IN FOCUS6-8 min read

Private Equity Briefing: Ain't no mountain high enough

Key highlights from the November 2023 private equity event with Rainer Ender, Global Head of private Equity, Schroders Capital.

23/11/2023
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Private equity is an asset class that has outperformed most others over the past decade. However, the macroeconomic landscape has shifted, presenting new investing challenges. Schroders Capital's Rainer Ender, Global Head of private Equity and member of the Private Equity Investment Committee, has worked in private equity for more than two decades.

He is not just your average finance guru. A Swiss physicist with a PhD and an avid mountain-climbing enthusiast, Rainer is the driving force behind the Private equity business of Schroders Capital and has a wealth of knowledge and insights.

We have put together a series of key highlights from the from this event. Click to watch the short clips below.

WHERE SCHRODERS CAPITAL INVESTS

Schroders Capital play the full spectrum of private equity, with a focus on specialised buyouts in the low and middle markets, growth opportunities in Asia (namely China and India), and top-tier venture capital.

These investments, made through primaries, GP-led secondaries and co-investments, have generated IRR of 19%, 25%, and 21% respectively.

A TRACK RECORD OF RETURN

Schroders Capital have generated net IRR of 18% across all investments since 2011 – representing 8% outperformance over MSCI World (PME).

What’s more, this performance has accompanied remarkably low volatility. Over the last 40 quarters, the strategy has delivered negative return in only five of them.

SECTOR FOCUS

Schroders Capital focus on five industry sectors. Healthcare and technology make up more than 50% of the strategy, with the balance made up by consumer and, business services and industrials.

TODAY’S MARKET DYNAMICS

Investors are navigating a complex world. Geopolitical risk is elevated, the growth outlook is uncertain, achieving net-zero is becoming increasingly urgent, while social inequality continues to widen.

PRIVATE EQUITY OUTPERFORMS PUBLIC MARKETS

While unlisted markets are generally less liquid than listed ones, that risk has historically been rewarded in the form of an attractive liquidity premium.

Schroders Capital’s private equity strategy has returned more than twice the MSCI All Country World Index across five, 10 and 15 year timeframes.  

A ROBUST PROCESS

At Schroders Capital, we adopt a robust top down and bottom up process when filtering deals.

As part of our top down process, we target segments that have a good balance between capital supply and demand, less or no dependence on debt, and low correlation to the public markets. With respect to bottom-up, it’s important to invest in businesses with pricing power that can pass on inflation, high switching costs and recurring revenue.

BUY WELL – TRANSFORM – SELL UPWARDS
Our approach is about buying smaller companies at cheap prices, growing their EBITDA, and selling them at high multiples.

That sees us typically invest businesses with enterprise value of US$200m, revenue of US$100m, EBITDA of $20m and leverage of 3.5x.

SIX THEMES FOR A NEW REGIME

The investment outlook will continue to be uncertain. But amid that uncertainty, there are certain thematics, sectors and geographies we favour.

MORE OPPORTUNITIES, HIGHER RETURN

While capital in private equity is concentrated at the larger end of the buyout market, we believe the best opportunities lie in the small and middle markets. Specifically, small and mid buyout funds exhibit a healthier balance between capital supply and demand while also contributing to a higher share of top quartile performance than the market overall.

Interested in learning more about private equity?

Schroders is committed to helping you and your clients learn more about private equity. Visit the Schroder Specialist Private Equity Fund page to find out more.

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