The SixSeven restaurant on the evening of 19 April was full of players active in Luxembourg’s private equity industry who were interested in hearing about investing wisely in uncertain times. Hosted by private equity firm Astorg and the (Lafo), the event featured a keynote speech by Astorg’s managing partner François de Mitry and partner Lorenzo Zamboni, as well as an on-stage interview of the two by Lafo president Pascal Rapallino.
Private equity resilient despite challenging macroenvironment
“Private equity is the best performing asset class,” said de Mitry in his keynote, presenting a slide that compared asset performance over the last decade. Data from Bain and Preqin show that private equity assets have outperformed those of other classes, such as real estate. In addition, the stock market is volatile, he said, and it’s “very, very, very difficult” to make money in the stock market in the long term.
The environment is tough right now, said Zamboni. Global economies face challenges, such as supply chain disruption, inflation, the covid-19 pandemic, high interest rates, Russia’s war in Ukraine, geopolitical issues and the energy crisis, amongst others. But private equity is “a good asset class,” and “if you pick the right manager, you can have very good returns.”
“I think the only people who get it wrong, over the last 12 years,” de Mitry said, referring to the time since the great financial crisis, “are those who have not invested in private equity.” Making reference to today’s uncertain environment, he added that some people may be asking themselves, ‘What’s going to happen next? Should I stop investing?’
“I think for me, the lesson learned from the past is, you never stop investing,” said de Mitry. “You never, never stop.” He reminded the audience that when investing in a private equity firm, it’s not for just six months, or a year, but rather for a longer period of time.
“The answer is focus”
After de Mitry and Zamboni’s keynote, Rapallino had a few questions. One question concerned the “terrific financial figures” that had been presented. “What’s the secret recipe?” he asked.
“There’s no secret: the answer is focus,” replied Zamboni. “Focus in terms of strategy, and focus in terms of how much time you spend on a specific asset.” On the first point, this involves investing in businesses that are not correlated to GDP, he explained.
Lafo president Pascal Rapallino (left) had a few questions for Astorg’s managing partner François de Mitry (centre) and Astorg partner Lorenzo Zamboni (right), during the “Private equity in uncertain times” event, held on 19 April 2023 at the SixSeven restaurant. Photo: Olivier Minaire Photography
The second part of being “focused” means that “you cannot pretend to be expert in everything,” Zamboni continued. Astorg’s strategy is “very simple.” It only buys majority stakes in healthy companies, he said, underlining the healthy aspect, and employs an “industrial approach” rather than a “financial approach.”
The financial approach involves cutting costs, reducing research and development, and squeezing management. On the other hand, an industrial approach supports the growth of a company by investing in new products, geographical development, defining better strategies to boost growth or improving operations.
Then, as “we are not experts in everything,” said Zamboni, “we decided to focus on only four verticals: healthcare, business services, industry and tech.” And even within those four domains, the private equity firm only focuses on two or three sub-sectors.
“A matter of time”
“Our job is to find good companies, where we can buy a majority stake, and where we can support the management team, the entrepreneurs,” he said. “What is making the real difference is the time you spend on a deal. We do not pretend to be smarter than our competitors. It’s a matter of time,” Zamboni highlighted.
He gave an example of the dialogue Astorg established with an Italian company, and the time and energy they invested before the deal to understand the entrepreneur, the pros and cons of the business, and how best Astorg could support him. This “constant dialogue” spanned two years.
The secret, therefore, is spending time, said Zamboni. The firm typically carries out two to three deals per year, and has 10 to 12 investments per fund. In this manner, it’s possible to spend the necessary time getting to know each company and figuring out how to increase the strategic value of each business.
“How do you create value?” he concluded. “It’s once again, by focus.”