Highlights:

– IPO Fatigue Grows As Market Records Best Year Since 2001
– Mexico, Colombia & Peru are Latin America’s Most Attractive PE Markets

– Exceptional Liquidity Fuels Investment in Options to Classic PE Funds

– PE Managers Face Growing Competition from Their Own Limited Partners

– Micro-VC Grows at The Expense of Mid-Market Fund



IT’S THE BEST YEAR FOR PE-BACKED FLOATS SINCE ’01, BUT IPO FATIGUE GROWS. 
In the first nine months of 2014, 264 private equity-backed initial public offerings raised $105.3 billion, a 12-year annual high for capital raised, according to the latest EY Global IPO Trends report. But the good news for PE investors comes at a time when the IPO market is “off the boil,” particularly in Europe, according to the Wall Street Journal, which cites the poor post-listing performances of German online retailer Zalando and French electronics and software company Ateme. Meanwhile, Reuters writes that “weakness in European IPOs is about more than volatility,” noting the “big failure” of the pulled IPO of French engineering firm Spie. “The economic backdrop is darkening,” with European growth forecasts slashed and the IPO buy side “straining.” IPO “demand no longer outstrips supply the way it did when the year began.” Momentum in the global IPO market may prove difficult to maintain in 2014’s final quarter.

EY
 THE WALL STREET JOURNAL
 REUTERS



MEXICO, COLOMBIA & PERU ARE THE MOST ATTRACTIVE PE MARKETS 
in Latin America, in that order, according to the autumn Coller Capital/LAVCA Latin America Private Equity Survey, which covers the opinions of 131 global investors. Some “62 percent of investors expect net annual returns of 16 percent or more from their overall Latin American PE exposure over the next 3 to 5 years.” A higher 75 percent “have the same expectations” for regional exposure not including Brazil, while only about half expect similarly attractive returns from Brazil itself. Over 50 percent of Latin American LPs expect to make co-investments over the next three years.

COLLER CAPITAL/LAVCA



LOTS OF LIQUIDITY FUELS ALTERNATIVES TO CLASSIC FUND STRUCTURES, 
a trend illustrated by listed fund-of-funds manager Graphite Capital Management. Measured by value, a total of 67 percent of Graphite’s deals between January and September 25 of this year were either direct deals, co-investments or secondary transactions for existing fund stakes, according to Financial News. “A high level of exits from underlying investments” is the catalyst driving investment outside of classic primary fundraising opportunities at Graphite and, according to industry pundits, at many peers as well. “Fund drawdowns are unlikely to be sufficient on their own to absorb the current cash balance. We therefore plan to make further co-investments and secondary fund purchases for the remainder of the year,” Graphite said in a statement.

FINANCIAL NEWS



“PE MANAGERS FACE GROWING COMPETITION FOR DEALS” 
from their own limited partners, writes the Financial Times. “These days, private equity fund managers are not just jostling with other buyout houses, cash-rich multinationals and debt-savvy entrepreneurs such as Warren Buffett” for transactions – “they are also competing with their own investors.” Singaporean sovereign wealth fund GIC’s successful bid of more than $3.2 billion for RAC “derailed plans to list the U.K. roadside recovery specialist and followed approaches” from PE firms Apax, Blackstone, Charterhouse, Cinven, and CVC. The GIC stake, bought from Carlyle, shows how pension plans and SWFs are investing directly “to save the expensive fees charged by buyout fund managers” and to place as much capital as they possibly can in what they deem attractive PE deals. “Some pension plans, like the Canadians, and some of the largest SWFs are becoming serious competition,” says Fotis Hasiotis, head of European financial sponsors at Lazard. “Like GIC, we may see more LPs become proactive with fund managers they back, by using their knowledge of the portfolio companies to buy stakes directly from them.”

FINANCIAL TIMES



INVESTORS INCREASINGLY WANT MICRO-VC FUNDS. 
“Industry Ventures’ ability to more than double the size of its fund-of-funds targeting venture capital funds of $250 million or less is another sign of rising investor interest in these smaller pools,” writes Dow Jones’ Venturewire. Industry Ventures “closed on $170 million,” more than two and a half times the $65 million it raised for its last fund. “I think this is the first year that LPs have realized that you can make a lot of money in small venture funds,” says Hans Swildens, Venture Industry’s founder and CEO. There’s been “an explosion in the number of small VC funds, which if managed properly, can deliver ‘awesome performance,’ according to Swildens.” Increasingly, industry pundits are claiming that the best returns come from either smaller or larger VC funds, with the competitive landscape for mid-sized VC funds getting tougher, as the time it takes to go from small startup to large company shrinks. That accelerated corporate evolution is driven by falling technology costs and the massive growth of internet usage.

VENTUREWIRE