FEG Investment Advisors has been active in private markets for more than 20 years and has been managing discretionary capital for more than a decade, mainly for endowments and foundations. In total, FEG’s clients have invested roughly $6 billion in private capital in net asset value, representing almost $11 billion in total commitments.
Fundwise recently spoke with Susan Fasig, head of private capital at FEG, about why it favors the smaller end of the market and why paying extra attention to compliance may be the key to being on the road to receive institutional investor dollars.
Institutional investors are usually limited in their ability to invest on the smaller end of the market, can you please explain why accessing smaller funds is important to FEG?
We’re in a pretty sweet spot. Size is a challenge for very large investors that can’t access smaller funds. We value smaller funds. There’s a lot they can do on the value-add operational side of things. You’re really getting returns from those factors that are not necessarily correlated to the market. There’s certainly not as much leverage. There’s also better pricing and managers can do more to drive value. We believe we can get better returns at the smaller end of the market over time. In buyouts, financial markets and low interest rates have benefitted larger buyout transactions, but we have tended to shy away from the very large cap funds.
Is that also true on the venture side and what are your favored sectors there?
We value that on the venture and growth side as well. In venture and growth sectors, we have areas of focus that include biotech and tech and we focus on the smaller firms that are seeding new businesses or are the first institutional capital. These investments don’t need a lot of capital to start. Biotech investments in particular have been tremendous performers over the last decade but we think there’s still a lot of growth there yet to happen given the dynamics in the industry around drug development, technology and genetic research and the application of that technology, which will continue. In VC, we have had success with smaller, early stage funds and we’ve seen a lot of dollars coming in very late in the cycle supporting companies staying private longer. Many big firms have been putting a lot of money to work very rapidly. They’ve been buying things out of the funds that we’re invested in, so that’s been great.
What other strategies are particularly attractive lately to FEG?
We think about technology and software really taking over the world. That’s another area we think has a lot of room to grow. We’ve seen the growth of the growth equity segment, depending on how you classify that, whether it’s in the buyout bucket or in the venture bucket. We lump it in with our venture and growth equity. That has exploded with the application of all the technology that’s in place today. We think it continues to have a lot of legs and to offer some attractive opportunities in particular relative to some of the longer-duration strategies of early stage.
Regarding energy private equity, we continue to be open to these opportunities but selectively of course. We also see a lot more happening in clean energy and energy transition. That’s depending on the client. Some are very interested in that. Others not so much. We have a broad base. We look at it with a measured eye.
What is your process when it comes to sourcing new funds and how do you make sure you have access to the best funds out there?
We think sourcing is a really critical part of the process. We try to make a big funnel at the top and source through our LP and GP network. Ideas come through our clients sometimes. We use select marketing agents that know us pretty well and that we’ve worked with for a long time. Generally tracking industry news and participating in conferences is important too. And we get a lot of inbound calls and emails.
What’s the best way to get a first meeting with FEG?
We have a relatively small team so any kind of introduction, if you have a point of connection, would be helpful, through LPs or GPs that know us or through marketing agents. We do get things through email. If you can find a point of connection that’s probably the best way.
Four Things to Know about FEG:
- The firm signed on to UN PRI this year and is using the ILPA template to track diversity data with underlying managers.
- FEG’s commitments average $20 million but can range pretty significantly depending on the strategy, the timing and the clients.
- First commitment to a new relationship usually starts as low as $2 million to $5 million.
- In the private credit space, FEG has at times committed as much as $100 million on relationships that are more broad based and more established fund manager groups.