PERE Summit Europe: Strategy not asset type

On the sidelines of last week’s PERE Summit: Europe in London, PERE heard from Russell Jewell, AEW Europe’s head of private equity funds, on why its important for investors to allow their managers keep some flexibility.

“We are supposed to be opportunistic by our nature and that opportunity is very broad,” said Russell Jewell, head of private equity funds at London and Paris-based AEW Europe.

On the sidelines of last week’s PERE Summit: Europe in London, Jewell explained to PERE how AEW Europe was cognisant of institutional investors’ desire to avoid participating in “black box” funds where the investing strategy of the fund manager could become too wide and unfocussed.

Nevertheless, he said it was important to reach a compromise to ensure the fund manager was able to execute on deals that sit outside of a predetermined strategy. He said: “Investors do worry about strategies being too broad and for that reason we have said that in our new fund we are raising we will look to invest 70 percent of the capital in the UK, Germany and France.”

But he said: “If we discover a phenomenal opportunity outside of these three countries then we’d like to have the opportunity to do that.”

AEW Europe hit the fundraising trail in the first quarter of 2012 for an opportunity fund called AEW Europe Partners Fund for which the firm hopes to corral €350 million of equity commitments. Jewell, who joined the firm midway through 2011, is hopeful that the geographical “soft capped” allocation percentage will be attractive to potential backers who have, in Europe, stayed away from opportunity funds over the past couple of years.

He said: “A few years ago it was all core and core-plus and now opportunistic is on the radar screen but not necessarily fully embraced.”

Against a macroeconomic backdrop of systemic downturn in Europe at the moment, Jewell told PERE’s audience while on stage that he felt the region’s opportunistic market warranted “hundreds of millions and not billions” of dedicated capital at the moment. Off the stage, he added: “Expecting investors to be coming in with hundreds of millions tickets is probably optimistic. We would anticipate investors as small as €10 million.”

Jewell hinted at the raising of follow-up European opportunity funds should AEW Europe Partners Fund perform well and, ultimately, the creation of an opportunity funds series similar to AEW Capital Management in the US which is currently investing its sixth vehicle and is poised to market a seventh.

“Each of those funds is between $400 million and $700 million and we’d like to replicate that kind of fund series in Europe over the next 10 years.”

He further stated that the days of very large funds was “probably over”. One reason for that was a push-back from investors on deal by deal promote which would prompt fund managers to roll out a series of smaller funds in order to generate a “whole fund performance fee” sooner.