|Here at gaim we're looking forward to our next event in Monaco, which is hurtling towards us at the speed of a Formula 1 racing car! To find out a bit more about some of our speakers, we've been asking them to talk about subjects that are of significance to them and to the industry. We caught up with Adi Divgi, President & CIO of EA GLOBAL, who answers some questions on collaborative procurement and how this can work for investors; with the right resources, market intelligence and investment principles.
To hear more from Adi, come and listen to Investor Quest at 12.20 on Monday 22nd June.
Adi Divgi, president and CIO of EA Global, his family’s private investment LLC established in 2005, provides GAIM insight into Collaborative Procurement.
Q: What is ‘Collaborative Procurement’? Why should Institutional Investors and Family Offices care?
A: Collaborative Procurement enables Institutional Investors as well as Family Offices to create ‘commingled separate accounts’ in which capital is contributed to invest proactively in a common mandate, e.g. LP interests in a hedge or private equity fund, or a direct credit or equity investment. In addition, Collaborative Procurement could potentially enable Institutional Investors and Family Offices to create strategic partnerships with best-of-breed managers. These partnerships, if executed properly, effectively align Limited Partners and General Partner interests with higher than average thresholds for pay-for-performance as well as potentially greater control for the Limited Partners over investment guidelines and portfolio construction.
Q: What are 2 simple truths about Collaborative Procurement?
A: One simple truth is that Collaborative Procurement is not easy. Dynamics among Institutional Investors and Family Offices are ever-changing. Investment programs therefore need to be designed to be flexible at the outset to incorporate each Investor’s unique situation.Adi has discovered another simple truth in the past 4 years: Collaborative Procurement, if executed properly, works. Since drawing capital in December 2011, the NYC Pensions' platform that Adi developed has generated 14+% net annualized IRR as of December 2014 across almost $2bn in investments. There continues to be a wide gap between the Family Office and Institutional Investor worlds in terms of their respective investment approaches towards Alternative Investments, although it has narrowed over the past several years. Since March 2011, Adi has simultaneously managed his EA Global responsibilities and overseen 2 institutional investment programs consecutively: first, an $8 billion allocation to Opportunistic Fixed Income at the 4 participating NYC Pension Funds until April 2014, and since then, a nascent platform for Alternative Investments at Catalina. After seeing first-hand the benefits of developing best practices in investing and infrastructure for Alternatives in these two institutional roles, Adi has implemented many in EA Global’s own platform. Institutional Investors and Family Offices could potentially benefit from implementing such best practices in their own programs, as evidenced by the performance of the ‘fund-of-few’ Opportunistic Fixed Income platform that Adi developed at the NYC Pensions.
Q: How might Institutional Investors and Family Offices partner or find peer investors to scale their platforms? Where should they turn for resources or advice?
A: Key ingredients for a successful and scalable platform include:
1. An experienced leader who can execute the institutional investment strategy and develop the corresponding infrastructure;
2. Development of global networks to maximize sourcing of investment opportunities and market intelligence;
3. Minimum AUM to offset fixed costs associated with the implementation of institutional best practices.On a selective basis, Adi serves as a potential advisor on Collaborative Procurement to Institutional Investors and Family Offices since developing his platform at the NYC Pensions and creating a global ‘Thought Leadership Network’ on behalf of both EA Global and his institutional investors. His on-the-ground relationships are based in Monaco, Miami, Los Angeles, San Francisco, New York, London, Dubai, Kuala Lumpur, and Panama City, among other locations.
Q: What is the most important best practice for Institutional Investors and Family Offices when it comes to Collaborative Procurement involving strategic partnerships with potential General Partners?
A: It is imperative that Institutional Investors and Family Offices have a common set of core investment principles before seeking a strategic General Partner for a Collaborative Procurement program, e.g. developing a drawdown (versus fully-funded) investment structure that is incentivized to seek opportunities only when they offer the best risk-adjusted return based on a benchmark agreed upfront by the Investor Limited Partners. When returns are no longer attractive on a risk-adjusted basis, the capital would be returned to the vehicle. Independent service providers (i.e. Administrators, Bank Custodians, and Prime Brokers) are also important to minimize potential conflicts of interest in the valuation and pricing of the underlying partnership assets.