strategies that meet their strengths and fit the operating market, and which will produce solid financial returns, which will outperform the public markets over the long-term.
Co-investments will continue to play an important role for investors. The jury is still out on the benefits of co-investments. Many investors seek these to boost returns. Their challenge relates to managing any strategy drift and potential conflicts of interest.
Some GPs are themselves challenging, particularly when the alignment of interest breaks down!
What does it take to succeed in today’s environment?I would say that it takes discipline to implement a chosen strategy, persistence, proactiveness, masses of hard work, but also optimism and a dash of good luck!
What themes will play out for private equity over the next twelve months?LPs will streamline their relationships further, yet will still require diversification leading to larger funds and the emergence of more platform type managers as GPs seek to satisfy their investor bases.
Fund raising will bifurcate with large funds being able to raise funds much more easily than the smaller funds, resulting in excessive dry powder chasing too few deals. Smaller funds may struggle to reach their first close as those investors interested in this under serviced niche delay joining a fund post-first close (or until the fund has made some investments.)
ESG will become even more important in determining investors’ choices. It makes sense from a GP perspective too: ESG integration in a company makes those companies more attractive to buyers and thereby fetching better prices than those without. It is no longer a soft option but an important part of professionalising a company.
The emergency of more buy and build strategies and M&A activity. When growth is limited or slowing down, the importance of growing companies through buy and build strategies or M&A increases. Teams need to be able show experience of implementing this with operational or hands-on experience with companies in addition to achieving their returns through financial expertise.
Within the EBRD’s region, we expect to see:
- Investments in export-led companies, targeting revenues and earnings outside Europe
- Interest in companies that meet growing consumer demand and consolidation of fragmented industries or sectors
- Sectors to watch currently are ICT (technological leapfrogging, skilled workforce), healthcare/support (growing middle classes demanding services) and services (especially business and professional services that have a good outsourcing potential due to a skilled workforce and lower salaries).
Our next Member Spotlight will be published at the end of February.