LP Profile: Aberdeen Standard Investments

Click here for a full data profile of Aberdeen Standard Investments on Unquote Data, including comprehensive fund investing preferences and history

Almost 12 months ago, regulatory approval was given for Aberdeen Asset Management to merge with insurance firm Standard Life (SL) to become the UK's largest asset manager, with significant exposure to private equity.

"Aberdeen had a global footprint whereas SL was a European franchise," says global head of private equity at Aberdeen Standard Investments Graham McDonald. "With the nature of the industry, the respective teams actually knew each other very well. Philosophically speaking, they had a lot in common and consequently bringing them together has been relatively straightforward."

In terms of equity exposure, Aberdeen currently has £13bn in assets under management across 102 vehicles, with the majority being in private equity and around 10-15% in venture capital. The geographic split is roughly 55% in Europe, 35% in the US and 10% in Asia. There are 50 investment professionals across Asia, the US and Europe, with a lower-mid-market and mid-market focus.

While we acknowledge the different risks of investing with emerging managers, in our experience, when undertaking full and appropriate diligence, first-time funds have strong potential to outperform the funds of more mature managers" – Graham McDonald, Aberdeen Standard Investments

"We are very intrigued and captivated by technology and its impact, and to that end it is very helpful to have a vibrant venture capital investment team as you can see what is coming down the pipeline or learn what is about to be disruptive," says McDonald. "Our venture programme is early-stage [investments]."

On the private equity side, the LP invests in primary funds, secondaries and also has a co-investment programme. It looks to deploy up to €1bn across primaries each year and currently has 1,200 unique active investments across 500 GPs. Ticket sizes for its lower-mid-market programme are up to €50m and for its mid-market programme up to €100m.

"We are active in supporting first-time lower-mid-market funds, but we usually already know them," says McDonald. The challenge for everyone is finding first-time funds, he adds. "But we have been doing this in Europe since the 1990s, so we like to think we know what is going on and we would be disappointed if there was a fund we had wanted to be a part of and hadn't heard about it."

Indeed, Aberdeen has supported nine first-time managers over the past 24 months. "While we acknowledge the different risks of investing with emerging managers, in our experience, when undertaking full and appropriate diligence, first-time funds have strong potential to outperform the funds of more mature managers," says McDonald. "There are 770 first-time funds in the market right now – which surely displays a continued confidence in PE and venture."

Co-investment spotlight
Aberdeen has been co-investing alongside core sponsors since 1999. In 2017, it made 20 co-investments. It also works with fundless sponsors to access dealflow that is not available in the mainstream market. This can be in specialist sectors not well covered by the industry or where a particularly strong team has spun out of a manager it rates highly. The typical ticket size for a co-investment is £3-50m, depending on the type of investment.

"[Co-invest] is a helpful way to get a deeper relationship with the GP as well as an insight into how they behave and implement their 100-day plan," says McDonald.

There is much hype around co-investment and talk of LPs increasingly wanting a bigger slice of the market, but McDonald is keen to point out that, though everyone says they want it, not everyone can execute, so gaining a reputation for delivering is key.

"At co-investment level the LPs underwrite alongside the GP or invest post-deal, so they need the investment committee to be nimble," says McDonald. "Our senior co-investment team has a direct investment background." 

Back for secondaries
Aberdeen has raised more $900m for its dedicated secondaries programme in recent years, including the closing of Secondary Opportunities Fund III at $428m in 2017. It also invests in secondaries on behalf of its fund-of-funds programmes and segregated accounts.

Over the past few years, transaction types have included single interests and small portfolios of high quality mid-market buyout funds, early secondaries, venture secondaries and direct secondary transactions, including UK manager Core Capital.

We've noticed that family offices are looking for more exposure to private markets and perhaps a bespoke, integrated capital platform would be something they would consider" – Graham McDonald, Aberdeen Standard Investments

The growth of the market is an indication of how the private equity market has matured, McDonald notes, adding that the firm has definitely seen the professionalisation of the secondaries market and a greater understanding of how secondaries can be used. 

Looking forward, there are new projects on the horizon. "We've noticed that family offices are looking for more exposure to private markets and perhaps a bespoke, integrated capital platform would be something they would consider," he says. Indeed, last year Aberdeen launched a global markets fund that includes investments across all aspects of the private equity market.

The GP also recently announced a partnership with private equity firm 21 Partners in a joint venture (21 Aberdeen Standard Investments) to set up a new €1bn fund later this year. It is, however, being run completely separately to ASI Private Equity. And it is important to note that the investment focus – non-controlling interests in European companies over an extended investment period – does not compete with the current private equity investment focus for primaries and co-investments. 

McDonald was speaking to Unquote in advance of the inaugural Allocate General Meeting, at which Aberdeen Standard Investments will provide insight into the evolution in approaches taken by LPs when investing in private equity. Allocate will take place on 25-27 June 2018 at The Grove in Hertfordshire. It will bring together prominent LPs and GPs to explore challenges and opportunities in the next private equity cycle. Click here for more information.

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