Symmetry Investment Advisors, Inc.

Following is an edited transcript of a Q&A session between Marshall Greenwald and Larry Wonnacott, Partners in Symmetry Investments Inc., and Robert Wells, a former business editor with Knight-Ridder Newspapers.

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Q: Is there some significance to the name “Symmetry”?

A: The word “symmetry” – overused as it probably is – actually reflects one of our core values: that there should be an “alignment of interests” between ourselves as fund managers and our investors. We’ve both spent many years with the shoe on the other foot – when we were the ones investing our clients’ money into private equity partnerships. Based on this experience, we’re committed to treating our investors the way we’d expect to be treated. Examples are our partnership terms, which are extremely limited partner-friendly, and our management fees, which are among the most reasonable in the industry. Our own compensation is contingent on our investors earning an outstanding rate of return; if they make money, we make money. We wanted a name that articulated this philosophy, and we felt “Symmetry” did that.

Q: You’ve chosen to work exclusively in the secondary private equity market. Why?

A: After spending years making both primary and secondary partnership investments, it became clear to us that purchasing interests in partnerships that had been around for several years had some very compelling return characteristics. When you acquire positions in the secondary market, you’re buying into a portfolio where most of the investments have already been identified, i.e., it is not the typical “blind pool.” By being able to see and evaluate the companies in each partnership, we are better able to assess the ultimate prospect for the partnership. In addition, by buying these interests a few years after their formation, we are often able to bypass the “J-Curve” phase incurred by newly formed private equity partnerships – the initial period in which their asset value tends to decline because they are incurring some costs while the young companies in their portfolios are not yet producing increased valuations.

Q: Why do people sell private equity portfolios or portfolio positions?

A: Historically, 2-3% of the commitments made to primary private equity funds in any year have traded on the secondary market before the final liquidation of a fund. In the past, most of this activity was driven by a seller’s financial distress, a merger, or regulatory changes. Recently, we have seen that percentage begin to rise as more investors adopt an “active portfolio management” style – selling underperforming or non-core assets in order to allocate their capital elsewhere. As the market has become more efficient and prices have risen, the volume of secondary-market transactions has risen.

Q: Why have you chosen to focus on the smaller-transaction end of the secondary private equity market?

A: Because we see inordinate opportunity there. Our definition of small is portfolios that range in size up to $20 million and individual interests valued at under $4 million. The small end of the secondary private equity market is less efficient than the large end for two reasons: fewer buyers and fewer intermediaries. As to buyers, most of the secondary market’s dollar volume comes from giant funds with over $500 million in assets, for whom it’s simply not practical to evaluate and acquire small (under $10 million) holdings; those deals are off their radar. As for intermediaries, there’s a very active group of companies that have emerged to facilitate large secondary-market transactions by staging multi-bidder auctions. But smaller transactions are not of interest to them, either. This leaves the field pretty wide open for us to cultivate contacts with sellers, and potential sellers, of relatively small portfolios and individual limited partner interests.

Q: I guess the big buzzword is “deal flow,” right? How do you maximize your exposure to “deal flow”? Is there a jungle telegraph of some sort?

A: Nothing mysterious. It’s just a result of years of working with people in the business. We have three primary sources. The first are a partnership’s general partners; they are usually the first person a smaller limited partner will call if they wish to sell a position in a partnership. Second are people at the larger secondary funds; they show us potential deals when a portfolio they are considering contains smaller interests that are not economic for them to value, acquire and manage. We maintain active contacts with these groups. Third are intermediaries that are engaged by a limited partner to sell a portfolio either in its entirety or, quite frequently, to break it into multiple portfolios, based on their investment characteristics. Judging from our ongoing communication with all of these contacts, we’re convinced there will be sufficient deal flow to enable us to invest our new fund within its four-year Investment Period.


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