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Diversification and Spice

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London (HedgeNordic) – A common model applies across illiquid alternatives including private debt and infrastructure: external investors can invest alongside Allianz, accessing the same dealflow in terms of primary and secondary fund investments and co-investments into individual deals. In late 2021, over EUR 500 million have been raised in private equity and over EUR 1 billion for infrastructure. “

Allianz has been allocating to private equity for 25 years. We have 22 investment professionals in three hubs in New York, Munich and Singapore and we form long-term relationships with over 90 managers, often investing in multiple vintages.,” says co-head of private equity, Michael Lindauer (pictured ). The long-term view means that money multiples matter a little more than internal rate of return. Nonetheless, the IRR return target range of 10- 13% through a full cycle is mid-range for private equity.

Allianz aims to diversify by vintages, but past performance is only one criterion used in making a bottom up assessment of managers. The return target is a weighted average across a broadly diversified range of private equity and a small amount of venture capital; individual managers might have return targets ranging from high single digit to above 20%.

“The spice bucket of 40% seeks higher risk and return from sector funds, emerging strategies, and somewhat smaller funds.”

“Some 60% of the book is in “base” strategies, which invest in mid to large cap companies with more predictable returns, capped upside and limited downside in more efficient market segments. The spice bucket of 40% seeks higher risk and return from sector funds, emerging strategies, and somewhat smaller funds but certainly not the smallest in the space.

They are medium to large size funds running at least EUR 150 million because Allianz’s typical ticket sizes is between EUR 40 million and EUR 200 million and neither Allianz nor its managers want one investor to be more than 25% of a fund,” describes Lindauer the investment strategy.


Most of the managers blend growth and buyout investment styles, though buyouts probably make up the majority. In the current portfolio, there is a sector bias in favour of healthcare and technology, which have profited from digitization and held up well in the Corona crisis thus far. Sector specialist managers are often used, especially in the United States, focused on dynamic sectors such as industrial services, digitization, internet, and new business services.

In Europe, country specialists are more likely to be found in the spice bucket, where Northern Europe and the Nordics are important exposures. Overall the aim is for even weightings between North America, Europe and Asia, with a significant focus on China. Venture capital is capped at 10% and is only pursued in Asia, where Allianz Capital Partners sees more scope for rapid ramp ups in China’s vast market.

Managers are invested in innovative B2B strategies, FinTech, and healthcare services. There is some appetite for distressed and special situations strategies, and of course some funds will unintentionally land in this category. If funds underperform, they can sometimes be sold on the secondary market or as a last resort Allianz Capital Partners has sometimes restructured funds.


Primary funds are the bread and butter of the strategy. Secondaries are rather opportunistic, ranging from 0% to 10%, and were highest in 2009-2010 when valuations were lowest. “We are constantly monitoring all investments to decide whether to hold them, or sell on the secondary market,” says Lindauer.

Co-investments follow a well diversified approach. The allocation is up to 20% and helps to reduce average fees, but beyond this Allianz sees limited scope for fee savings. “We would not invest in a bad fund with a good fee structure,” affirms Lindauer.

Allianz Capital Partners charges fees on its fund of funds’ commitments to underlying managers but not on investors’ commitments to the fund of funds. The Luxembourg closed end has an investment period of four years and has a total fund period of 14 years, with no automatic exit routes before then.

“Higher interest rates could pose a threat to valuations, but we judge that rates are starting from such a low base that this is not a short term worry.”


Exposure is unleveraged at the Allianz level, while underlying managers on average use a 50% debt to equity ratio for their underlying transactions. Some investors are becoming worried about leverage, valuations, the macroeconomic outlook and stagflationary scenarios, but Allianz’s low double digit return targets for private equity have not been reduced in recent years. “We expect that companies with strong pricing power should fare well under inflation. Higher interest rates could pose a threat to valuations, but we judge that rates are starting from such a low base that this is not a short term worry,” says Lindauer.


Allianz has been a UNPRI signatory since 2007 and integrates ESG into all stages of the investment process. ESG starts with some exclusions and Allianz has excuse rights over areas such as coal, weapons and firms subject to sanctions (though in practice Lindauer expects most funds will avoid these anyway). The manager has big ambitions to improve data quality and move from a case-study based approach to science-based targets for carbon reduction.

Allianz belongs to the Net Zero Asset Owner Alliance, and has recently joined forces with other private equity investors at IC International, which is supporting the transition to a low carbon economy. Lindauer sits on the ESG Advisory Council of the International Limited Partners Association and is helping to develop standards and processes for KPI reporting and targets.

Allianz Capital Partners is not yet confident enough to label its private equity fund of funds as category 8 under SFDR (though it has other illiquid strategies that are both category 8 and category 9). This cautious stance is partly because Allianz are making indirect investments which limits the influence on underlying managers’ – and ultimately investee companies’ – data and reporting. “Currently, the quality of data will vary considerably between funds and underlying companies. The long term aspiration is to become category 8 under SFDR, but the SFDR itself is at an evolving stage. The technical standards are being honed and refined,” explains Lindauer.

For more information visit: www.allianzcapitalpartners.com

Important information Private equity investments are highly illiquid and designed for professional investors pursuing a long-term investment strategy only. Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by BaFin (www.bafin.de). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.

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