Strategies

Our Investment Program Is Designed to Deliver Attractive Risk-Adjusted Portfolio Returns

Altera’s investment program is highly differentiated because of our lower middle market focus and portfolio building approach. We are first and foremost investors. Our investment first culture drives us to continuously improve our sourcing methodology, transaction structures, due diligence methods and the way we build portfolios. Over the last 5 years we have launched nearly 50 investments and built diversified private portfolios for hundreds of investors.

Our Focus

Our core investment thesis is that the lower middle market will produce the best risk-adjusted returns across private equity, real assets and private credit. We believe this is true, and will remain true, because of structural reasons. There is also a lot of research and data that supports outperformance in the lower middle market exists. We have spent many years screening and underwriting lower middle market sponsors and are always looking to find the most efficient way to gain exposure to their strategies.

Below we highlight a few key reasons why we built Altera around the lower middle market.

Less Competition Means Better Entry Pricing

Most businesses are small businesses, but most private capital is allocated to large businesses. Lower middle market sponsors can acquire assets through proprietary processes and discover niche opportunities that do not exist in the broader markets.

Lower Leverage Means Less Risk 

Skilled lower middle market sponsors typically drive investment returns through true operational and business improvements, not financial engineering. Assets with lower levels of debt are less likely to default and are more enduring.

Lower Leverage Means Less Risk 

Skilled lower middle market sponsors typically drive investment returns through true operational and business improvements, not financial engineering. Assets with lower levels of debt are less likely to default and are more enduring.

More Exits With Greater Multiple Expansion 

Since most private capital is allocated to larger assets, lower middle market sponsors have many potential buyers for their assets after they’ve improved and grown them. Large pools of capital have lower cost of capital and are willing to pay higher multiples.

Asset Coverage

Our multi-asset class investment program provides investors with exposure to asset classes generally unavailable to noninstitutional investors – private equity, real assets, and private credit. Our offerings aim to provide an attractive, risk-adjusted return and a low correlation to public equity and bond markets. We prioritize a tactical, value-oriented approach to investing in across these asset classes.

Private Equity

We look to invest in segments of the private markets that, in our view, are underserved by larger pools of capital. We believe backing growing companies in the lower middle market is an all-weather strategy.

Buyout

Growth Equity

Venture Capital

Real Assets

We believe investors need to diversify their real asset portfolios beyond easy-to-access real estate investments. Our strategies give investors exposure to a multitude of investments backed by real assets such as self storage, extended stay hospitality, industrial warehouses, etc.

Real Estate

Infrastructure

Private Credit

Investors have been starved of meaningful yields for years. We look to invest in private credit strategies that utilize conservative capital structures, value stringent covenants, and produce higher yields.

Senior

Mezzanine

Opportunistic

What We Look For

The dispersion of investment outcomes is meaningfully wide in the lower middle private markets. This presents a compelling opportunity for active manager selection. The process through which we evaluate sponsors and opportunities is both quantitative and qualitative. Our multiple level due diligence framework aims to piece together different data sets and characteristics that we believe correlate with top-quartile managers and investment opportunities.

Our target sponsors encapsulate the following characteristics:

Unquestionable
Integrity
Emphasis on Risk
Management
Clear Competitive
Advantage
Holistic Sponsor
Alignment
Long-Term Value
Creation

Unquestionable Integrity

Our primary focus is partnering with sponsors who share the same core ethics as Altera. We actively look to avoid conducting business with firms who fail to meet our moral and ethical standards, regardless of the opportunity and their investment performance. Ultimately, we believe a lack of integrity will result in poor long-term investment performance.

Emphasis on Risk Management

A tenet of how we allocate our investors’ capital is with capital preservation top of mind. We are not in the business of identifying opportunities that can yield the highest possible return. Rather, we look to identify managers who can consistently execute on their investment strategy, regardless of the macro environment. A rising tide will lift all boats, but true skill is evident when the “good times” pass.

“If we avoid the losers, the winners will take care of themselves.” – Howard Marks

Clear Competitive Advantage

There is a constant, evolving universe of investment managers looking for capital to execute on their strategy – and rarely do those managers lack the intellectual ability required. However, not every manager has a “right to win”. We believe teams that have a clear competitive advantage will be the ones that to deliver consistent risk-adjusted returns. That advantage may present itself through proprietary sourcing, operating capabilities, sector specialization, etc.

 

Holistic Sponsor Alignment

We feel a key to successful private markets investing is to always be aligned with our sponsors. Our focus is on ensuring that the manager is incentivized to maximizing net returns. There are several levers we negotiate with sponsors that impact overall returns; including the sponsor‘s committed capital to their own strategy, management fees, carried interest fees, and overall waterfall structure. Our goal is never to overzealously reduce the underlying fees, but to find a balance that protects our downside while ensuring the sponsor is motivated to achieve the greatest risk-adjusted return.

Long-Term Value Creation

We do not subscribe to the idea that investors can consistently predict changes in interest rates, employment, or overall economic performance. Therefore, we believe investors can only achieve superior performance by taking a long-term view with a focus on improving the operating value of the acquired assets. We prefer managers that rely more on earnings growth to drive returns than incorporating high levels of leverage and projecting multiple expansion or cap rate compression at exit.

Unquestionable
Integrity

Unquestionable Integrity

Our primary focus is partnering with sponsors who share the same core ethics as Altera. We actively look to avoid conducting business with firms who fail to meet our moral and ethical standards, regardless of the opportunity and their investment performance. Ultimately, we believe a lack of integrity will result in poor long-term investment performance.

Emphasis on Risk
Management

Emphasis on Risk Management

A tenet of how we allocate our investors’ capital is with capital preservation top of mind. We are not in the business of identifying opportunities that can yield the highest possible return. Rather, we look to identify managers who can consistently execute on their investment strategy, regardless of the macro environment. A rising tide will lift all boats, but true skill is evident when the “good times” pass.

“If we avoid the losers, the winners will take care of themselves.” – Howard Marks

Clear Competitive
Advantage

Clear Competitive Advantage

There is a constant, evolving universe of investment managers looking for capital to execute on their strategy – and rarely do those managers lack the intellectual ability required. However, not every manager has a “right to win”. We believe teams that have a clear competitive advantage will be the ones that to deliver consistent risk-adjusted returns. That advantage may present itself through proprietary sourcing, operating capabilities, sector specialization, etc.

 
Holistic Sponsor
Alignment

Holistic Sponsor Alignment

We feel a key to successful private markets investing is to always be aligned with our sponsors. Our focus is on ensuring that the manager is incentivized to maximizing net returns. There are several levers we negotiate with sponsors that impact overall returns; including the sponsor‘s committed capital to their own strategy, management fees, carried interest fees, and overall waterfall structure. Our goal is never to overzealously reduce the underlying fees, but to find a balance that protects our downside while ensuring the sponsor is motivated to achieve the greatest risk-adjusted return.

Long-Term Value
Creation

Long-Term Value Creation

We do not subscribe to the idea that investors can consistently predict changes in interest rates, employment, or overall economic performance. Therefore, we believe investors can only achieve superior performance by taking a long-term view with a focus on improving the operating value of the acquired assets. We prefer managers that rely more on earnings growth to drive returns than incorporating high levels of leverage and projecting multiple expansion or cap rate compression at exit.