In the first episode of Titanbay's Fireside Series, Benjamin Gargui - Head of Manager Selection at the Edmond J. Safra foundation - joined us to talk portfolio construction, manager selection and long-term success in private markets. Below the episode's key takeaways:
1. Keep your end objective in mind The starting point for any portfolio is what you want to achieve. Whether you are looking for wealth preservation or capital creation will have a big impact on the optimal balance of your portfolio, alongside your appetite for risk.
2. Think long term PE is a long-term investment and you need to be able to commit to over decades. The key to success is achieving stable and repeatable returns over a long time, such that the returns from previous investments cover (and surpass) the capital calls of later investments.
3. Model your cashflow Effective cash flow management is key to success, with careful planning necessary to cover both committed capital calls as well as making new investments. Investors should be looking a few years in advance for who might be coming to market to ensure they don’t miss out on the next raise.
4. Diversify appropriately Diversification is essential, but different strategies call for different investment tickets. Generally speaking, larger funds benefit from scale and have built-in diversification and thus call for bigger investments. Conversely, more niche or sector-focused strategies are less diversified and therefore should receive more measured tickets.
5. Invest in the team, not the strategy Performance of a particular strategy can vary widely between managers, but good managers tend to produce consistent good results. Investing in top quartile, or even top decile, funds is essential, particularly in VC where you see the greatest variance in performance between managers.
6. A blend of data and relationships In terms of manager selection, nothing beats experience and close engagement over a long period of time where you build confidence in an investment team. However, advisors can be invaluable in providing large amounts of data, in particular benchmarks, which can help guide your decision making.
7. Never skip a vintage It is impossible to predict when the best vintages will come, and so it is critical to maintain exposure to strategies across all vintages. Further, once you have invested with a great manager, it is important to stay invested across vintages to maintain the relationship.
8. Size matters When it comes to buyout, the large, established players have the resources to look at more deals, attract the best opportunities, and resolve any portfolio issues. This typically drives strong, stable, predictable performance, and should be core to any allocation.
9. When to move on While maintaining GP relationships at the core of your portfolio is important, watch out for drops in performance, out of favour strategies or key personnel departures as a signal for when to move on.
10. Don’t be swayed by IRR When assessing performance, always look at the money multiple and not only the IRR. The IRR can provide a distorted view of the performance particularly in the early years of a fund.
Webinar replay here (members-only access).
About the Speaker
Since 2007, Benjamin has been leading Manager Selection at EJS, the investment arm of the Edmond J Safra Foundation - one of the most important foundations in the world. Prior to that, he spent 6 years at Goldman Sachs advising UHNWI. Benjamin holds a Masters from Universite Paris Dauphine and an MBA from The Wharton School. Benjamin currently sits on Titanbay’s Investment Advisory Board.