Women in PE: Schroders Capital's Lukas on impact investment and supporting GPs through fundraising woes

The private equity industry has seen a period of rapid change in recent years, Lukas noted, with 2022 marking a stark contrast to 2020-2021, a time in which many GPs took just one to two years to deploy their funds. Sponsors made their investment decisions against a backdrop of great opportunities, high valuations and extremely cheap debt, she noted.

Early 2022 and the onset of the Ukraine crisis marked the beginning of a large mismatch between buyer and seller explanations, she noted. Coupled with the fact that debt has become more expensive, there has been a slowdown in deals completing, but GPs are still investing in high-quality assets, she said.

The nature of the current market is necessitating a closer relationship between GPs and LPs in many cases.

"I get calls from my GPs on when they should launch, how long they need to raise and be open for, and whether they should go with a lower target size than originally planned to wrap up a bit more quickly," Lukas said. "GPs and LPs need to stay in contact to make this work – for example, we can come into the first close with a smaller ticket, then come in with more later."

Maintaining its communication with and support to GPs should allow the firm to keep deploying in spite of the uncertainty ahead. "The near-term is undoubtedly going to be difficult, but with difficult times come opportunities," she said, highlighting the importance of keeping a steady investment pace in recessionary years, given that they can produce attractive vintages. "Funds benefit from ‘time-diversification', whereby they deploy capital over several years. This allows funds raised in recession years to pick up assets at depressed values as the recession plays out."

Co-investment uptick
Alongside its continued pipeline of fund investments, the firm expects to see a strong flow of opportunities in late primaries and co-investment deal flow, Lukas said. "GPs can expect longer fundraising periods and might even have to settle with a smaller fund size, which is the driver for more co-investment opportunities," she noted.

According to its website, the themes of Schroders Capital's co-investments include technology, consumer behavioural change, essential products and services (including healthcare), and deglobalisation.

The firm's recent co-investments include Dafa Group, a Denmark-based foam and rubber materials producer that serves sectors including construction and wind power. The firm invested in the business alongside SME-focused buyout firm Catacap in March 2022.

"Being able to source good co-investments ties into how I work with GPs," said Lukas. "I put a lot of emphasis on building a strong relationship with them, so that I am one of the first they call for any potential situation. A key focus after the pandemic has been to meet our GPs in person to build up trust and secure this strong relationship."

Schroders Capital therefore plans to keep investing with its high-performing managers, building a diversified portfolio, she said, even if it has to commit smaller tickets in certain cases. "During 2021 we had a lot of distributions as our GPs saw opportunities to exit at high prices," she said. "This continued into 2022 but we do expect it to slow during 2023."

The firm invests globally in venture capital, growth and buyout opportunities, with its European private equity strategy focused on "transformational opportunities" in primaries, co-investments and secondaries. The firm has previously backed funds from managers including Hg, Bridgepoint and Synova, as well as a EUR 500m three-asset continuation fund formed by G Square Capital last year, according to Unquote Data.

"We look for GPs and co-investment opportunities where we can create value through expansion, either geographically or growing product offerings, professionalisation, and consolidation or buy and build," she said. This opportunity comes from the fact that European SMEs are generally export-oriented, and their markets are more fragmented than in the US, with a focus on "made in Europe", she said.

Driving ESG
Schroders also plans to continue to support its GPs in areas including ESG, a topic that occupies much of Lukas' focus. "Not all GPs in our space have been the fastest to adopt ESG practices, given the resources required and the size of their funds," she said. "But we have dedicated ESG sessions with our GPs pre-investment, and we negotiate ESG requirements in our side letter as we need those reporting items."

Schroders Capital takes an advisory board seat to support this development where possible, she added. "Post-investment, we are involved with monitoring and pushing the GP to move forward," she said.

This monitoring includes the promotion of diversity, equity and inclusion (DE&I) externally with its GPs. "One of our GPs had a white, male-only team, and I put this on the agenda for every single meeting to help drive positive change," she said. "They now have 25% women in their investment team."

Other LPs are also taking the initiative in this area, she noted, citing an example of one GP within Schroders' portfolio who was told by one LP that it would not commit to the sponsor's next fund "without clear evidence of increased diversity in their team." This is a topic where Europe still has room to drive forward, Lukas said, given that the continent remains behind the US in this area.

