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“This has to be the most stunning view from any conference venue.”
First-semester Glion students may eventually become so familiar with the spectacular view over Montreux and Lake Geneva that they no longer notice it. But for the visiting academics and market practitioners making their first trip to Glion campus, the stunning vista never lost its magnetism.
Not that there was too much time to enjoy the beautiful scenery. The 1st Annual Private Capital Conference program was as content-rich as it was fast-paced; mirroring the increasingly dynamic world of private markets that it focused on.
Conference Day One – committed debate
Day One was dedicated to the market practitioners – in particular the funds (General Partners) and their investors (Limited Partners).
Proceedings kicked off with a Masterclass on Tactical Asset Allocation presented by Prof. Dr. Cyril Demaria, Head of Private Markets at Wellershoff & Partners, author of five books on private equity and guest lecturer for Glion’s new MSc in Finance, Real Estate and Hotel Development.
“The established strategic asset allocation frameworks used in the market are outdated – most of them are based on academic research dating back to the 1950s, plus they are focused on the more liquid listed stocks and bonds,” he noted.
“But private markets operate on longer timeframes and are less liquid, so these established tactical strategies are difficult to apply in this context.”
Dr. Demaria also became the first of many Conference presenters to ‘rubbish’ the persistent use of internal rate of return (IRR), describing it as “irrelevant to measure performance”.
A lively panel discussion on private markets investing followed, hosted by Prof. Ludovic Phalippou of University of Oxford, Said Business School and featuring a mix of investors as well as representatives from consultancies and research houses.
In typically combative fashion, Prof. Phalippou challenged the private equity funds to do more to earn their fees. “From 2006 to today the private equity industry has taken $400 billion in fees, to deliver returns no better than the S&P 500 (stock market) index,” he said.
Eamon Devlin, Partner at asset management consultancy MJ Hudson, added, “The biggest issue is the ‘megafunds’ with assets over $5bn. They are now earning $300m a year in fees – a ridiculous amount.”
David Smith, Managing Director of Capital Dynamics, challenged, “Do fees matter? Of course they do.”
Next up was a set of four ‘Investment Solutions’ presentations, chaired by Serge Darolles, Professor of Finance at Université Paris-Dauphine and a member of the conference organizing committee:
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- Matthew Craig-Greene, Managing Director at MJ Hudson previewed the firm’s new Private Equity Fund Terms Update.
- Christophe de Dardel, Head of Private Equity at conference sponsor Unigestion, presented his firm’s solution for capturing private equity risk premia through matching against listed stocks operating in equivalent business sectors.
- David Smith, Managing Director Co-Investments at Capital Dynamics, spoke about how this asset manager approached co-investments, as well as reiterating its enthusiasm for the mid-market.
Last but not least, the keynote address belonged to Prof. Morten Sorensen, Professor of Finance at Copenhagen Business School. He presented detailed modelling designed to determine a Limited Partner’s optimal investment policy, taking account of individual approaches to risk.
“Many studies have looked at individual private equity deals and funds,” he said. “But there’s a lack of understanding of how Limited Partners should manage a program of investments in funds.”
His modelling sparked significant debate, which continued on into the gala dinner which closed Day One, and which gave participants the opportunity to sample exquisite fine dining in Glion’s signature restaurant, Le Bellevue.
· Discover our exclusive report on Day Two of the Private Capital Conference.
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