By Jurgen Vluijmans.

A workshop on private equity, organised by ODDO BHF AM in Paris, showed that private equity remains a fixture in a portfolio, but there are additional areas of focus.

Managing Director Jérôme Marie, responsible for private equity at ODDO BHF AM, began his presentation by outlining some of the advantages of private equity: “According to us, its volatility is lower than listed assets, it is a good complement to other more traditional strategies but first and foremost, the relative and absolute returns can be attractive.”

Marie mentioned that on a 15-year investment horizon, private equity stands out head and shoulders above other more traditional asset classes such as US and global equities, bonds, commodities and infrastructure: “in the case of private equity, we are sitting on an annualised return of over 13% over that period. That’s impressive”.

Even during periods of stagnation and recession, private equity provided an additional return, called alpha, over other listed asset classes, amounting to 900 basis points, Marie stated.

Stand firm

Marie argued that private equity can continue to do well during difficult periods in equity markets, citing the example of 2022, when stock markets fell sharply. “In that year, private equity remained fairly stable. We see the same picture when we look at our portfolio of some 600 funds from 300 managers. Exit valuations were also on average about 27% higher than the value on the managers’ books 12 months prior to disposal. This shows that the valuations were not too optimistic, quite the contrary. We have seen limited repricing over the last 2 years, and do not expect any material downwards adjustments in the short term either, quite the opposite instead in our view. “

Misconception

Marie also exposed a misconception, notably that too much debt would affect private equity performance in a negative way. “In recent years, we have indeed experienced a rapid and sharp rise in interest rates, but this has not meaningfully affected limited- and moderate-leveraged buyouts.”

Features

ODDO BHF AM’s opinion is that market timing doesn’t apply to private equity, Marie says, but we actively manage our portfolios. ” We do invest in the strongest convictions and aim to spread risk by constructing portfolios across different funds, themes and managers” concludes Marie. “We have access to the best managers, invest globally, both in primaries and secondaries, and co-investments.”