Impact in focus
Schroders is looking to make more impact investments in 2023, with a particular focus on the environment, Lukas said. The firm is eyeing an increase in Article 9 fund investment opportunities, as well as co-investments and GP-leds."We are looking to take a leading role as an LP where we see a good investment case," she said.

There are a number of new managers who are taking advantage of the increased interest in the impact space by launching new funds, but due diligence for these opportunities is more challenging as they do not have a track record, she noted. "We're also seeing more established managers raising impact strategies with proven track records and case studies, including high-profile managers doing spin-outs in the buyout space," she added.

Schroders' impact investment themes have been formed in line with the UN SDGs and include clean water and sanitation, as well as affordable and clean energy for environment-focused opportunities. When it comes to social goals, Schroders focuses on topics including education and gender equality. The firm views impact as a subsector of its overall dealflow, Lukas said.

"I expect to become more involved in this area," she told Unquote, given that engagement on this topic has now become an embedded part of Schroders' approach. Schroders Capital will concentrate on launching new Article 8 products and fundraising for dedicated impact products in 2023, she added.

Democratising the industry
In addition to its regular fundraising and mandates, Schroders also plans to step up its offering in the retail investing space, Lukas said, noting that the firm is "committed to making PE more accessible for individual investors."

This is not only "the right thing to do", she said, but accessing this alternative pool of capital also allows Schroders to diversify its investor base as it continues to be a "strong partner" to its investors and its GPs.

The firm already manages a circular economy-focused semi-liquid product that allows individuals to access impact private equity, she told Unquote. "We also have a semi-liquid vehicle that allows for a lower ticket than a normal PE fund, with investors redeeming on a quarterly basis if they want to, although we recommend holding for three to five years," she said.

While Lukas remains positive on the prospects for more investors gaining access to private equity through new structures, she also acknowledges that regulatory changes, technological developments and investor education are still needed to continue the democratisation process.

Forging change
Lukas leads Schroders Capital's primary and co-investment strategies in the UK and the Nordics, working within the firm's technology and software focus group. She sits on Schroders Capital's sustainability and impact committee and is portfolio manager for one of the firm's impact mandates.

She spent five years in corporate finance and joined Schroders six years ago, having worked with PE managers involved with M&A in the Nordics in her role at Deloitte. "I wanted to follow an investment for a longer period of time, not just go from one project to the next," she said. "Moving to the other side of the table allowed me to leverage my knowledge of the Nordic PE space and build long-term relationships with Schroders Capital's clients and GPs. I've also found that it's easier to combine family life with a fast-paced career in PE versus one in investment banking."

Lukas spearheads internal DE&I initiatives with the aim of providing more support for women in the workplace. Schroders Capital's private equity team had an all-time high of women being on maternity leave during the pandemic, she said, which drove her to investigate whether the firm could encourage more women to stay in the industry after having a baby.

This led to the formation of a "from baby to business" support group, she said, which saw Lukas bring together young mothers on maternity leave, plus those who had just returned. "We talk about the return-to-work challenges and how to combine daily logistics and pressing deadlines," she said. "It has been extremely well received."

Schroders Capital's global head of private equity, Rainer Ender, has also been able to benefit from the group's insights, Lukas said, adding that "it's important that our male colleagues understand the challenges we face on a regular basis."

Given that private equity is a long-term career path, it is difficult to effect immediate change, although Schroders is pushing for more diversity at a junior level and to improve retention, Lukas noted. "In a perfect world, I would want to see women have the same opportunities to advance more quickly," she said. "But we also need to treat people more equally and the problem is that paternity leave terms are very different to their maternal equivalent, even though improving this is a key way to retain people."

In addition to gender equality, promoting mental health support is a topic close to Lukas' heart. "The industry has gradually realised that we perform better when we acknowledge that people have interests beyond their careers," she said. "Although we can't change the fact that the industry often involves pressing deadlines, we need to provide people with the opportunity to recharge between projects with clear routines to improve well-being and allow for creativity."

Schroders Capital is therefore focused on flexibility, she said, noting that this aspect of the firm is "incredibly important" to her.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• LPs
• GPs
• UK / Ireland
• Benelux
• DACH
• France
• Nordics
• Southern Europe
• Women in Private Equity
• United Kingdom
• In Profile