Institutional Investor is proud to recognize leaders within the allocator community for their outstanding contributions to portfolio development at the second annual AlphaEdge Recognition Dinner. Prior to the event, we sat down with Benjamin Holthus, CAIA, recognized in the category of Next Generation Recognitions.
At the Montgomery County Employee Retirement Plans in Rockville, MD, Benjamin Holthus, CAIA, co-leads the Real Asset program for the Montgomery County Employee Retirement Plans and acts as a private markets allocator, occasionally underwriting Private Credit and Private Equity funds in addition to Private Real Asset funds. Recently, he has designed and implemented a co-investment process for private infrastructure funds and is also responsible for managing that co-investment portfolio. Before he assumed his current role at the $7.5 billion public fund two years ago, he started his LP career at AARP, a similar $5 billion corporate pension.
Ben initially joined the investment industry on the consultant side, at Pavilion Alternatives Group which became Mercer where he worked on behalf of large institutions like Maryland State Retirement and Pension, Church Commissioners of England and multiple others. He is a graduate of George Mason University, where he received his Bachelor Science, and William & Mary, where he earned his MBA from the Raymond A. Mason School of Business.
The following has been edited for length and clarity.
What is the biggest challenge facing the industry today?
It really depends on who you’re asking: This industry is bifurcated between the GP side and the LP side. On the GP side, I think the biggest issue is fundraising. Infrastructure was raising $20 billion to $70 billion a quarter between 2018 and 2022; now the asset class has been raising sub-$20 billion for the past 5 quarters. All private market fundraising is struggling, but for real assets it’s even more important because its success is dependent on ‘milestone or success-based capex’. If you’re not able to have capital available when the milestone is reached, a great investment could turn into only an okay one. Typically, GPs main focus is on the investments but because of this environment, more and more focus is being shifted to the capital raising side of things and they are doing interesting, sometimes questionable, things to navigate it.
On the LP side, it’s responding to that: How can you leverage this environment, especially when you’re smaller and aren’t used to having leverage and increased negotiating ability. With the competitive fundraising environment, you have to learn that new skill set, do you come in early and take advantage of first close discounts, or do you wait around the hoop for better visibility into the fund’s deals and the co-investment opportunities? What terms can you negotiate that you weren’t able to in the past? Can you negotiate an aggregate client discount if you’re working with a consultant to further drive down fees?
Do you think it’s the biggest opportunity?
Investors who wait around the hoop can often be rewarded with deal visibility and potentially co-investment opportunities in deals that already performing above expectations. Choosing when to come in early and take advantage of first or early close discounts and when to wait to see what deals materialize and what co-investment opportunities may be is an important decision. Many LPs are still putting co-investment processes in place to be able to take advantage of opportunities like that.
Co-investments are such a large opportunity because they’re objective value-add to your program, you can own an incremental piece of the same asset you already own at no fee, averaging down the fee profile of your program. Typically, as allocators, we’re looking at subjective measures of value-add i.e. private equity vs venture capital, while co-investments go straight to the bottom line and the opportunity is huge when you’re dealing the absolute numbers that allocators are dealing with. You have the potential value-add of millions of dollars.
What are you most excited about?
I’m most excited about infrastructure right now. I think it’s a nascent category with new categories being created all the time. We just met with an infrastructure fund invested in a firefighting helicopter fleet: an essential service, long-term contracted revenue and government counterparties. It’s constantly expanding asset class, and what makes it even more interesting, is that it has never-ending valuation creation levers. In private equity, you might change your go-to market strategy or augment the management team. With infrastructure, there’s many more options. For instance, take Peaker Plants - you can take that peaker power plant and refurbish it and harvest large yields off of it; you could also aggregate it with other assets and sell it into it another power market; or you could leave it as is, develop solar or wind off of it and use it for access to the grid. Three totally different value creation plans for the same asset.
Also, you can look at the energy transition - 90% of investment historically in the energy transition has been on the power generation side of things (wind, solar, batteries, et cetera), but that only produces about 20% of our emissions. 60% of our emissions are on the industrial side, such as materials, chemical, different industrial processes and there’s not really been much investment there historically, which means there’s a lot of interesting opportunities to create value.
In contrast, you have private equity, which is largely software investing so it’s really hard to be topical for the average person. Infrastructure is so much more thematic than private equity currently; it’s an overall market story: I can tell people about how energy demand globally is growing so even in the optimistic scenarios where we double wind/solar output, it really only serves our incremental demand and how important traditional energy will be for energy reliably and security, something that could impact us all. It’s narrative based, which makes it so interesting to me.
What’s the one thing the industry should do to improve the sector?
I would love to see more transparency and communication among LPs. It’s a secretive industry, especially if you look at endowments and foundations. If you’re able to communicate, whether on the legal terms you’re able to negotiate or fees breaks you are able to achieve, or the questionable things you are seeing GPs do in the difficult fundraising environment. If we created a better community, we could be better investors.
Who inspired you to get into this sector?
I remember in undergrad we had a private equity director come in and talk to us, and I reached out to him and stayed in contact with him – then I fell into consulting with Pavilion Alternatives group.
It was a small team in Richmond with a lot of directors and higher ups that ended up becoming global heads when it became Mercer. It gave me time to really connect and build relationships with people who were way smarter and experienced than I was.
If you weren’t in this industry, what would you be doing?
When I was a kid, I said I wanted to be a bug scientist, but I figured that I’d be a brain surgeon on the weekends.
In high school, I remember thinking being a philanthropist would be really interesting, deciding how to make the most impact; I do that for the people of Montgomery county now in the returns I’m able to help generate – also for the world as, a lot of the time, the funds with the best risk-adjusted returns are moving the world forward, in a better direction, like with the industrial decarbonization focused funds I discussed earlier.
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