As institutional investors worldwide increase their exposure to private markets, a trio of Belgian institutions offered a timely reminder that success in the asset class depends as much on discipline as on opportunity.
Speaking at CFA Society Belgium’s Private Assets Event, executives from Patronale Life, Securex and Synatom shared how they navigate fund selection, operational complexity and the long time horizons that come with private investing, and why doing your homework is more important than ever.
Patronale Life mainly invests directly across three asset classes: renewable energy, real estate and mortgages, explained CEO Filip Moeykens. The life insurer also allocates to private equity funds. Private investments now make up between 35 and 40 percent of its total balance sheet.
“We expect these companies to deliver above-average performance compared with market returns. We also focus on assets that provide protection against inflation. We don’t apply a specific time horizon for these assets, which can compensate for the shorter duration of the bonds in our portfolio.”
Securex, a peer in the sector, takes a more cautious approach to private investments. “Our main asset classes are bonds, both sovereign and corporate, and also equity funds. We entered private assets gradually, driven by the low interest rates a few years ago. We did one deal, then a second, then a third. Today, it has become a key pocket on our balance sheet,” said investment manager Jeremy Sigart. While Patronale Life often invests directly, Securex mainly invests through private market funds.
Synatom, a subsidiary of energy firm Engie Electrabel, manages a fund dedicated to the dismantling of Belgium’s nuclear power plants and the storage of spent fuel. “Our time horizon is therefore quite long, as the last speding efforts are expected around 2050”, said chief investment officer Xavier Piret. He describes himself as a “new kid on the block” when it comes to private investments. “Our strategic allocation to private markets is 15 percent: 10 percent private debt and 5 percent private equity. But we’ve only been building that since 2022, and expect to reach target allocation by 2028.”
Synatom invests exclusively through funds, not direct deals. “Direct investments are a different sport, one we don’t master, so we stay away from it,” Piret explained.
Track record
All three investors agreed that the choice of fund manager is crucial. Joe Bae, co-CEO of private equity giant KKR, recently highlighted a striking statistic: North America has more private equity funds than McDonald’s restaurants: 19,000 versus 14,000. “There are so many private equity players; this is a critical decision,” said Piret of Synatom. “If you don’t select the right manager, you lose time, money and energy.”
“Track record is key. We try to avoid first-time funds because they simply have no track record. We also avoid second-time funds, as they often have not yet had an exit. Typically, we only consider a manager from their third fund onwards.”
For Sigart, it’s an advantage if a fund has already survived several financial crises. “Then you know they are likely to survive the next one too.” The Securex investment manager advises investors to thoroughly investigate the underlying motivation of any new fund before committing.
Piret also urges caution, especially when the general partner – the leading party in a fund – starts launching a variety of new strategies. “Sometimes a fund is launched for the wrong reasons,” said Sigart. “We sometimes see a new fund that largely overlaps with an existing one. The new fund is then used to refinance the previous vintage. But what is the ultimate purpose? That’s certainly something to watch.”
For Moeykens of Patronale Life, skin in the game is another key measure, alongside the manager’s experience. “Does the manager invest their own money in the fund? That’s something we always check.”
Homework
Piret and Sigart both point out that short-term valuation volatility doesn’t matter much to them, since these are long-term investments. “We also ignore short-term tactical allocation calls. What counts for us is long-term performance. But you have to do your homework, because you’re locked into the investment for about ten years.”
The operational complexity of private investments is another challenge, Piret added. Even if you have capital ready to deploy, there might not be an entry window at that moment. And when a fund closes, it involves a great deal of legal, tax and reporting due diligence. “It’s labour-intensive work if you want to do it properly. Investors should not underestimate that.”
“Private markets are not as straightforward as public markets. It’s not as simple as buying or selling a bond on the exchange,” said Sigart.
This article was originally published on Investment Officer Belgium.