Interview with Thomas Weinmann - Managing Partner (Astorius / Germany)

"We started Astorius to provide smaller investors better access to PE funds"

Posted Monday, December 21st 2020
Interview with Thomas Weinmann - Managing Partner (Astorius / Germany)

Leaders League. Tell us about your new first-time initiative towards US companies. What made you make that move towards the American market?

Thomas Weinmann. We started Astorius with the commitment to provide smaller investors better access to private equity funds. Given our European background, we initially focused on our home turf. But we believe that a diversified PE portfolio should also include investments in North American private equity funds. The North American market is by far the largest investment space and provides very good returns for investors. We as a team invest substantially our own money alongside our clients. As such we need to convince ourselves first that returns are interesting.

 

What are the differences between US and European private equity dynamics and cultures within the SME environment?

I’d say there are fewer differences nowadays. If you are only focused on average returns, in the long run both markets have shown similar patterns. If you look at the experience of fund managers, I would add that nowadays the European PE market has closed the “experience gap” with the US. Multibillion-dollar deals and take-privates have been done since the early 2000s in Europe, and debt funds and high-yield bonds are the major source of debt financing for private equity transactions on both sides of the Atlantic. The large-cap space is now dominated by global private equity funds, most of them headquartered in the United States. So where are the differences nowadays? The most obvious is market size. The US market is much larger in terms of deals and market volume. As a result, we see more than 2,000 active GPs [general partners] in the US whereas in Europe we count 1,000. In addition, on the smaller end of the European market, local habits, legislation and language still create substantial entrance barriers. We have also noted that the US economy has historically coped faster with crisis situations. But in both markets we find interesting opportunities and fund managers with outstanding returns. As we are interested in best returns based on moderate and reasonable risks, our efforts are in both markets the same: we need to perform detailed due diligence to find top-decile performers. For US investments we have collaborated with a US partner who has a similar investment mindset, bringing local expertise and access to GPs to the table. 

 

What have been your firm’s biggest achievements in the last year?

I would like to flag two major achievements. Firstly, we have a great team and high performing GPs who have been weathering the perfect storm since March. A lot of short-term tasks had to be dealt with. And as always, a crisis provides the opportunity to show positive and negative surprises. Or as we say in German, when the low tide comes, you see who’s wearing trunks. Secondly, financial performance. We started with our first fund of funds six years ago. At that time basically only our closest business relationships and friends entrusted us with their money. Since last year, our first two funds of funds are now fully invested in portfolio companies and we have already seen our first exits. The performance of both products has been much better than we initially planned. Ultimately, we measure our funds of funds with direct fund investment performance. And our investors are happy to see already first quartile net performance with a relatively low minimum commitment of €200,000.

 

How has the crisis impacted your firm’s organization?

 “Luckily” we are highly regulated, and as a consequence our CFO [chief financial officer] had a pandemic crisis plan in his drawer. In mid-March we asked everyone to work from home. With basically all team members being offsite we used video-conferencing intensively to work together and keep the team spirit intact. In addition, we were focused on servicing our investors and their information needs. Since May we’ve been bringing our team members back into the office in stages. At that time, we restarted our fundraising efforts, which often require physical meetings. We performed due diligence and began investing in new opportunities. As of today, we are not far away from being back at our pre-Covid working situation, benefiting from the relatively low Covid-19 case numbers we have in Germany. Nevertheless, we are still on alert to move people back to home-working if it is required.

 

What do you see changing or transforming after the crisis? How will it affect PE long-term, if at all?

I believe that, as in the last crisis, our industry has a big chance to benefit from the current situation. Private equity funds in general have rather easy access to liquidity, which they can use to protect existing investments and invest in new situations. Listed companies or family-owned businesses might lack such an access to money. As an investor, I believe that the 2020-’21 vintages might show very good returns, like 2000-’01 and 2008- ’09. In the long run, life will move on until the next unexpected crisis in 7-10 years.

 

The virus aside, what will private equity look like in three years?

I think that digitalization will change a lot of parameters – in dealmaking, to start with. We already see that some GPs use AI technology in deal sourcing to identify interesting targets. Moreover, auction techniques might be used even in smaller situations as potential buyers and vendors meet over a digital – i.e. less cost-intensive – auction platform. Even due diligence meetings might regularly be done by videoconference, which would reduce times and costs. A further topic could be performance improvements. Larger GPs are already hiring digitalisation experts as part of their bench of operating partners. This might be done more regularly by small and mid-market funds also. Thirdly, transfer of investments. When I started in the industry, debt funds were not meaningful and financing syndicates very stable counterparties for private equity funds. In the early 2000s, trading of LBO [leveraged buyout] debt tranches became a regular phenomenon. Given the increasing liquidity and investor sophistication nowadays, even investments in PE funds are getting traded much more regularly. In some years, I would not be surprised to see a very liquid market with daily quotes and trades in PE secondary investments. An illiquid market would become liquid. And last but not least – LP [limited partner] landscape. In the past, PE investments were only meant for large institutional investors. Firms like us are now enabling smaller investors such as private individuals and small institutions to invest in PE funds. This development could go even further down in size so that even very small retail investors might be able to participate in a broader manner from our market. What will not change in the short term is the private equity industry becoming any less of an interesting place to work and invest.