ABN Amro is broadening the options for clients who want to invest in private equity. For the first time, the bank is offering a basket of private equity managers, in addition to the already existing single manager funds. Meanwhile, the bank is getting ready for the next step: private markets as a structural part of the strategic asset allocation.
That’s according to a conversation with Dirk-Jan Schuiten, who has been head of private equity at ABN Amro since 2019. “We want to offer this category for the entire private bank. With the structurally lower interest rates, a traditionally classified portfolio with equities and bonds is not going to make it. In fact, every client should have an allocation to private markets.”
Schuiten emphasizes that private markets are an illiquid asset class, where a long horizon applies. “So I’m really talking about the strategic asset allocation, not the tactical one. We won’t make interim statements about whether private markets are overvalued or undervalued at any given time.”
Quite a change
To make that adjustment in the strategic asset allocation possible in the future, Schuiten’s 16-person team has spent the past period examining what private products are available and what it can still develop itself. Schuiten: “The next step is to see how we can implement it and then communicate it to clients. A new strategic asset allocation is quite a change. There will also be a group of customers who don’t want it, and we can’t and don’t want to make it mandatory either.”
This is mainly due to the previously mentioned liquidity of private investments, which is a lot lower than that of public investments. In this category, assets are placed for about ten years with a manager who invests them in various companies. Consequently, the return only comes after years. Schuiten: “Certainly in the case of private individuals, personal situations sometimes change. At such times you don’t want to be in an investment you can’t get out of. That’s why we want to retain some liquidity.
Buyouts
For the Netherlands, ABN Amro invested little in private markets until 2018. For Germany, it did, as the bank had acquired the German division of Credit Suisse - including private equity desk - in 2014. Schuiten: “In 2018, we brought all the activities from the different countries together to gain scale and set up the global team. An umbrella fund set up in Luxembourg under an AIFMD license now forms the basis of the bank’s offering: both single manager and multi-manager funds.”
Through feeders in which capital has been pooled, clients invest directly in the funds of private equity managers that are normally not accessible to individuals, or not accessible at all. The bank focuses primarily on buyouts. Unlike venture capital, this involves mature companies that can still scale up and grow further. The risk profile is lower than that of venture capital, Schuiten argues: young companies that really need capital to grow fast.
New product launch
In the meantime, the bank is on the eve of a new product launch, in which a client invests in five or six managers instead of a single private equity manager through an investment in the feeder. Here, too, the underlying blue-chip names are involved, as are large portfolios, so that the assets are spread over many different names. The bank cannot give an exact return forecast, but in general ABN expects private equity to outperform listed shares by a few percent on an annual basis.
This new product makes private equity accessible to more customers again, according to Schuiten. “You should always build a diversified portfolio, also with private markets. In other words: don’t put all your capital in one private equity manager in the same year and spread it over several managers. With a basket you have already overcome that, with one time the deposit. We are tapping into a somewhat new client segment, especially for clients who want a diversified portfolio in private equity for 125 thousand euros.”
Lower entry threshold
A second way in which the accessibility of PE is increasing for clients is the lower entry threshold this basket has. Schuiten: “At the moment, a client must have investable assets of 5 million euros to participate in a single manager offering, and he may allocate a maximum of 10 percent of his assets to private markets. For the basket we are lowering the entry threshold to 3 million euros. That way we can enclose a broader group.”
On costs, Schuiten says they consist of the manager’s costs and on top of that those of the feeder. “Scale is important. The bigger we are, the lower the costs. Without wanting to give an exact figure, we are now at a point where it has become cost effective.”
ABN Amro’s existing products are focused on private equity, but the bank is also working on other products within private markets. Schuiten: “Private debt, infrastructure, real estate. We also want to make those kinds of strategies accessible to clients.” How much assets are invested in private markets from ABN Amro, the bank does not share. Historically, the bank has raised about 2 billion euros for private equity.