In a , Delano reported on the result of a performance review on private asset investments by Norges Bank Investment Management. NBIM concluded that leveraged buyout funds “outperformed public equities, on average, by 3% to 4%,” annually whereas venture capital and growth equity funds “have underperformed by 1% to 2%,” on average. The study reviewed vintage years from 1985 to 2016 with performance data up to 2Q23.
Originally coming out of the BIL
Luxempart (LXMPR) was originally started as Bil Participations 35 years ago, as a subsidiary of Banque Internationale à Luxembourg, managing director told Delano. Penning explained that the LuxSE listed investment firm took advantage of the , which offered tax incentives to retail investors and promoted investments in Luxembourg companies such as SES.
Acquired by a holding company controlled by the Foyer Group and other investors, it was renamed Luxempart in 1992. Following the abolition of the Rau law, which was seen as state aid by the European Union, Penning noted the gradual exit of investment firms from the LuxSE.
Direct and indirect investments: an overview
The investment strategy gradually shifted after initially having held positions in banks, among other large entities. Nowadays, the firm has two pillars: 70% of its net asset value is in direct equity investments, including a 31% stake in Foyer Assurance and 22% in investment funds. The remaining position (8%) is held in cash, a relatively high level that enables LXMPR to be reactive upon opportunities and to avoid resorting to tapping fresh capital, debt or equity.
Non-listed direct investment approach
Having a long-term perspective aiming at improving the fundamentals of companies with an enterprise value between €50m and €500m, Penning commented that the goal of LXMPR is to act as a reliable partner for the entrepreneurs, other anchor investors such as family offices or other investment firms with similar objectives. Its greater access to companies’ financial data enables LXMPR to be more hands-on with the management compared to its investments in public companies.
Penning explained that LXMPR generally seeks a minority position where it can gain co-control, i.e., “some decisions cannot be taken without LXMPR.” It ensures “significant influence” over major strategic decisions such as on M&A. “In all cases,” a shareholder pact is in place and LXMPR has a seat(s) on their board. “In almost all the cases,” a liquidity clause is in place to exit fully valued companies.
A liquidity clause can have various shapes and colours. Penning explained that investors may together agree to sell a firm under certain conditions, or one shareholder may have a put over an anchor investor. “Given the minority position, we can’t decide on an exit unilaterally.”
Direct investment in Foyer Assurance: A sister and a daughter
The current ownership structure of the group is not very common. According to its website, “Foyer Group is owned by local, family and stable shareholders, guaranteeing its independence.” Besides, 50.4% of Luxempart is owned by an intermediate company of the group, Foyer Finance, which is also the anchor investor of Foyer Assurance. “We are sister companies,” stated Penning.
We do not want to force our way in. We prefer to be invited
It does not stop there. Luxempart also owns 31% of Foyer Assurance. He explained that the shareholding structure has been stable for many years and there is no intention to change. It is unclear why the company maintains that position. Without being specific, Joren Van Aken, equity research analyst at Degroof Petercam, believes that the decision for Luxempart to hold on to its stake in Foyer Assurance lies with Foyer Finance, its majority owner.
Listed direct investments: close relationship with management
Penning explained that their relationship with these companies is “very similar” as for private companies. Of course, LXMPR must account for the required governance for publicly listed companies. Yet it “almost always” gets a seat on the board while joining subcommittees and helping the management in developing its strategy.
Not actively developing the market, Penning uses this market for exceptional opportunities such as when it invested into Nexus, a cash rich (and debt-free) German healthcare software company two years ago. Nexus was looking for an anchor and active investor. A similar situation arose some weeks ago when LXMPR acquired a 14.9% share in Medios, a specialty pharma platform, after its founder retired and was looking, as well as the management, for an anchor investor to pursue the company venture.
In those negotiations, “we do not want to force our way in. We prefer to be invited,” stated Penning. These activities set LXMPR apart from PE firms that usually take over listed companies. Yet, he welcomes those PEs/buyouts as they enable LXMPR to exit some of its firms with an attractive premium.
Leveraging and sharing experience
“What we prefer is to be one of the ‘primaries,’ [i.e.] the first financial investor in a firm,” said Penning. LXMPR will typically be involved in professionalising companies owned by a family or an entrepreneur by optimising, implementing processes or helping in their next steps abroad by getting financing for an acquisition, for instance. “It is often not their world. It is our core competency.”
Indirect investments: gradually increasing US exposure
In its second pillar, the investment funds, Penning commented that LXMPR still has some exposure in venture cap funds, but its primary focus is on buyout or “next stage growth” funds such as the “small lower mid cap” funds with less than €1bn or €2bn in assets under management that invest in firms of similar size as in its direct investment portfolios.
As Penning does not envision direct investments in the US, the selection of general partners is key. He noted that LXMPR has occasionally invested in PE funds in Europe as a “cornerstone investor,” enabling it to co-invest with the GPs. He thinks that a close relationship with a GP helps it to better understand their investment process while ensuring a speedy execution when seeking active co-investments.
Time of market stress
Questioned by Delano on the performance of the SME portfolios during covid and the GFC, Penning claimed that it has “resisted well.” Van Aken concurs and thinks the Luxempart has built a “good reputation with investors on handling crises partly thanks to their long-term vision.”