Kicking off our November Game Changers feature is an interview with Dr Stavros Siokos who is the Managing Partner of Astarte Capital Partners LLP – a specialist alternative co-investment platform focusing on the real assets space, with offices in London, New York, Zurich and Sydney.
Astarte identifies and partners with experienced real asset operators to establish specialist asset management businesses of an institutional standard, in niche real asset strategies, targeting private equity-type returns. The company combines their experience of building multi-billion niche asset management businesses with the know-how of established real asset operators and a strong track record in the specific sector. Astarte targets full alignment of interests and transparency, with only success-based fees.
What have been the current trends in the real assets space?
The real assets space is very broadly defined and as a result, it includes an extensive spectrum across various different products. It ranges from large-scale core infrastructure assets, that demand a lot of capital (e.g. airports, ports, electricity plants, etc.), to typical real estate (e.g. housing, commercial), and all the way to value added infrastructure (e.g. planes, shipping vessels, mobile phone antennas, advertising billboards, etc.) that demand specific expertise according to both the asset and the local market.
Each of the above groups have their own dynamics and follow different economic cycles. Most of the large private equity firms tend to focus on core infrastructure opportunities where larger pools of capital can be deployed. Astarte focuses on value added infrastructure prospects in areas and products that are supported by global megatrends such as demographics, digitalisation, the need for energy and the management of natural resources (e.g. water, waste, etc.).
An obvious trend is how affluent ageing populations in the developed world are generating a demand for retirement housing. Astarte is evaluating investment in high-end retirement accommodations in the United Kingdom, Spain, Portugal and Switzerland. Digitalisation offers enormous potential. However, industries such as advertising billboards in the UK are only just waking up to the trend, with only 5% of UK advertising billboards being digital. Astarte is also attracted to complex areas, such as acquiring aircrafts to dismantle them and resell the parts. I believe Astarte will see potential to pick up quality assets at distressed times in very cyclical industries, such as the shipping sector. Currently, we’re on the lookout for opportunities in renewable energy and industrial assets.
In all of these areas, it is critical to find strong operators to partner with. For instance, shipping, which as mentioned is a highly cyclical industry, has strong barriers to entry where a robust owner/operator makes the difference between success and failure. The Astarte model is to team up with the best operator possible and build a fully transparent platform where we, as the asset operators, together with external investors, all contribute capital, and all share in the economics of each project: both the costs, and the upside. The aim is to have all interests fully aligned and deliver the best results possible within an institutional framework.
When we last spoke, you mentioned that your goal for Astarte is to establish the company as one of the leading co-investment platforms for niche real assets. How has that been going? What have been the company’s recent achievements?
Astarte is growing its geographic reach and team to stay close to its investors, partners and deal flow. The headcount is around 15 professionals, as of November 2017. The founding team and the head office are in London, from where Teresa Farmaki, myself and Spiros Skordos are running the business. Our vision is to differentiate Astarte from other private equity and real asset managers. This is something that we have managed to achieve in a very short space of time.
We were delighted to be recognised as the “Most Innovative Manager of 2017” at the Institutional Asset Management Awards in New York earlier this month, which confirmed our achievements thus far. Winners of the Institutional Asset Management Awards were determined by votes from a selection of institutional CIOs of foundations and endowments, as well as with input from the editorial teams of Money Management Report and Foundation & Endowment Report. Criteria included information submitted with entries, as well as direct experience with the manager, industry reputation and past performance. We are very proud that in less than three years, the industry has recognised the ethos and the innovation behind our approach. Full transparency, full alignment and strict ESG compliance are the pillars that drive our growth.
We have also managed to attract world-class talent and experience in our advisory board. The advisory board currently comprises three top professionals and will soon grow to five. Phillippe Costeletos, who’s also an Astarte Investment Committee member, was previously Head of TPG Capital in Europe, and International Chairman of Colony Capital. Andrew Wynn advises family offices and has spent his career in equities, including at ADIA in Abu Dhabi and SAMBA in London. He has strong connections in the Middle East. Bev Durston (who featured in The Hedge Fund Journal’s’ 2015 ‘Leading 50 Women in Hedge Funds’ survey, in association with EY) was previously Head of Alternatives for the British Airways pension fund in London, and continues to advise many large pension funds in Australia, is an investment committee member. Another two highly experienced professionals with strong track record in the European and North American markets will join us by the end of Q1’18. All team members come from an alternative investments background, where they have close relationships with institutional investors’ demands, in terms of due diligence, reporting and governance.
How has the company grown in terms of operations or service offerings in recent times?
Astarte is aiming to close its flagship fund called Astarte Access Fund in the first quarter of 2018. At around $200m. The fund does not change any management or carried interest fees and only shares the profitability of the businesses that we build.
We have also identified the next strategies and the partner-operators that we will work with. They are in the areas of shipping, renewable energy, luxury senior accommodation in central London, and organic farmland.
