Article written by Anthony Macdonald in Chanticleer. Published in The Australian Financial Review November 27 2024.
Australia’s private equity firms, for all their talk about double-digit returns and flash offices, have never properly cracked the Australian investor market.
Yes, you can search through Australia’s super funds and find them backing a domestic PE fund or two – Aware Super names Adamantem Capital and Allegro Funds, for example, while Cbus has money with Next Capital and Potentia – but their investor list hardly reflects the fact Australia has a $4 trillion retirement savings system and a $230 billion sovereign wealth fund that loves PE.
Most of the money at Australia’s oldest, biggest and best shops – Pacific Equity Partners, Crescent Capital, Quadrant Private Equity, for example – still comes from US, European and Middle Eastern investors. While our big super funds fret about fees and benchmarks. It has been like that for 20 or 30 years.
Where that is changing, is the ultra-high-net-worth end of the market.
If you ask PEP or Crescent how they expect to raise their next buyout fund (or one of their growing number of other strategies), they’re tapping into wealthy Australian family offices, business owners and even rich professionals. PEP has raised $2 billion from that money, beginning from a standing start, in only a few years.
One name consistently comes up: LGT Crestone, an Australian wealth management shop that was spun out of UBS almost a decade ago and is now owned by a European royal family.
Chief executive Michael Chisholm says the firm has about $6.5 billion of clients’ money in private equity and other alternative assets (venture capital, hedge funds, unlisted infrastructure), up from about $150 million when it was spun out of UBS in 2016 – huge growth.
From what we hear, that $6.5 billion includes hefty commitments to a bunch of Australian PE and venture capital managers and should increase by about another $1 billion when it gobbles up Commonwealth Bank’s last remaining advice business.
Chisholm says that the alternatives bucket now accounts for 20 per cent of the firm’s assets under management – up from 1 per cent in 2016. Some clients have more than 20 per cent; really wealthy families, for example, who can afford to think very long term and do not have to worry about potential liquidity next week, month or year, he says.
“Private markets are not just nice to have for high-net-worth, ultra-high-net-worth portfolios. They’re absolutely essential,” Chisholm says in LGT Crestone’s office in Sydney, sandwiched in Chifley Tower between rivals UBS and Morgan Stanley Wealth Management.
The key, Chisholm says, is getting access to the right PE managers. He says the difference between top and bottom quartile private markets firms can be 10 per cent or 20 per cent a year, while in listed markets it is often 1 per cent or 2 per cent.
To do that, you need two things: an investment team to properly assess the managers and the scale to be relevant enough to be included in good firms’ fundraising rounds. You also need clients willing to pay PE firms’ fees – the thing that still spooks our big super funds. PE firms typically charge 1.5 per cent or 2 per cent a year to manage money and take 20 per cent of the outperformance at the end of the fund.
Chisholm says LGT Crestone has 21 people in its investment team – they’re the ones who study managers, think about model portfolios and asset allocation, etc – and $32 billion in client assets under management. The CBA deal will add another $5 billion and 40 staff (including 20 advisers, all of who have signed to switch employers). LGT Crestone already has 110 advisers.
But the trump card is being part of the wider LGT, a global wealth manager owned by the royal family of Liechtenstein and has about $500 billion in client assets. He met the family at a software conference in Singapore – they both use the same supplier, Avaloq – and the Europeans bought the Australian firm in full not long after.
That tie-up gets the Australian advisers a look into fundraisings from the PEPs and Crescents globally – and makes LGT Crestone able to compete with big players Morgan Stanley Wealth Management and UBS (back in local wealth management since buying Credit Suisse last year).
LGT Crestone still competes with domestic firms such as Wilsons, Shaw and Partners, Bell Potter and Morgans, some of which are still considered more retail stockbrokers than wealth managers within the industry and by clients.
Chisholm says a lot of LGT Crestone’s clients like staring a PE investor or VC fund manager in the eyes before handing over a cheque. “Hearing them speak about their philosophies on managing portfolios, where they’re getting their competitive advantage. You are building a long-term trusted relationship,” he says.
The firm hosted Swiss giant Partners Group’s co-founder Urs Wietlisbach in Melbourne and Sydney last week and Mario Giannini, the former chief executive of large PE allocator Hamilton Lane, the week before.
What they’ve built is a powerful fundraising shop – that’s why we’re interested. Other firms are also doing it, but LGT Crestone is the one we keep hearing about inside the PE industry.
LGT Crestone has gone some way to helping Australian PE crack the holy grail; non-institutional Australian money. The industry tried all sorts of methods – they even tried using public markets to raise private market allocation funds – but mostly fell short. This is still a trickle in the scheme of things, but the firms have gained traction. Is it a good thing? We’ll have to ask investors in five or 10 years’ time.
It obviously works for LGT Crestone, which charges fees based on a client’s assets under management. Chisholm says the firm is paid the same whether a client’s portfolio is in listed or unlisted markets – it does not charge a premium for PE access, for example. He doubles as a client, so he would know how a conflicted fee structure may feel.
Chisholm says LGT Crestone makes more than $170 million in revenue a year. Less than 2 per cent of that comes from selling IPOs and other capital markets raisings to clients – where old-school retail brokers try to make their money, he says. The game has changed.
What’s also changed is the sheer amount of money looking for a place to invest. Chisholm says there are hundreds of wealthy families and business owners who have never appeared on a Rich List or sought any public profile, sitting on substantial wealth. They are LGT Crestone’s prime targets.
About one-third of its clients have $100 million or more invested via LGT Crestone, about another third would have $25 million to $100 million and the final third less than $25 million, he says. The typical client would invest via multiple legal entities, including a family trust and self-managed super fund.
