LP Profile: Adveq

Adveq currently has around $7bn in assets under management (AUM). While the firm does not disclose the split between the various geographies it covers, it is understood that around half of these assets target opportunities in Europe; the remainder are focused on the US and Asia. Overall, Adveq is believed to be deploying around $1bn on an annual basis.

In Europe, Adveq focuses exclusively on private equity, with a particular focus on small buyout funds. In addition, the firm has pockets dedicated to venture capital and turnaround vehicles. Up to 40% of activity is done in the primary space, with the remainder split equally between secondaries and co-investments.

The firm has around 100 GP relationships on the primary side. "Adveq, like many other firms, is currently looking to increase the amount of capital per key relationship, and focusing on a smaller number of these core relationships," says managing partner Tim Creed.

While Adveq declines to communicate on deployment and distributions figures, the latter are understood to have increased to new records every year for the past three years. "The past couple of years have been strong when it comes to distributions," says Creed. "PE fund managers should be happy, and we have seen strong-multiple exits across our portfolio."

Fund VI nearing final close
Adveq manages separate funds for each of its strategies and closed two vehicles earlier this year, raising €323m for its Adveq Specialized Investments fund and €102m for its Adveq Europe Co-Investments vehicle – both funds held a final close in January 2016.

Adveq will not comment on current fundraising plans, but according to a source close to the firm, the 6th generation of funds-of-funds (Adveq Europe VI) is expected to reach a final close above the €410m target before year-end. The previous vehicle for this strategy was closed in 2013 on more than €300m.

Capital is raised from pension funds, insurance companies and university endowments. Adveq's investor base was initially Europe-focused and the manager started making a move towards US investors in 2007, with a particular focus on endowments. Now crucial to the European private equity industry, this particular type of LP has an approach that presents its own set of challenges, says Creed: "Endowments tend to do a lot more direct investing themselves, therefore they tend to really go through each underlying investment a fund makes – going through every name and company – and they also want introductions to GPs with a view to investing in these funds directly later on. Some European LPs do that, but most won't have that desire to go direct down the line."

Adveq offers both multi-client vehicles and dedicated investment mandates. At the moment AUM are split roughly equally between the two strategies, but the share of mandates has been steadily increasing. "People tend to think this trend towards separate accounts is all about reducing fees for investors, when the reality is that it's also a lot about customising strategy for a given client," says Creed.

Call in the specialists
Looking specifically at Adveq's European buyout funds strategy, the firm tends to favour specialised funds in the small- and mid-cap spaces, with a preference for turnaround players and industry specialists. Geography-wise, Adveq has traditionally had more exposure to the UK, the Nordic countries and the Benelux and DACH regions – although Creed admits some of the best investments have emerged from Italy.

The topic of specialisation is a key focus for Adveq, especially in the post-crisis environment. Says Creed: "We back groups that may look like they cover a range of different industries, but there will be something very specialist in their strategy and that specialisation allows them to continue to outperform through multiple fund cycles. The groups that have struggled are the ones that are far more generalist; they might have had good track records in the past but it is much less consistent from one fund to another."

We are looking for two main attributes when evaluating a first-time fund to potentially invest in. We will be looking for a team that has a track record of working well together, and one that has experience investing institutional capital as part of their previous roles" – Tim Creed, Adveq

Creed points out that while Europe has taken longer than the US to develop a strong base of specialist funds, opportunities are now more plentiful, especially when it comes to vehicles raised by new teams eager to stand out from the crowd.

Adveq is usually keen to back first efforts by new GPs – in fact, the firm is understood to be coming in at first close for between three to five first-time-fund GPs per year. "We are looking for two main attributes when evaluating a first-time fund to potentially invest in, and it is mostly about the team," says Creed. "We will be looking for a team that has a track record of working well together, and one that has experience investing institutional capital as part of their previous roles."

One strategy that has proven popular with LPs of late, credit funds, is less appealing to Adveq: "We look at these a lot and have backed a handful in the past, but returns have tended to be lower. It is a strategy that does make sense for institutional investors as they are looking to develop a broad portfolio with different risk/return profiles, but it is less relevant for PE-focused investors such as ourselves."

Co-investment spotlight
Co-investment is one of the latest strategies to have been developed by Adveq, and unsurprisingly meeting strong demand from investors – with the dedicated €102m Adveq Europe Co-Investments vehicle reaching a final close in January.

However, Creed says LPs should go in with their eyes wide open: "We do have some investors that do not like it. It is a difficult thing to do properly and there are institutions out there that have been burned with co-investments. The idea that, all of sudden, one would see great deals coming through immediately and great returns as a co-investing LP is appealing, but we have found that it is a strategy that takes time to establish and requires significant resources."

Adveq could put itself forward as a case in point: "It took some time to build up our co-investment offering when we eventually decided to be in that space: it was nearly two years before we started seeing dealflow that was good enough in our view to properly do co-investments. The really good quality GPs usually already have high-profile LPs ready to co-invest, so you have to do a lot of work to get to the top of the list."

Unlike most of its peers, Adveq does not have a separate team for co-investments, instead opting for a single investment team doing primary, secondary and co-investments in Europe. "In the first couple of years when we were building up our co-investment offering, we asked our GPs how they would like us to be structured in order to work with them on co-investments. Across the board, nearly every GP urged us to have a single team, saying that they usually resent offering co-investment opportunities to a team they have never met, while on the other hand they interact with the primary team on a regular basis."

This has in turn impacted the profile of the team, Creed says: "You need people that really care about companies and their problems, which is unusual. We did have experience in that regard though, as even on the primary side we've always looked all the way down to individual portfolio companies. It does mean that when we are recruiting, we tend to look at people with more direct investment experience."

Head over to unquote" data for a more detailed view of Adveq's strategy and investments, including a list of individual funds backed by the LP

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