“The LSE AIC reinforces the gradual transition from academia into the world of alternative investments,” says PhD Finance candidate, Daniel Drabarz, who travelled from Warsaw in Poland to attend the two-day conference held at London’s Marriott Hotel in February 2020. “It was a great opportunity to listen to interesting speeches from alternative investments leaders. What they said provoked several stimulating discussions about changes to the industry and its challenges”, Drabarz tells me. I met other students who had travelled from Ireland; France; Spain; Germany; Sweden; Italy; Switzerland and the Netherlands to attend, while others closer to home had endured overnight buses from colleges in the North of England to be there. According to Aditya Rajan, the President of the society organising the conference, it is now in its 15th edition and has had over 4,000 student delegates attend over its lifetime. Past speakers at the conference have included Paul Singer of Elliott, Marc Rowan of Apollo and David Rubenstein of The Carlyle Group.
The 320 student delegates attending this year came from 100 different universities – mainly in Europe, though some travelled from as far as Rice University and MIT in the United States. The split between undergraduates, masters and PhD students seemed to be fairly equal with most delegates coming from a finance and economics background.
The number of women students attending bodes well for many firms’ long-term aspiration to redress the gender balance in finance.
Aditya tells me that with an average of 5000 applications every year from would-be delegates, the acceptance rate hovers around 6 percent, in line with average admission rates at Ivy League and Russell Group universities. He explains that the extensive selection process is professionally carried out by Dartmouth Partners, a London-based recruiting firm which manages applications for many renowned private equity firms and asset managers.
The number of women students attending bodes well for many firms’ long-term aspiration to redress the gender balance in finance. “We are aware that the gender split is still a very pressing topic, thus we are aiming for at least 45% female delegates. In addition, we hosted an exclusive female networking event with some of our sponsor firms for women to connect and promote the importance of diverse representation in alternatives,” notes Wendy Yang, Vice President of the AIC. Some of the conferences’s past and present sponsors, including Citadel, law firm Dechert LLP, and asset manager Man Group, have featured in The Hedge Fund Journal’s annual “50 Leading Women in Hedge Funds” report published in association with EY. Sponsors cover most of the costs of the conference in order to keep ticket prices down for the student delegates.
Speakers at the event are drawn from a diverse range of finance specialities: hedge funds; private equity; infrastructure; real assets; law; advisory; fund placements, and venture capital. “In addition, we put emphasis on the variety of topics rather than solely the firm background so we can offer our delegates a diverse agenda,” says Jesse Tan, Co-President of the conference. Most of those presenting are private firms but there were also some large Canadian pension funds which run a variety of traditional and alternative investment strategies in house.
Some firms were speaking off the record or subject to Chatham House rules. Here we highlight some insights from some of the keynote speakers who were talking on the record.
Man GLG’s CEO, Teun Johnston, (who has featured in a cover story in The Hedge Fund Journal) manages the discretionary investment management arm of Man Group, Man GLG, which employs 118 investment professionals running 30 strategies – both long only and alternatives. Johnston stressed that great portfolio managers do not have to have gone to the best university as he has found no correlation between their alma mater and their investment performance. He revealed how technology and quantitative analysis of data have dissipated the information edge by giving all investors access to information flows that were once restricted to discretionary investors. Man GLG fund managers are now seeking to obtain an advantage by monitoring alternative data, such as social media chat in China, to gauge demand for luxury goods, and are using machine learning techniques, among other tools, to identify more complex relationships. Man Group’s quantitative investing AHL unit has a whole team focused exclusively on machine learning. Man GLG offers investment managers formula-based rather than discretionary bonuses.
Johnston also discussed the personal qualities behind many successful fund managers, which include a competitive spirit, iron discipline, and emotional resilience because different styles of investment management will inevitably undergo periods of underperformance, with value investing being a recent example.
Personal integrity was also a key theme for SkyBridge Capital founder and co-Managing Partner, Anthony Scaramucci, who takes pride in honesty and accountability, and claims that SkyBridge has never experienced any breach of compliance. Scaramucci has been fired twice: first by Goldman Sachs in 1991, which subsequently re-hired him, and then by President Trump in 2017, and has always been quite candid about these episodes.
Illiquid alternatives, including private equity, have recently been garnering more inflows than have liquid alternatives such as hedge funds. Lionel Assant, Senior Managing Director and European Head of Private Equity of the world’s largest alternative asset manager, Blackstone, discussed its private equity investments, which have included two units of Scandinavian banks in the Baltics, and divisions of Thomson Reuters. The firm is prepared to pay multiples as high as 15 times EBITDA for secular growth stories, rather than focusing on value industries. The Blackstone network and process is then used to scale up high growth companies that have included leisure group Merlin Entertainments, which owns Legoland, Sealife Centres, Madam Tussauds, London Eye and Alton Towers. Though Blackstone remains bullish on the opportunity set, it has reduced return expectations down from the mid-20s to the high teens.
Another growth oriented private equity firm, Permira, has delivered investors an average return of 23% net over the past 35 years. Its co-managing partner, Kurt Björklund explained how the firm takes a ten-year view on investments. The aim of the firm’s 120 investment professionals is to take mainly control stakes in companies and exit for four, five or six times the amount invested. In its latest funds, Permira has paid as much as 11 or 12 times EBITDA to buy into companies such as TeamViewer, Flixbus or Dr Martens. It specialises in several sectors including enterprise software, online businesses, consumer, data and healthcare contract multiples with technology making up to 35-40% of its c €44bn of capital. As well as its core business of private equity, Permira has branched out into a complementary area of mid-market private debt including direct lending, structured credit and CLOs; this has a lower return target of eight to ten per cent.
ESG is attracting growing attention throughout the investment industry and Björklund predicts that climate change will be a significant driver of change for the private equity industry. Jonathan Lavine, Co-Managing Partner of Bain Capital, concurred, asserting that “research shows ESG does not detract from returns”. Bain now runs an “impact investing” strategy.
The AIC already has a global following among students and the event itself could be going global soon. Jesse Tan, Co-President of the AIC, also reveals the team’s plans to bring the benefits of the AIC to students in Asia later this year with the first ever “AIC Asia” conference being held in Singapore.