Limited partners will turn increasingly to niche, boutique fund managers in the wake of the credit crunch amid warnings “big is not necessarily beautiful” in a challenging market.
As LPs actively manage their portfolios following last year’s credit turmoil, industry professionals said institutional investors were now all wanting to extract “optimal value” from sponsors, particularly through specialized strategies.
During a limited partner panel at the PERE Forum: Europe 2008 in London today, several LPs urged general partners to be “innovative” in their strategies and to have a “clear and well-defined story.”
Smaller, niche funds were of particular interest in the current market climate, according to the panel, with Rachel Tan, global head of business development at Societe Generale Asset Management Alternative Investments saying big was not necessarily “beautiful” in difficult markets.
“[Some] investors come to the market thinking big is beautiful and they look for larger managers with a long track record just for the comfort factor.
“In more challenging times, big may not be so beautiful. Being smaller, more nimble and having an ability to source deals and source leverage and work assets before there is any fall in value, is more key.”
Niche strategies often represented funds with $1 billion in commitments.
Steven Grahame, senior investment consultant at Watson Wyatt, calling for GPs to be more innovative, added during the panel: “We are looking for investment ideas which really differentiate one manager from another and their platforms.”