Adams Street: We Were Early to Diversify

The executive chairman of the Chicago firm discusses his firm’s early adoption of a multi-strategy approach to advisory work

T. Bondurant French, the executive chairman of Chicago-based investment advisor Adams Street Partners, says the seeds of the modern private equity advisory business were present in his firm starting in 1986, a year in which the firm was already active in direct investing, funds-of-funds and secondaries. In an interview with Privcap, French discusses the history of his firm, the growth of GP restructurings, and the future of the co-investment market.

French will be speaking at the 9th-annual SuperReturn U.S. in Boston June 6–9 alongside a host of other private equity and venture capital industry leaders. Visit www.superreturnus.com to find out more.

Privcap: How did Adams Street get into the multiple lines of advisory work that it now offers clients?

Bon French, Adams Street: We started in venture-growth-equity direct investing 44 years ago. That led to the primary [fund] business. So [we’re] unlike most people who started investing in funds and then got more comfortable doing some of these other things like secondaries or co-investments or venture capital direct investments.

We did our first secondary investment in ’86. There were no placement agents then or intermediaries. The business wasn’t mature enough to support that kind of work, and if an LP wanted to sell an interest, naturally they would call the GP and say, “I need to get out of the fund.”

So we got a lot of calls in the ‘80s about secondaries through the GPs.

How do your activities give you insights into the asset class?

French: We’re on something like 325 valuation committees and advisory boards around the world. We might be on six advisory boards with one GP. That gives us a lot of insight into valuations and a lot more information about that GP.

So you put that whole mosaic together, and our relationship with many of these GPs is very strong. Many of them call us [for advice on] how to best wind up a fund or handle

some issue.

In the ’80s, ’90s and into the 2010s, we were [involved with] many industry trade associations and helped create the valuation guidelines that are used today in the industry. We contributed the data for that.

What are some issues that you see in today’s market that your firm is active in solving?

French: Fund restructurings. There are a lot more GP restructurings today, and it is more formalized, there are more advisors involved, and the amount of capital required is much larger. [Restructurings are a] much greater percent of the so-called secondaries market today than they used to be.

How do you see co-investment evolving within the asset class? Will it grow as a percentage of overall equity put to work?

French: There are many more LPs that have been investing in private equity for some time now. They have much closer relationships with GPs than when they first started. There’s a lot more fee pressure across all asset classes today, including in private equity, with returns being lower than they used to be in the ’80s and ’90s. So there are a lot of different trends coming together causing people to have more interest in co-investment.

I think co-investment is going to continue to be bigger and bigger. I don’t know that from a return point of view it’s all going to turn out well, but you could say that of anything anything—stocks, bonds, real estate, [they all] have cycles. Private equity [also] has cycles.