In this post I am trying something completely new, an interview with a GP. In this case a sector specialist focusing on Aerospace & Defense.
Though a first-time fund, I find Green Eight Capital very interesting, with a capable team. and with a differentiated strategy in a sector that, probably more than most, requires domain expertise.
I hope the post provides some insight. And as always, questions, comments, etc. are very welcome.
Jacob, tell me about Green Eight Capital
Led by our founder, Philipp Maurer, we spun out of Deutsche Asset Management in 2018 and are a mission-driven private market investment firm investing in global aerospace and adjacent industries. We have offices in Pfäffikon, Switzerland, and New York.
Your fund and strategy are new, can you tell me about this and how it is different?
We launched our Aerospace Innovation Fund last year because we believe Aerospace & Defense are entering a global super-cycle and will be the foundation for a wave of new industries. Within the overall theme we have identified three target verticals we invest in: Aerospace, Government & Defense and Space & Future Technologies.
Figure 1: PE takes off - to infinity and beyond!
As a team we have deep sector expertise and follow a whole-portfolio approach by balancing between our chosen verticals and growth and mature investments. This allows us to provide investors with a thematic yet diversified exposure in a very exciting and booming sector.
In this sector domain expertise and network is key, also to navigate the government involvement and regulation. Consequently we are happy that the former CEO of Boeing, Dennis Muilenburg, supports and advises us as a board member and provides his network and expertise to our portfolio companies.
You have a sector specialist strategy, which is less common in Europe than in the US. Why do think that is and what are pros and cons of specialising?
It is true, that sector specific funds are a lot more common in the US compared to Europe. I think there is various reasons for that.
Firstly, PE, or Alternatives in general, often make up a bigger percentage in the LPs’ portfolios in the US compared to Europe, if you allocate larger amounts into an asset class, you typically also try to diversify it further. And of course, there are more funds overall in the US, so also a greater need to differentiate.
Secondly, Europeans, if I may generalize here, are maybe a little more sceptical when it comes to new ideas. On the other hand, some of the greatest sector focused funds in Biotech or Healthcare were started in Europe.
If we are looking to other parts of the world, like the Middle East for example we see a lot of interest in this thematic approach.
Looking at pros and cons, I would certainly say that the investable ‘universe’ for a thematic or sector focused strategy is smaller than what you can do with a sector-agnostic approach. Furthermore, some industries do of course have specific risks to them, that the investor must manage.
But there is also a pro argument. With the right team, the right expertise, and the right network within a sector, you can source great deals and provide added value to portfolio companies. This allows for competitive advantage compared to sector agnostic funds and arguably with less competition.
Is there is a lot of money flowing into Aerospace & Defence?
The question is ‘what is a lot of money’? I think managers that can convince investors that their fund brings added value to the portfolio and delivers the targeted returns, will always be able to raise money for their strategies.
In the current overall fundraising environment it might sometimes take more time to raise a fund. But in this regard, I don’t see much of a difference between thematic and sector agnostic funds.
What excites you about this opportunity?
I believe we have seen enough managers trying to do the same thing repeatedly, so to be part of something ‘different’ or ‘out of the box’ is very exciting. If we go back to the roots and ask ourselves what´s the real purpose of private equity, it is to finance the real-world economy. To back businesses and entrepreneurs.
Aerospace & Defense are amongst the most exciting industries to be doing that now and I believe that one can deliver great returns for investors there.
What keeps you awake night, generally and for this strategy in particular?
Generally, I´m quite a sound sleeper. Of course, I am very worried by the Russian attack on Ukraine. War in Europe in 2023 is something that is still shocking every single day. For our strategy I'm far less worried, of course there are certain risks within the industry, but they can all be managed.
We believe that the aerospace industry is quite well positioned against current investing headwinds, like the geopolitical volatility or inflation for example. The aerospace industry is very resilient, and in many aerospace & defense companies’ contracts you'll find inflation adjusters.
So, while the world sometimes feels like it is in a fragile state, strategy-wise I feel well positioned.
This was the first of several GP interviews that I expect will follow at regular intervals. Hopefully it was interesting to both LPs and GPs.
And please do feel free to reach out if you would like to be interviewed or know of someone that would be interested.
Sources: Green Eight Capital, February 2023
Note: *This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any opinions and recommendations herein do not consider any individual circumstances, objectives or needs and are not intended as recommendations of particular securities, financial instruments, or strategies to particular individuals. The readers of this material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek advice from such independent financial, legal, tax or other adviser as the deem necessary.