LP Profile: Allianz Capital Partners

Click here for a full data profile of Allianz Capital Partners on Unquote Data, including comprehensive fund investing preferences and history

"Our private equity team is 30-strong, with 21 investment professionals across three offices, and nine dedicated middle- and back-office staff," says Allianz Capital Partners (ACP) co-head of private equity Michael Lindauer. "We deploy between €2-3bn per year globally, across 30-40 funds, split roughly equally between the US, Europe and Asia/rest of the world." ACP, the in-house asset manager for the alternative investments of Allianz Group, currently manages €25bn of the group's assets, with €11bn dedicated to PE.

Allianz began investing in private equity in 1996, initially looking at venture capital in the US before quickly expanding to look at buyouts and Europe. In 2001, the firm span out as Allianz Private Equity Partners – pursuing direct investments and backing funds – and expanded across the globe, opening a New York office in 2002 and establishing a presence in Asia in 2007 with a Singapore office. Allianz Private Equity Partners then merged with the group's renewables and infrastructure businesses in 2009 to form ACP.

ESG and suitable pricing
As with many European LPs, ESG considerations are very important to ACP in their investing. "Insurance companies live on their reputation, so this has always been a focus for us," Lindauer says. ACP requires managers to set out and sign an ESG policy, but prefers to see managers going above and beyond this. "It's not good enough just to sign the policy, we want to see managers living it. Are these people who do the right things, and not just in their portfolio? ESG is a very important element, and needs to be ingrained into the culture of a GP." ESG considerations form a central part of the due diligence on potential fund investments and Lindauer tells of occasions where concerns on this front have led to ACP not backing funds.

A frothy market is not putting ACP off deploying, but is sharpening its focus on specific elements of the diligence process. "We're not trying to time the market," Lindauer says. "We have a preference for people who can create their own deals, and are therefore not in a position to have to pay too high prices."

High prices, in and of themselves, are not a particular concern, but as with proprietary sourcing, ACP aims to mitigate exposure as much as possible and to back GPs capable of creating value within their portfolio companies. "Our view is that it's probably fine to pay 'A' prices for 'A' assets, but we wouldn't like to see our managers pay these for 'B/C' assets," says Lindauer. "We like managers who are able to work with their portfolio to create value should the market turn."

We're not trying to time the market. We have a preference for people who can create their own deals, and are therefore not in a position to have to pay too high prices" – Michael Lindauer, Allianz Capital Partners

Lindauer describes how ACP's investments are broadly split into two categories, which it classifies as "base" investments and "spice". The former category constitutes established fund managers likely to generate solid returns with an acceptable level of risk. In the European context, a typical example of a base investment might be a mid-cap, pan-regional manager raising a later-generation fund. The latter category, spice, relates to more adventurous investments, aiming for higher returns and accepting slightly more risk. Typical investments in this category might be a country- or sector-specific fund, or an emerging manager.

Although ACP declines to mention specific funds from each of these categorisations, Unquote Data's profile lists a £120m commitment to HgCapital 8, an example of a potential base investment. A possible spice investment is the €35m pledged to the first fund of CapMan spin-out Longship. There is currently a 60-40 split between these two strategies.

Co-investing
Alongside fund investments, ACP is also active in co-investing alongside its managers, and these deals make up 10-15% of the firm's portfolio. This co-investment programme started in 2011 with the aim of enhancing returns through both deal selection and the reduction of management fees and carried interest.

Since inception, the co-investment portfolio has grown over time, and the 10-15% current exposure is expected to grow further in future. Responsibility for due diligence of these opportunities is shared across the team. "Each of our fund investment team has deal experience and we like to maintain continuity when working with our GPs," Lindauer says. "Working with a team on a co-investment is also an opportunity to get an in-depth view of how a GP works, so contributes to fund diligence as well."

The secondaries market is less appealing for ACP, and the institution has a very small exposure to direct secondaries. "We were a seller pre-crisis," Lindauer says. "We aren't currently, but do review this on an ongoing basis. For us, a high multiple is preferable to a high IRR, and with a dedicated back-office team, the administrative burden that drives other LPs to manage their portfolio isn't there for us to the same extent."

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