Alternative Investment Funds

Our Alternative Investment Fund Focus

We provide private investors with access to alternative investment fund strategies which are: uncorrelated with conventional equity and bond markets; operated by proven specialists; and which can enhance overall investor portfolio diversification and help to target superior investment returns. 

This broad range of alternative investment strategies includes private equity (primary and secondary strategies), private debt (mezzanine and structured debt, distressed and special situations) venture capital, real estate, clean energy infrastructure and specialist hedge funds, through to nascent asset classes such as litigation funding.

Lorna Robertson, Head of Funds, explains our approach to alternative investment fund strategies. Click the image to watch.

Private equity funds

Funds investing in the equity of private companies. Strategies include growth, turnaround, management buyout and private equity secondaries.

Private debt funds

Private credit funds spanning a diverse range of debt strategies from senior secured, short dated debt funds, mezzanine debt to distressed/special situations and structured credit strategies investing in the equity and subordinated debt of collateralised loan obligations (‘CLOs’). 

Venture capital funds

Funds investing in a broad range of venture strategies, across a wide spectrum of sectors and funding stages, through to secondary focused VC funds, acquiring holdings in high growth companies out with formal funding rounds.

Secondaries funds

Funds that purchase pre-existing investor commitments to private equity and alternative investment transactions. Assets are usually acquired at a discount and often seek to take advantage of forced sales.

Property investment funds

Difficult to access specialist, focused property funds operating an active managed approach to value creation within identified regions and sectors.

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Alternative investment fund selection criteria

The alternative investment fund universe is vast. Data provider Preqin states there were over 22,000 alternative investment funds globally in 2021. Identifying the best opportunities for our clients means a dedicated philosophy and focus in order to gain access to managers and strategies capable of strong risk-adjusted returns and outperformance. 

Big or small, specialist or generalist?

We select specialist alternative investment fund managers over the generalists. 

Large funds (i.e. those raising capital multi billion $) can be forced by virtue of their size to just ‘buy the market’ in order to deploy their capital. This means performance becomes more akin to an index of the market, with less chance of outperformance of the mean.  

Larger managers may be less disciplined on pricing versus their smaller counterparts, plus market saturation at this level means assets are in greater competition. These factors can lead to lower asset quality selection and higher prices paid for their acquisitions, resulting in inferior value and ultimately suppressing returns potential.  

We find that managers outside of this cohort, with a clear, differentiated area of specialism, employ a higher degree of pricing discipline, leading to better value at entry, and are often able to source higher quality assets, through their proprietary networks which have been established through years of industry experience and relationship-building.   

Through our deep research across private markets it is clearly evidenced that managers which specialise in a strategy or sector have an edge over generalist managers operating generalist strategies e.g. large ‘buyout’ funds. Specialists typically have unparalleled and proprietary access to ‘trophy’ assets that would otherwise have been inaccessible. These managers also often have scale, with focused teams that have deep, specialist knowledge and expertise to actively drive value in ways generalists do not. 

Identifying the best alternative fund opportunities

We review hundreds of alternative investment funds every year, but only a small number pass our stringent due diligence process. The ones we arrange access to and present to our clients are the result of a rigorous quantitative and qualitative analysis selection process that reaps the benefit of the extensive industry relationships that our team has built up over years in the private markets industry. 

Once we identify a potential fund investment opportunity, we undertake a full Investment and Operational Due Diligence process. This involves the assessment of the fund management team, the investment strategy within the context of the current macro environment, the track record and the investment and operational processes.  

We also benchmark the fund and the manager against their peer group and conduct thorough reference and background checks. 

In broad terms, we look for alternative investment funds meeting the following criteria: 

• Specialist, stable and experienced fund management team 
• Proven, strong and consistent track record 
• Evidenced value creation in a sustainable, repeatable investment strategy 
• Appropriate strategy size and attractive target returns 
• Niche and nascent strategies difficult to access directly by private investors due to high minimum investment amounts 
• Relevant market timing to capture current macro trends at the right time in the cycle 
• Institutional standard governance 
• Appropriate alignment to maximise value for investors 
• ESG compliance 

Quantitative and qualitative analysis

Our investment thesis takes a thematic top-down approach, focusing on specialist strategies derived from three key areas: 

Geographic specialism 

We look for managers that have an established reputation and unparalleled access in key geographies, exhibiting strong GDP-growth, and which have high-quality businesses primed for value creation.  

Sector specialism

We continuously evaluate emerging and fragmented sectors which exhibit strong tailwinds, high barriers to entry, defensive characteristics and low correlation to market volatility. These sectors offer exposure to significant upside either through market consolidations and bolt-ons or through attractive demand from large strategic buyers.  

Deal type specialism 

Private markets and the mechanics of how investments are structured are constantly evolving. We undertake, on an on-going basis, a granular assessment of which deal types offer the best risk-adjusted returns in any given market cycle. This enables us to identify managers which have the potential to provide opportunistic and creative strategies that offer either attractive risk-adjusted returns or attractive liquidity characteristics.  

We then meet with the targeted managers and build a competitive landscape, while gathering more information on the market, the risks, and expected return profiles available in these areas.

We also screen opportunities against a proprietary database containing return profiles, market overviews, growth forecasts, supply/demand asymmetries and saturation in market segments.  

These are then scored, ranked and discussed in the context of the current market environment and how it could impact the strategies, with the aim of identifying those funds that deliver the most attractive risk-adjusted returns and, ultimately, selecting the best of the best. 

Leveraging our relationships

These specialist funds tend to be very difficult for private investors to gain access to. Many of them are ‘under the radar’ or are institutional grade funds and are typically impossible for anyone other than large institutional investors or entities related to the manager to invest in. 

Connection Capital’s reputation in the market and our years of building a strong network of wide-spanning professional, proprietary relationships are then used to negotiate and gain access to these funds for our private client investors. 

Our track record in alternative funds

At Connection Capital we have offered private investors access to a wide range of alternative funds which usually only accept institutional investors.  

Fund investments now make up almost half of our assets under management with 2/3 of our client base having invested with at least one of the specialist managers accessible through us. As with any investment there are risks involved. These vary depending on the fund strategy but you can read more on risk in general here.

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