Q&A: Hermes GPE's Elias Korosis

Oscar Geen: For the first nine months of 2018, buyout volumes are down 3% across Europe and 9% in the UK, according to Unquote Data; does this match your perception, and does it concern you?

Elias Korosis: A decrease compared with 2017 is not evidence of a precipitous decline. We had three years of record growth in private equity and I think if we can keep it at the current level that would be healthy. That said, there are some more question marks over the UK, where general volatility [in Europe] is combining with some UK-specific pressures in certain sectors like high street restaurants.

OG: Is Hermes GPE investing less in the UK as a result?

EK: No. We still see a lot of exciting tech-led models with global relevance. We see opportunities to invest in businesses that are involved in digitalisation processes that are not so affected by how the British economy will be doing next year for example. Larger buyouts are more likely to be affected because they're looking in the rear-view mirror to a certain extent; they see a history of good cash flows and need it to continue.

OG: And when you're making fund investments are you looking to invest with the same criteria?

EK: We have looked to focus more on specialist GPs, certainly. Healthcare innovation is one area where you want to partner with a more specialised manager rather than going with your brand name generalist that does one healthcare deal, one industrial deal, one consumer deal. That's not to say that we don't do brand name GPs, because we do, and we have nothing against them. They're great business models, but we have tried to do a bit more in the lower end of the mid-market, and emerging managers and spinouts, because that's where we can create more value for our customers.

OG: Indeed, looking at our news site, there appear to have been quite a few spinouts recently. Do you think we'll continue to see more, and does it create conflicts if you had a relationship with the original manager and then back the spinout?

EK: I think it's the natural evolution of a maturing industry and more capital being available. In general, I don't think there's much conflict. People at the original GP are often quite supportive of the spinout because there's a realisation that working for a brand name GP isn't always for everyone for their entire career. And besides, they're not going to be taking their big Canadian pension fund LP with them so they're not too worried.

OG: Do you have a seed programme specifically for new managers and spinouts?

EK: We don't have an official seed programme as of yet, but, as I said, we have been balancing the portfolio in that direction. We really use the fund commitments to facilitate our co-investment programme and will soon close our 200th co-investment, which not many LPs have managed to do.

OG: More LPs are focusing on co-investments and raising co-investment vehicles. Has competition for co-investments heated up and how do you navigate that?

EK: Yes, it has. I would say that's not a new thing in 2018. Maybe in 2015. But it's true that it's more competitive, especially in the larger space where the co-investment is syndicated out after the deal, because there are a lot of big LPs that want to do co-investments in those funds. We prefer to partner with the GP early and only participate in deals that really fit our investment themes or where we can add value as a co-investor.

OG: Can you give me an example of how you would do that?

EK: I'm on the board of a company called E-Leather, which uses waste leather from industry to produce leather that is lighter and more durable than normal leather. It was originally marketing itself in this way, mostly to airlines and train operators where weight and durability are very important. We encouraged them to take advantage of their sustainability leadership and we co-led a growth round for their UK industrial expansion to meet the needs of their customers in new verticals. These include companies such as Nike, who are quite keen on the sustainability performance of the product.

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