Theo Dickens's 5-Minute Interview with Dr Dorothy Kelso, Head of SuperReturn

“The entrepreneurs who run our companies are an amazing bunch of highly talented and driven people. Even if I can't claim to tap-dance to work like Warren Buffett, working with them is a great joy and always gives me something to look forward to,” says Theo Dickens.

In this series of 5-minute interviews, I shine the spotlight on up-and-coming fund managers in private markets across the globe. All geographies. All strategies. All sectors.

Here's my conversation with Theo Dickens, Managing Partner at Prefequity.

Quick facts about Prefequity:

  • Sector/thematic focus: Credit investing with a private-equity approach

  • Geo focus: UK

  • Year established: 2017

  • Location: London

  • AUM: £80m

  • Number of funds closed: 1

  • Current fund size: Target size for Fund II is £125m

  • Equity size invested in companies: £5-25m

Q: What’s your investment strategy?

A: We make senior secured loans with equity participation in lower mid-market companies around the UK.

Q: How is your deal sourcing process differentiated from others?

A: Our focus on the UK allows us to cultivate the small corporate-finance firms in the regions that other managers don't reach. Only 1 of our investees in Fund I is based inside the M25.

 

Q: Which private credit strategies do you invest in?

A: We're generalists and invest across a broad spread of sectors. We're different because we avoid the overcrowded sponsor-backed end of the market and focus on non-sponsored deals where we back ambitious entrepreneurs who need capital to grow but aren't ready to give up control to private equity.

Q: What hands-on expertise do you have?

A: The team has a broad range of backgrounds in private equity, credit investing and consulting. But while we always take a seat on the board of our investees, we don't interfere in the day-to-day management of the business.

Q: What do you like most about working with your portfolio companies?

A: The entrepreneurs who run our companies are an amazing bunch of highly talented and driven people. Even if I can't claim to tap-dance to work like Warren Buffett, working with them is a great joy and always gives me something to look forward to.

 

Q: How are you building your team?

A: We're currently a team of four, which has been sufficient for investing and managing Fund I. We plan to add selectively as we grow.

Q: How do you see your business scaling?

A: We think there's a ceiling to the size of the investments we can make without running into a lot of competition that would dampen returns. In the current market we reckon that ceiling is around £30m per investment. So, if we can reach £250m with our third fund that would work very nicely.

Q: What is your secret sauce?

A: Not chasing AUM but sticking to an underserved niche that generates fantastic returns with little financial risk. The target IRR on our deals in Fund I is 18-20% while the average opening leverage is 2.5x.

Q: What valuable lesson have you learnt that helps drive your approach?

A: It's vital to have colleagues you respect and trust.

Q: What advice would you like to share with our readers?

A: Fund management is a marathon, not a sprint. I want to be doing this for the rest of my career, so everything we do is done with an eye on our long-term success.

Johnny Carew Pole