Sweta Chattopadhyay, Director, Bfinance - Charting the change in LP attitudes towards PE investing
Since starting her career in 2006 at ABN AMRO, Sweta Chattopadhyay has seen, first-hand, how investors have changed their allocation preferences to private equity. Having worked at a number of prominent UK pension schemes as an in-house advisor, where she developed a broad network of PE manager relationships, Chattopadhyay currently works as Director within the Private Markets team at Bfinance, a London-based independent consultant to global institutional investors, where she is head of Private Equity advisory. Here, Chattopadhyay talks to Private Equity Wire about her personal career evolution, and the changes she has seen along the way.
Chattopadhyay was born in India and spent her formative years living in Singapore. After finishing school, she moved to the UK to study for a law degree at the London School of Economics, before taking her first step on the career path by joining ABN AMRO’s graduate training programme. At the time, she didn’t know too much about the world of private equity but as luck should have it, the first element of her training saw her join ABN AMRO’s M&A team.
“The financial world was a little bit alien to me as a law graduate but what I did know was that M&A and corporate finance was a very disciplined business,” says Chattopadhyay. “When I first joined the bank, I could have gone in any number of different directions; but I ended up working on PE deals and really enjoyed working in that segment.”
Between 2006 and 2008, Chattopadhyay immersed herself in M&A transaction deals before deciding to join one of the UK’s largest pension funds, the Universities Superannuation Scheme, which at the time was looking to build out a private equity co-investment programme.
“I thought it would be a good opportunity to broaden my knowledge of the PE world and that joining a pension fund would bring a new perspective,” recalls Chattopadhyay. “When I joined USS, around 50 per cent of my work focused on primary fund investing and 50 per cent on co-investing alongside large-cap PE funds.”
From USS onwards, Sweta knew that she wanted to build a career in private equity and in many ways, helping to develop the co-investment programme alongside direct investments at USS set the template for future roles.
“I spent around three years at USS before deciding to do an MBA at INSEAD, after which I joined Adveq. Unlike at USS, where we dealt with the biggest PE funds, at Adveq the focus was much more on smaller, mid-cap managers,” explains Chattopadhyay.
As Vice President at Adveq, her role was largely to focus on European private equity investments away from the large-cap PE manager names that USS allocated to. This gave her a unique opportunity to develop a network of emerging managers at Adveq, a Swiss PE firm which invests in buyout and turnaround situations. It was acquired by Schroders, the UK’s largest listed asset manager, in 2017.
What appeals in particular to Sweta is the fact that the PE industry is “full of incredibly smart, motivated people doing a lot of really exciting work”.
“I also like the fact that PE is a very close-knit industry that is very dependent on long-term relationships. Seeing how managers and their fund and investment strategies have evolved over more than a decade, since my early years at USS, is something that really appeals to me.
“From an investment perspective, it is an area of the market that continues to grow. There is a lot of appeal among investors, which I also find exciting,” she enthuses.
One area that hasn’t perhaps evolved as quickly as she, or other women would like, is a broader diversity mix within the industry, which remains overwhelmingly dominated by white males. Since 2006, Sweta has seen evidence that things are moving in the right direction and that conversations on diversity and inclusion in PE are more out in the open, but there is still a lot more to do.
“There are a growing number of women-focused forums. Ten years ago it was women only in attendance but I am now seeing men attending and supporting these conferences. The aim of all these women-only conferences should be so that they are not required, going forward, and for women to be a natural feature of industry debates and events on their own right.
“I spoke at a conference a couple of months and I was pleasantly surprised that for the first time in my professional life three of the panelists were women, two were men.”
She confirms that at Bfinance, the private markets team is trying to gain a deeper understanding of what diversity actually means: “Some of the metrics we try to track include how many women in PE groups are part of the deal teams, and senior women within organization leadership. We do see a divide between PE firms who are very good at promoting diversity and inclusivity and others that are not.”
