In private markets, liquidity is usually top of the agenda for individual investors. How can you satisfy a client’s need for liquidity in an asset class that is inherently illiquid?
For Italian asset manager Azimut Group, this question is front and centre as the firm looks to expand its private markets platform with a view to ‘democratising’ the asset class.
‘It’s a tough question,’ said Vittorio Pracca, head of investor relations. ‘In a base case scenario, our clients need something between 10% to 15% of their wealth every year for unplanned expenses such as a wedding.
‘In theory, if something bad does not happen, the rest they keep in their account. But of course, with retail clients if something unplanned is happening they need to be able to get at least most of their money out.’
Azimut launched its first private market fund in 2019, which was a buyout strategy focused on Italian SMEs, the fund has a minimum threshold of €5,000.
As a typical buyout fund however, clients must lock up their money, sometimes for at least 10 years. Therefore, the firm put a cap on how much of an individual client’s wealth could be invested in this strategy, anywhere from 0 to 30% for more sophisticated investors.
‘We always need to monitor the client’s asset allocation,’ Pracca said. ‘Depending on the client’s risk and returns, the private market illiquid component can never be beyond a certain threshold. If it’s a very retail client the percentage is going to be smaller, up to 5%. If it’s a very sophisticated client, it can be pushed up to 30%.’
Azimut recently published its results for 2020 and revealed that it will be launching several new products in private markets. These include a €250m strategy focused on state-guaranteed loans and commercial credits invested through fintech platforms called Eltif Pir Digital Lending and a €300m euro private debt strategy called Fia Private Debt Multistrategy.
It will also add a private investment in public equity (Pipe) and a venture capital fund to its Alto range.
With approximately €2bn split across various private market strategies, Pracca said the platform needs bigger scale so that it can provide liquidity to clients in innovative ways.
One of the areas Azimut entered last year is seen as a potential solution.
Private equity firms looking to take advantage of the growth of their industry have turned their attention to buying up minority stakes in other alternative investment managers.
This approach, which is called GP-stakes investing, has been driven by some of the biggest firms in the industry, such as Blackstone, Goldman Sachs’ Petershill and Neuberger Berman’s Dyal Capital Partners.
In 2019, Azimut set up Azimut Alternative Capital Partners (AACP) in the US to take stakes in private markets managers. AACP, which is led by former managing director at Dyal Jeffry Brown, aims to acquire around a 20% stake in businesses that have between $500m and $3bn in assets under management.
Unlike some other similar managers in this arena, Azimut is not a passive owner. The firm works closely with the management of the company it invests in to create new products and explore investment opportunities. One of the goals the Italian group has is to use this influence to develop further products for retail clients.
Its first deal was with private credit manager Kennedy Lewis Investment Management. Brown said the teams are working together to roll out a product.
One of the areas AACP is also looking into is taking a stake in a firm that’s in the secondary space, which involves buying investor stakes in existing funds, as a result providing liquidity to existing investors if needed.
‘We are trying to find someone who can be a solutions provider with us. We can own a stake in them and offer a special liquidity fund to our Azimut clients. That’s hopefully the way we get there,’ Brown said.