Conserva­tism meets outperformance.

Our fund of funds programs offer an asymmetric risk-reward profile to investors. While our approach is conservative in nature, our clients benefit from strong outperformance potential which is enabled by gaining access to the industry’s elite in the most attractive market segment.

Conservative approach

We truly believe in the value of experience, alignment and strong governance. This is why our investment approach is firmly grounded in conservatism, which is reflected by the following components:

  • We focus on buyout fund managers who will typically acquire majority stakes in mature companies with proven business models and a history of stable cashflows. The governance related to the control positions makes it easier for managers to actively drive value creation. The maturity of the business and the stable cashflows generally provide more resilience compared to typically younger and less proven businesses targeted by venture capital or early growth equity strategies.

  • We focus on the two most established private equity markets:

    • North America: The U.S. private equity market is the largest and most mature in the world. It offers highly attractive characteristics for private equity deal-making, such as a large pool of high-quality management teams, liquid capital markets, a strong entrepreneurial culture and a broad and comparatively homogeneous domestic market.
    • Europe: Europe is the second most mature and important private equity market in the world. Despite the growth of centralized law making from the European Union, Europe remains a diverse investment region with distinct cultures, work practices and legal systems, which typically requires proximity to local markets.
  • We deliberately take a “pure play” approach, targeting only primary fund commitments, which reduces conflicts of interests and also effectively adds to our core expertise. Hence, our returns have historically been, and continue to be, generated from carefully selected private equity primary funds without increasing the risk profile through e.g. co-investments.

  • Our programs focus on proven managers, typically from the third fund generation and onwards. These managers have demonstrated that they can work effectively together over an extended period of time, having proven that they have the people, strategy, systems and processes in place to generate outsized returns in every macroeconomic environment.

Outperformance potential

We seek outperformance by providing access to highly successful managers. We only invest in teams with a proven track record of capitalizing on the structural advantages offered by one of the most attractive market segments.

  • We have a clear focus on buyout managers who invest in the lower mid-market, which offers several structural advantages that allow for highly attractive risk-adjusted returns:

    • Favorable Ratio: In the lower mid-market, there is less private capital available for a much larger investment universe of small and medium-sized companies. Managers therefore have a larger pool of potential targets with comparatively less competition.
    • Conservative Entry: Valuations and capital structures tend to be more moderate than in the large-cap space, which generally improves the risk profile of an investment while also providing more room for multiple expansion.
    • Upside Potential: Lower mid-market companies are typically less professionally run and offer private equity managers a broad range of opportunities for value creation through operational improvements or the professionalization of management teams.
    • Exit Flexibility: Medium-sized companies can typically be sold through multiple routes to a large universe of strategic and financial buyers, making them less dependent on a single exit channel compared to the large cap segment.
  • As we follow a pure-play approach – investing only in private equity primary funds – we are well aware that our performance depends almost entirely on the managers we select. That is why we have to be very selective and focus only on the very best funds in any given vintage year. Since our inception in 2011, we have consistently built focused portfolios with highly sought-after managers whose mature funds have almost all historically generated more than 3x gross MOIC fund level returns.

  • As we focus on proven managers who have consistently outperformed the broader market, their funds tend to be heavily oversubscribed and access-restricted. Therefore, we see providing access to these best-in-class fund managers as a key to enable our strategy and strong value proposition for our investors. For reference, 95% of MPEP’s North American and European fund investments to date have been heavily oversubscribed.

Manager selection

We do not settle for second-best. There is no one-size-fits-all formula for success, which is why excellence and differentiation are at the core of what we search for with our managers. We identify the industry’s elite through the following key areas:

  • Private equity is, at its heart, a people’s business – success heavily depends on the individuals engaged. It is our firm belief that comprehending “human complexities” such as team structures, personalities, motivations and relevant experience are crucial to assess the likely outcomes of future funds.

  • Our investment team conducts extensive quantitative and qualitative analysis of previous fund programs to understand how value has been created in the past and if these are reliable proxies for future returns. It is important that managers have repeatable processes in place and sustainable differentiators that will allow to continue to generate market leading returns.

  • The managers we seek are increasingly focused on supporting their portfolio companies in creating scalable organizations and driving top line growth through organic measures such as new product development or M&A. They often take a hands-on approach, working closely with the management teams to achieve pre-defined value creation plans and position the company for success regardless of the stage of the economic cycle.

  • A substantial investment by fund managers and the carried interest are amongst the most relevant instruments to ensure alignment of interests with its investors. We therefore look at whether managers have enough "skin in the game", meaning if they have invested an appropriate amount of their own capital into the fund, and how upside participation through carried interest plays into overall motivation.

  • We have a clearly defined set of binding elements that all our managers have to comply with. Additionally, we will also assess every manager by applying our proprietary ESG scoring tool and monitor developments over time.

Our partners may follow different strategies and approaches but they all have one thing in common: passion and expertise coupled with a clear vision of how to support their portfolio companies to unlock their potential and take them to the next level. 

Two examples of successful partnerships from our portfolio.