Organisations like Level 20 are doing a lot of great work to inspire women and, more broadly, diversity in private equity. Its mandate is very clear: to increase the percentage of women in senior roles from what was 5 per cent in Europe in 2015, to 20 per cent. Since its inception it has garnered the support of 46 PE firms.
In 2016, Chattopadhyay moved from Adveq to RPMI Railpen, the GBP27 billion UK Railways Pension Scheme where she helped to build out its co-investment programme, just as she had at USS.
“Railpen had a large portfolio of primary investments and when I joined, the aim was to focus more on the mid-market and lower mid-market from a valuation perspective. An element of my role was to source and back first-time funds and to work with fund-less sponsors, which is something I had also done at Adveq. Also, thanks to my time at USS, I had a good idea about the larger PE funds that were in RPMI’s legacy portfolio and could quite easily understand the dynamics of some of the legacy investments,” explains Chattopadhyay.
What made this role particularly exciting was the fact that it again represented a key evolutionary stage in how an institutional investor thought about its PE portfolio investments; transitioning from purely direct primary investments to both direct and co-investments.
“In hindsight,” says Chattopadhyay, “it is probably something that I have looked for in all my roles. At USS, they were building up their co-investment programme, at Adveq the London office was just being set up, and at Railpen, there was a transition from investment consultant-led investing to in-housing. I think I’ve always quite enjoyed entrepreneurial-like transitions in my various roles.”
Railpen was the first time she saw how quickly the LP community was changing in terms of being more cognizant about their PE portfolios and how they wanted them to be constructed: that is more of an active approach, hunting co-investment deals.
“Railpen wanted to minimize blind pool risk. The idea was to partner more with fund-less sponsors on a deal by deal basis, or to back first-time funds in order to get access to greater deal flow, from a co-invest perspective, than one would with larger established managers.”
When asked if she is surprised by the level of LP engagement in private equity, she says no without hesitation. Today, there is less focus on financial engineering, as there was pre-2008, and much more focus on operational improvement within companies.
“To see how fund managers have adapted to these changing dynamics has been very interesting to watch,” comments Chattopadhyay.
“There are, nevertheless, still some similarities between today and the market pre-2008: highly valued markets, a lot of efforts to squeeze the juice from returns using leverage, whether acquisition finance or even fund level financing, which is being used to boost returns in some of the more plain vanilla strategies.
“There are some PE strategies that fundamentally seem to make less sense in my view; they are a lot more reliant on the market continuing to be buoyant and that is something to keep a close eye on.”
Today, in her current role at Bfinance, she takes a tailored approach and is guided by what investment exposure a specific investor is seeking. Given where she has worked previously, overseeing direct and co-investment deals from the KKR’s and Blackstone’s of the world to lower mid-market players, Sweta is well placed to help investors build the right solution with the right alignment of interests.
“Our client base is global institutional investors and they are changing a lot, in terms of level of sophistication,” she says. “There is no lack of ambition within the LP community but one thing they lack is resources and that’s where Bfinance comes in where we effectively act as an LP’s in-house team.
“In terms of newer strategies, we are having more conversations with clients around GP equity stakes and long-duration PE funds as well. The big question has always been alignment of interests between investors who pursue such a strategy, versus investors in the GP’s fund(s).
“For example, buying GP equity stakes means you only make higher returns if the GP grows and, by default, their fund AUM grows, but some fund investors don’t necessarily want the manager to get too large. This creates a ‘push and pull’ dynamic and at the moment I think there remains a degree of skepticism and caution.”
When she finally has time to relax outside of the office, Sweta enjoys coming home to her British Blue and Russian Blue mix shorthair cat, Bobo.
She also loves to travel when possible:
“Travelling helps me widen my perspectives so it’s something I’m a big fan of. My next trip will be to Japan in early 2020, which I’ve never visited.”
Certainly over the years, Chattopadhyay has had a front seat watching the direction of travel change in respect to PE investing.