Private equity investment was once an option only for those select few who could both meet the very high minimum threshold and commit millions of dollars to a single investment. Kensington Capital Partners Limited has changed that. Founded in 1996, the Toronto investment firm has launched the Kensington Global Private Equity Fund, which offers the broader public a chance to purchase shares in a diversified portfolio of hard-to-access private equity funds and to direct investments in private companies.
“Most who invest in private equity are forced to lock in for at least 10 years, with a minimum investment of $5 million,” says managing director Rick Nathan. “These are complex investment structures designed for large pension programs.”
Kensington capitalized on a gap in the market. Many consumers were frustrated with their investment options, relying primarily on stocks and bonds. “The stock market has been trading sideways for the past 10 years, and bonds are paying historically low rates of return,” Nathan says. “Individual investors and smaller institutions couldn’t tap into high-return alternative opportunities. So we developed a strategy to package alternative asset classes with no minimum investment, making an out-of-reach opportunity easy to access for those investors. It was exactly the answer they were looking for.”
with Rick Nathan
1. What does innovation mean to your company?
Kensington is an innovator in our investment strategy and in creating new investment products for our investors. Most people are unable to invest in alternative assets like private equity because of traditional structural barriers. We remove those barriers to provide everyone with the opportunity to participate in these strong performers.
2. How has the notion of innovation changed in the past decade?
Since the market collapse and recession of 2008/09, the need to innovate has become urgent, as everyone questions the traditional approaches to investing. This trend is accelerating, as the old ways just don’t work anymore.
3. How do you cultivate innovation among your workforce?
By recruiting highly intelligent and creative professionals, and challenging them to think differently about our markets, our funds, and our investments.
4. What defines an innovative company in the 21st century?
An innovative company must be constantly challenging its industry, its people, and itself, with a continuous flow of new ideas and new solutions for its customers and partners.
5. How can a company encourage innovation without breaking the bank?
By having the best people and providing them with a collaborative and creative environment that encourages new ideas and that rewards success. It really is about people, not expensive gadgets.
Launched in 2007, the Kensington Global Private Equity Fund operates more like a mutual fund. Investors put in money up front, and they receive a valuation twice a month. Risk is reduced because the fund holds private equity funds as well as direct investments in private companies.
The fund also has a very active management approach. Nathan says that the typical private-equity investor spends time reviewing choices before making a selection, but then usually puts the investment in a drawer and reads the quarterly reports. “That’s not our approach,” Nathan says. “While we do our up-front homework, once we make the investment, it’s the beginning of our business relationship.”
“We become an active investing partner focused on building strong relationships,” adds managing director Tom Kennedy. “Through this approach, we have learned about new opportunities and directly developed assets that are higher performing than other models we’ve seen.”
For example, Kensington invested in TriWest Capital Partners, a Canadian buyout fund, based on its long history. “We’ve spent lots of time working with the TriWest team,” Kennedy says. “Subsequent to our first investment in their fund, we have made two further investments directly into companies alongside TriWest in our portfolio. We ‘cherry pick’ the opportunities we like best.”
To add diversification to its product mix, Kensington also manages hedge funds and infrastructure investments. “Private equity is time intensive,” Kennedy says. “The addition of investing in other types of funds allows diversification and better risk management. Our move into infrastructure was prompted by the long stream of investment opportunities we’ve been seeing for the past several years. These assets are cash-flow generative, inflation protected, and it’s a stabilizer for us because it’s less volatile.”
“We’ve been innovative in our infrastructure and hedge funds, as well,” adds managing director John Matovich. “While there are other hedge-fund products that target individual investors, most infrastructure funds target only the institutional market. We’ve learned through discussions with investors that they’d like to focus on all three areas: private equity, hedge, and infrastructure.”
Such a strategy is unique among fund managers, who primarily focus on growing their base of assets. Kensington, by contrast, focuses on generating the highest performance from its investments. “We’re in the business of wealth creation,” Nathan says.