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Global investment advisor shares due diligence advice on how managers should position themselves in competitive PE market

Willis Towers Watson – the global advisory behemoth with assets under advisory of USD6 billion in private equity investments – has described its process of manager selection with Private Equity Wire (see box), as it looks to ramp up its relationship with PE firms who have embraced the latest in ESG standards.

Willis Towers Watson – the global advisory behemoth with assets under advisory of USD6 billion in private equity investments – has described its process of manager selection with Private Equity Wire (see box), as it looks to ramp up its relationship with PE firms who have embraced the latest in ESG standards.

Commenting on the ESG space, Andrew Brown, Private Equity Research Manager at Willis, referred to a set of managers who “can quantify the impact of this ESG transition”. He added that the business is also working on “passive private equity strategies (private equity for the masses),” as well niche cybersecurity and software markets. 

Willis works with 25-30 managers at any one time, who cover everything from venture capital investments to investments in the buyout space. 

The firm also backs first-time private equity managers, with Brown noting: “Due to so much money being raised in private markets in the past months, especially at the upper-end of the market, we choose to back managers at the smaller-end of the market.”

Brown added: “When working with managers at the smaller end of the market, you’re not so reliant on leverage to generate returns, and there is a bigger opportunity set and more room for innovation.”

He explained that the firm’s unique model only looks at between three and nine opportunities per year, including co-investments, primaries and secondaries, adding to the selective quality of their process.


Willis’s three step process

Step 1 
After an initial meeting with a manager, instead of immediately discussing the meeting, each attendee writes down opinions in an “independent thought email” to “immortalise their views”, Brown explained. This is then discussed in a future meeting, where each participant must read out their honest thoughts on the manager, with the aim being to avoid people being influenced by each other’s opinions. 

Step 2
The second practice Willis employs is being upfront about its decisions, so as not to waste managers’ time. Brown stated: “After each meeting, it’s a yes or no decision.” The firm is aware that managers require certainty in the industry, so don’t pursue the process if there is any sign of doubt to avoid gaining a reputation as “time-wasters”. 

Step 3
The third and final method Brown shared is the “devil’s advocate session”, where all the collected information about a manager is unpacked and questioned by the investment committee. The purpose of this meeting is to pick apart any apparent flaws in the manager, and requires all attendees to engage and make a good case as to why the pros outweigh the cons, before deciding on whether or not to invest. 


Brown explained: “Instead of treating it as a sales pitch, which a lot of ICs are, it’s almost the opposite, and addresses the manager’s ‘warts’.”

According to Brown, this process allows Willis to invest in managers who are “forward-thinking and who will create solutions and products which will give clients access to new, fast-growing markets.”

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