The Rise of Private Equity Separate Account Mandates – February 2013

by Jessica Duong

  • 21 Feb 2013
  • PE

The private equity fund of funds industry has just seen the announcement of another separate account vehicle, with the $100mn re-up from New Mexico Educational Retirement Board with BlackRock Private Equity Partners. Separately managed accounts are becoming increasingly important within the private equity space; mandates established by a single LP and one investment manager across America and Europe, in particular, are on the rise. Separate accounts with a fund of funds manager allow an investor to gain bespoke access to private equity funds and can span any combination of primary, secondary or direct investment strategies.

It seems that a significant number of institutional investors are recognizing the benefits of investing via separate accounts and are utilizing the vehicles in asset allocation and risk reduction strategies. Fund managers, in turn, have responded to demand and are actively bidding to win mandates from investors and managing significant amounts of capital through segregated accounts. A survey of investment managers conducted by Preqin in Q4 2012 found that 32% of fund of fund managers were intending to invest more from separate accounts over the next 12 months. Segregated accounts can provide cash to a fund of funds manager who may be between fundraisings or is struggling to raise capital via traditional fund structures. Advantages for LPs may include lower carried interest and management fees, controlling power over deals, and the opportunity to close their position in the account in a shorter time compared to a traditional closed-end private equity fund.  

BlackRock/ERB Co-investment Fund began investing in 2009; the fund is New Mexico Educational Retirement Board’s first limited partnership with BlackRock Private Equity Partners where the pension fund acted as the sole LP. This week it was reported that the New Mexico Educational Retirement Board awarded another separate account mandate to BlackRock Private Equity Partners worth $100mn. Confirmed as a follow-on to the mandate incorporated in 2009, the fund will co-invest alongside GPs. The separate account will predominantly focus on traditional buyout transactions, and to a lesser extent growth equity, distressed and private debt, and mezzanine strategies.

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