LP Profile: Munich Private Equity Partners

The core team of Munich Private Equity Partners (MPEP) came together in 2008 to invest in private equity on behalf of German financial services firm RWB. The independent investment adviser MPEP was founded in 2011 to continue managing the company's money and RWB has remained the cornerstone investor since 2014, when MPEP launched as a Luxembourg AIFM with its own products.

Since 2011, MPEP has committed approximately €750m to 70 funds and is currently raising capital for MPEP III with a target of €100m. The vehicle held a close on €50m at the end of last year, and, due to its unusual model, had already deployed it across seven funds at that stage. Managing director David Schäfer explains: "Because of the support of our cornerstone investor, we can construct half of the portfolio or more before we market it to external LPs. This is very attractive to LPs because it can act like an early secondary in eliminating the J-curve, reduces the blind pool risk and leads to quicker deployment of capital."

For this reason, MPEP IV has already been registered in the Luxembourg business register and will begin marketing once MPEP III holds a final close. In the future, MPEP expects to raise a fund every year and may increase its fund size up to around €200m, as this is what the LP thinks is half of the maximum size for the opportunity set it is targeting.

Christopher Bär, Munich Private Equity Partners

Raising the Bär
"In Europe we mostly target country champions and then in the US we often look at sector-specific managers," says managing director Christopher Bär, who has been at MPEP since 2008 and was promoted to his current role in 2016.

A look at the publicly available accounts for MPEP III supports Bär's claims. Of the four investments listed by December 2017, two are European-country-specific or regionally focused funds (PAI Europe VII and Euroknights VII) and two are US, operationally focused specialists that target a limited number of sectors (Clayton Dubilier & Rice Fund X and Seidler Equity Partners). MPEP is understood to have made a further three investments from the fund since filing those accounts, one of which is Spanish country fund Corpfin Capital Fund V.

"We like to say we are looking for the salt in the soup by only investing in the GPs that have a real and repeatable point of differentiation," says Schäfer. "That means we strive for outperformance. Therefore, the broadest possible diversification is clearly not expedient. We build thoughtfully diversified fund portfolios for our clients and provide access to the best-in-class fund managers within the mid-cap buyout market."

These claims of outperformance and best-in-class GP relationships are borne out in MPEP's previous fund vintages. It launched MPEP I in 2014; the vehicle was the first independent Luxembourg-registered fund, made 13 fund investments and recorded an average exit multiple of 3.9x. MPEP has partnered with brand name GPs such as Carlyle Europe Technology Partners, Deutsche Private Equity, Accel-KKR and Livingbridge, among others.

Getting access
"We mainly target the mid-market and lower-mid-market, and only the top performing managers in each segment," says Schäfer. "We review between 300-350 funds per year, but only invest in 8-12 funds annually." Most if not all of the GPs in that bracket will have held heavily oversubscribed closings for the most recent vintages of their funds, so getting access is the biggest challenge. Schäfer highlights the team's relationship-building method as a key tool: "Looking at all the primary fund investments we have made since inception, 90% have been sourced directly through our proactive and forward-looking approach, or due to our network of existing relationships."

"Having flexibility on the size of our commitments helps us," Schäfer adds. "If they have a €250m fund, for example, and want to increase it to €300m for the next generation, they don't want a new LP putting a €50m ticket in there because that doesn't achieve their LP diversification objective."

This approach is also necessitated to a certain extent by MPEP's own views on fund size increases. "Our biggest concern currently is fund-size increases because of the temptation to drift away from the strategy with which you've been successful," explains Bär. "There are relatively few high-performing fund managers that have not dramatically increased their fund size, so the access we have to those is extremely valuable for our investors."

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