LP Profile: Industriens Pension

"Private equity will likely be one of the best-performing asset classes in 2019, if the 2018 volatile market conditions continue," Industriens Pension's head of private investments, Jan Ostergaard, tells Unquote. He adds that PE proves its worth as a portfolio diversifier and return generator under such circumstances.

Private equity was the best performing asset class for Industriens Pension during the first half of 2018, generating a 6.1% return. The trend is likely to have continued throughout 2018 and will probably continue to do so in the coming years.

A combination of market choices – mid-market buyouts and venture – and good fund selection are among the drivers of Industriens' private equity performance, according to Ostergaard.

Established in 1992, the DKK 165bn pension fund is responsible for administrating the labour market pension scheme for employees under the collective bargaining agreement for industrial employees. The pension fund has nearly two decades of experience of investing in private equity, making its first commitment in 2000.

Most of our existing managers have delivered very strong results and we will continue working with them. But we are also looking for new opportunities and alternatives" – Jan Ostergaard, Industriens Pension

Industriens has a three-year programme when investing in private equity, and the new programme commences in January 2019. "We plan to invest in 30-35 funds over the three-year period, with an average of 10-12 funds per year," Ostergaard says.

The pension scheme plans to invest 80-90% with existing managers and around 10-20% with new managers. Says Ostergaard: "Most of our existing managers have delivered very strong results and we will continue working with them. But we are also looking for new opportunities and alternatives."

When it comes to first-time funds, the LP does consider making commitments, though it also has some reservations. "We have backed first-time funds in the past, but we are generally reluctant with them," says Ostergaard. "It is much more difficult to invest in them without having information on track record and performance."

Industriens has more than 50 active GP relationships, of which 30% are European and the rest US. "The market is bigger in the US and almost 100% of the venture programme is in the US," Ostergaard explains. "It is based on smaller commitments, and a larger number of GPs."

The pension fund has 10.8% of its portfolio invested in private equity, slightly above its target allocation due to strong performance. Investments in private equity have increased in value and thus represent a larger share of the overall portfolio.

Global outlook
The portfolio consists of 70% buyouts and 30% venture. However, the long-term target for venture is 20%. The geographical split is 33% Europe, 50% US, 10% global funds and 7% across the rest of the world.

Its typical size of primary funds is €400-700m for buyouts and around $25m on the venture side. The average ticket is approximately €40m for buyouts and €20m for venture.

According to Unquote Data, the pension fund has recently committed to Highland Europe Technology Growth III and Northedge Capital SME Fund I. Past commitments include Marlin Equity V, Marlin Heritage Fund II and Marlin Heritage Europe Fund.

Industriens Pension does not make co-investments within its private equity portfolio. However, it does co-invest frequently in the infrastructure and real estate segments. "We don't see the same opportunities for co-investments for private equity, neither for investments or cost savings," Ostergaard says. "The cost savings would be smaller in PE and the administration burden bigger."

On a domestic Danish front, Ostergaard says there has been considerable interest from European funds, both pan-European or regional, to break into the market. He finds that the Nordic region differs from others in that private equity is well-established as an asset class for institutional investors and is able to showcase a long history of both small and large deals.

The pension scheme does not use a consultant for manager selection, but it has an in-house team focusing on identifying GPs across investments in alternatives, bonds and international equities. "There is a team of 12 people working on private equity, infrastructure and real estate," Ostergaard says.

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