LBBW Asset Management has ambitious goals for the private markets. In the coming years, the asset management subsidiary of Landesbank Baden-Württemberg aims to manage over 1 billion euros, according to Alexander Stern, the new Head of Private Markets, in the „Betting Billions“ podcast by Börsen-Zeitung.

Stern, along with his team, moved this year from the private bank Hauck Aufhäuser Lampe to LBBW AM, to set up a private markets unit. The Swabians already manage around 70 billion euros, but so far exclusively in liquid products. In comparison, Stern notes that while the private markets business is smaller in volume, it is significantly stronger in terms of margins.

Stern's team currently numbers ten, with a few more expected to join in October, positioning it well for the tasks ahead. By the end of this year or early next year, Stern plans to start fundraising. The private markets project is envisioned to be developed over decades, with a gradual build-up. Stern will begin with a 200 million euros private equity fund, targeting German mid-sized companies with 15 million euros in revenue and 2.5 million euros in EBITDA, aiming for a target return of 22%, Stern said in the podcast.

While Stern will handle direct private equity investments in Germany, he will rely on external managers for the other three asset classes. „We will launch venture capital, private debt, and infrastructure as fund-of-funds,“ he explains. He believes in offering his investors a global mandate for these asset classes. For instance, in private debt, he plans to allocate 30% of the funds to North America, and it would not be credible to provide financing without having people on the ground there.

The target volume for the private debt fund-of-funds is also set at 200 million euros, but with a lower target return of 8%. Further fundraising will proceed incrementally. After the equity and debt vehicles, a venture capital fund will follow. This fund will also target 200 million euros and aim for a return of 16%.

The infrastructure fund will be the last to launch. For this, Stern is focusing on equity investments, as he finds the long durations of debt financing in infrastructure investments challenging. Additionally, the risk-return ratio is not as favorable for debt financing. For equity investments, he hopes to achieve a target return of 10%. With the infrastructure fund also targeting 200 million euros, LBBW Asset Management would reach a total of 800 million euros in managed assets.

Assets under management are expected to continue growing. In addition to its flagship strategies, LBBW AM also offers managed accounts, especially in the asset classes of venture capital, private debt, and infrastructure. Managed accounts are individual agreements with specific investors who do not wish to invest in the fund-of-funds. „We want to grow our assets under management, clearly aiming to exceed 1 billion euros“, says Stern.

To achieve this target, Stern needs access to capital and investors. This was one of the reasons he and his team moved from Hauck Aufhäuser Lampe to LBBW AM. „In the institutional world, we did not have as much access. In the LBBW world, access to capital is much broader“, notes Stern.

Whether the sale of the private bank to ABN Amro played a role in the move, how the collaboration between the asset management unit and the bank might look, and why Stern has avoided and continues to avoid the real estate asset class, are discussed in the latest episode of the „Betting Billions“ podcast.