Unigestion gears up to invest in small and mid-market PE

According to the data shown, small funds tend to have the most stable performance during recessions, among small, mid-sized, large and mega-funds. Aldorisio and Schiffrin put this down to certain trends in small-cap investing, including the use of less leverage; the companies are nimbler; and, due to the niche sector focus of small-cap companies, they have market share dominance.

The partners discussed several examples of investments made by the firm during or just prior to the global financial crisis of 2008, including Data Explorers, from which Unigestion reaped a return of 2.7x money, and Premo, which generated a 1.3x return upon exit.

The partners expect to continue investing using their investment themes, which they think have been amplified in the wake of the coronavirus crisis. These include the democratisation of finance, the development of sustainable cities and the localisation of supply chains.

Aldorisio expanded on the firm's direct investment from Unigestion Direct II in Health Bioactives, a supplements producer, that adheres to the trend of localisation of supply chains. The fund held a first close on €300m in August 2019 and this investment was made in January 2020. Unigestion expects returns of 2.5x on the asset.

"A number of investment opportunities should emerge from the crisis, including opportunities with companies with immediate cash needs, spin-outs from distressed conglomerates, and portfolio companies of GPs that need to generate liquidity for their LPs," said Aldorisio.

Schiffrin said: "In a time when many investors are jittery, having capital allows firms to take advantage of the situations that make sense. Within the firm's expanded portfolio, we are beginning to see the green shoots of companies that need capital to fix specific problems."

While dealflow in the small-cap market has been reduced, the partners believe this has been less pronounced a reduction than across the private equity industry as a whole.

Aldorisio said he thought funds with 2020, 2021 and 2022 vintages would be very successful, as the capital dynamics of the market had inverted, with it now shifting to a buyers' market.

Schiffrin finished the webinar by saying that larger investors began looking at smaller investment opportunities after the global financial crisis; however, he expects it will be difficult for these market players to break through barriers to entry, such as the diverse network of specialised advisers and lenders, and the different relationship management techniques required with small business owners.

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