After starting out with a traditional fund model, Astarte Capital Partners has since developed an unusual co-investment approach and fee system which is finally gaining traction.
The faces behind London-headquartered Astarte Capital Partners are an eclectic group of individuals.
Co-founder and managing partner Stavros Siokos started the co-investment platform just five years ago with two colleagues. Since then, it has steadfastly gained ground and the backing of global capital sources from all over the world, despite some early challenges.
With a 15-strong headcount, the firm’s three co-founders are, besides Siokos, Teresa Farmaki and Jan Straatman, who is a former CIO of Dutch pension asset management giant, APG. Siokos himself worked at Citigroup for over 12 years and also as head of investment management at Greece’s Piraeus Bank where Farmaki is a former colleague as CIO. Farmaki is also a former UBS investment banking star.
‘Teresa is one of the few female founders of a global private equity firm,’ says Siokos of his colleague. ‘ I do not know many women to have done this under 40, which is quite remarkable.’
Other team members include James Hartley, former Aberdeen Asset Management co-head of European portfolio management, and Nick Clayton, investment director, who previously worked in fund management and investment at BlackRock and at MGPA on opportunistic and value-add pan-European real estate.
One of the earliest backers of the firm was Philippe Costeletos, former head of Europe at global private equity firm, TPG.
Increased visibility
Despite having senior people on board with a strong background in financial markets, the company is still not yet very well known. However, that is beginning to change as more of its investment platforms become public.
For example, in April this year it was announced that London’s Yoo Capital held a first close on its second fund, Yoo Capital Fund II, in partnership with Astarte. Fund II was launched as a £400 mln (€444 mln) opportunistic real estate fund in late 2019 and achieved £200 mln by its first close four months later.
Yoo describes itself as having invested in 3 million m2 of real estate development in the UK and greater London valued at over £900 mln. It is best known for its involvement in a joint venture with Deutsche Finance Group and German funds BVK and VKB to acquire the Olympia London Exhibition Centre in 2016 for £296 mln on behalf of its first fund. Fund II was established in collaboration with Astarte, as future funds will be.
Unusual model
So what is known about Astarte?
The company has staff in London, New York, Toronto, Sydney and Zurich and presents itself as an ‘independent specialist alternatives co-investment platform’. The mantra is to provide ‘institutional capital with access to non-traditional real asset strategies’, leaning towards value added and opportunistic returns of 15% gross internal rates for assets.
But what is of most interest is its financial model, which has raised some eyebrows as being out of the ordinary.
In short, Astarte earns fees dependent upon the success of the portfolio businesses it backs.
Says Siokos: ‘Five years ago, we sat down and asked ourselves, “What is the best and fairest way to build platforms backed by real assets?” We came up with the idea of looking the world over for mega macro trends such as ageing populations, the need for food, water, smart cities and so on, and asked how we could make these accessible to investors via the best teams that can be offered?’
The answer was to create platforms with operating teams such as Yoo. Astarte raised Astarte Special Opportunities Platform (ASOP), a discretionary fund whose investors are mainly pension funds from Australia, Europe, the Middle East, and North America. A final close was held in January this year.
The firm simultaneously went about identifying operating teams to back. Unusually, investors in Astarte’s discretionary fund pay no management or performance fees. Astarte has structured a ‘cost recovery mechanism’ during the investment period that aims to cover the expenses of the manager before any profit generation. Once any profit is generated, Astarte offsets this fee against profit share cash flows received.
Partnership structure
Astarte is always a co-GP (general partner) with its operating partners. For example, Yoo Capital Investment Management (YCIM) is jointly owned by Astarte and Yoo. Yoo and Astarte work together from setting up the business, raising capital and executing investments. Thus, as a co-GP, Astarte is responsible for raising the remaining capital for the fund.
Most of the committed capital is used to buy real assets like in any other fund. Astarte can provide working capital to the JV that it creates with the operating partner and that working capital is always less than 10% of the overall commitment. In most cases it is less than 5% of the capital committed.
The first close was managed between Astarte and Yoo through a number of institutional investors that are close to either Yoo or Astarte. Following the first close in April, YCIM appointed fundraising specialist Park Hill to spearhead the further capital raising. For the remaining equity, Park Hill is paid by the investment manager, YCIM.
Astarte now has operating partners in smart city urban regeneration (for example Yoo Capital), in senior accommodation (yet to be announced), and forestry (it backs an operating team in South America). An infrastructure JV operating firm is currently in the works.
Gaining traction
Astarte’s achievements over the past five years have not come easy. In the beginning, the firm found it tough to make progress. A debut fund with a traditional structure did not work out. Then it figured out its novel approach.
‘That is how we started,’ Sokos recounts. ‘A lot of people do not know us, and we do not care. What we care about is that the businesses we build become known.’
He adds: ‘It was challenging as a new idea. It was challenging the status quo and some of the consultants did not like it. We struggled in the beginning to get the traction, but we managed to get it and we got our own investments directly. Now the business is growing exponentially.’
Future segments
Each of the platforms Astarte backs aims to build $2–$2.5 bn in AUM size. Each operating platform is expected to raise and deploy three funds over the life of the partnership.
The firm says it has been looking at operating partners in the senior accommodation segment for three years. Explains Siokos: ‘One of the biggest challenges that became evident during the coronavirus pandemic is that a lot of the senior accommodation is provided by developers. But they really don’t know how to run senior accommodation. The sector has two extra components on top of building the assets – the hospitality component and the healthcare itself.’
Siokos adds: ‘We have worked for three years to find an operating team that understands real estate but has the capacity to take care of the hospitality aspect and healthcare in a professional way. We were ready to announce the platform but decided to postpone that during the coronavirus crisis.’
The senior accommodation platform will be started in the UK. The aim is to expand to Continental Europe wherever the conditions are conducive, such as in Germany and the Netherlands.
Speaking of other real estate segments, Siokos says last-mile logistics is an area that still holds opportunity. On the other side, anything to do with common living and common office space will take some time to come back. Another area it was interested in but is not going for now is student accommodation. New ideas include vertical farms. ‘It is an area we are seriously looking at,’ concludes the man behind an unusual firm offering an unusual structure.