For example, in the dry bulk shipping area, we partnered with the Tsakos Group (TG), a family run and owned entity with several generations of shipping tradition and a flawless global reputation. TG is one of the leading operators in the world with strong experience across different sectors and cycles, along with a long track record of successfully managing institutional capital. The Group controls a diversified fleet of 90+ vessels which includes 8 privately owned dry bulk carriers and a listed tanker entity (est.1993) (NYSE:TNP) with 2000+ employees.
By the end of 2018, Astarte is targeting assets worth $500 million, including its own multi-strategy vehicle investing across all deals, in addition to co-investments.
Can you detail any projects that Astarte Capital Partners have worked on recently and the challenges that you were faced with? How did you overcome them?
As mentioned, one of our first projects is related to dry bulk shipping. This is a highly cyclical industry that has been under extreme pressure for almost a decade. We believe that this is the right time for investors to come in, given the current and predicted demand-supply imbalance and the fact that we are close to an all-time low point on valuations. The potential for upside is significant and the key to success is based on who the operator is.
The challenge we faced was that a lot of investors have timed their entry into the sector poorly and had exposure already. This happened at a time when a lot of private equity capital was invested without the right structure in place, a few years back.
Having a great partner and investors that trust our judgement and structures is how we manage to overcome the difficulties that we’re faced with.
When working in an industry that is constantly changing, what do you do to ensure that you are at the forefront of any emerging developments?
It is very challenging to stay at the forefront of emerging developments. Especially with a model like ours, which requires reaching out to multiple industries and a wide range of jurisdictions that need local expertise and presence.
From our experience, we have discovered that it makes most sense to reach out to experts and outsource the functions and operations that stand outside our core business of investing. For issues related to investments, we follow a three-step approach, assuming that there are many things that we do not know and that we need to learn.
Our aim is to first recognise what we do know and what we can perform well. After this is established, we try to learn and use the best experts in each area where we’d like to deploy capital. Finally, we try to find the best partner we can team up with and explore opportunities together.
All of the above fall within a well-defined ESG framework. ESG is essential within our investing. Astarte and our portfolio businesses are all UN PRI signatories, applying ESG principles to their private equity investing. When directing capital, we do it to minimise side effects or complications. We address the environmental aspects early on and do not invest if the company does not have the right approach.
We place strong emphasis on governance, particularly in terms of how Astarte structures its fee model and relationships with investors. Alignment of interests is very important to us.
The private equity industry has been criticised for both the level of fees and costs, and the way in which they are apportioned between managers and investors. Indeed, there have been many public cases in the US suggesting that private equity firms did not allocate certain expenses in the past, such as broken deal costs (in the most equitable way). Consequently, every line item is now being closely scrutinised by those allocating to PE funds.
Astarte charges only success fees, with no management fees per se. Certain operational costs are transparently disclosed and shared with other stakeholders. This is only one facet of Astarte’s transparency. Co-investors also get full access to all data.
The fee structure is not the only innovative aspect of Astarte, which invests in niches that are often neglected by other asset managers. Everyone talks about real assets and understands the benefits of including them in asset allocation. Tangible, hard assets offer downside protection and a low correlation to capital markets. However, Astarte’s approach is different. We focus on less well-understood, specialist, below the radar areas that are more operationally complex and therefore face less competition from other investors.
What does a typical day look like for you as a Managing Partner of Astarte? What daily challenges do you encounter and how do you resolve them?
My biggest challenge is time. No day in the office is like any other day. We are building a business from scratch and this creates numerous challenges daily.
Finding the time between building and managing Astarte, identifying opportunities and partnerships and structure the business development is a challenge. Thankfully, my experience has helped me to be able to be multi-tasking and efficient at the same time. They key is to focus for specific amounts of time on specific tasks and make sure that priorities are right. Prioritisation is the key to success in a business like ours. This is a trade you learn through mistakes and experience. I believe the 25 years in the industry have taught me a lot on that.
The industry we are in is based on people and trust. Bringing the best talent on board and helping young people grow professionally is very important for me. It is very challenging to find the time for that but the results are truly rewarding.
If you could share one piece of advice with Finance Monthly’s readers, what would it be?
Setting up a new business is hard and no one can prepare you for this. A few people realise how many sleepless nights it takes to become an apparent overnight success. Time will be the judge of the overall success of Astarte, but our achievements so far proved to me that nothing is impossible and that the improbable is worth chasing.
The biggest lesson I’ve learned is that starting a new business in a competitive landscape is usually hugely against all odds. It takes double the anticipated time, double (or much more) the anticipated capital and most likely, losing half of the people you once thought were your friends. However, the journey is worth it and is the biggest lesson that one can learn.
What is the motivation that drives you?
In a few years, I would like to look back and be able to say that Astarte and the team brought a new level of innovation on how business is done in the private equity and real assets space. The private equity industry hasn’t changed much since its inception, almost half a century ago. If we achieve this and deliver the returns we hope to deliver, based on ESG framework, I will be a happy man.