– Evidence that PE-Backed Companies Grow Faster than Peers
– Individuals are “The Rising Power in Private Equity”
– Zombie PE Fund Assets Grow Significantly
– RI State Treasurer Explains Why He Wrote to the SEC
– African Investment, at a Near Record Level, is Seen Increasing
PE-BACKED COMPANIES EXPAND REVENUE FASTER THAN PEERS, writes the Wall Street Journal, citing data from the National Center for the Middle Market. “For the second quarter through June 12, private equity-backed businesses reported a mean revenue growth of 8.8 percent over the trailing 12 months, compared with 5.7 percent for companies not backed by PE.” Measured quarterly, PE-backed companies have posted faster revenue expansion than other companies for the past 30 months, with the exception of the fourth quarter of 2013 when data indicates that all companies had trailing annual revenue growth of about 5 percent. Midmarket companies have annual revenue of $10 million to $1 billion. Data is not available for periods before 2013.
INDIVIDUALS ARE “THE RISING POWER IN PRIVATE EQUITY,” claims Antoine Drean in his latest Forbes column, noting that Ares Management’s recently announced $2.55 billion purchase of Kayne Anderson Capital Advisors “is a wake up call” for PE fund managers. “The deal underlines the growing importance of being able to target individual investors – for now the wealthy, but eventually also mass market retail investors. Crucially, as the press release points out, the transaction gives Ares access to Kayne Anderson’s rapidly growing ‘retail, high net worth and family office’ distribution channels. Kayne Anderson is one of the industry’s best firms at targeting individuals and their advisors.” It raised more than $1 billion for its latest PE real estate fund, with half that money coming from high net worth individuals or their family offices. Meanwhile, Bloomberg reports that David Rubenstein, founder of mega firm Carlyle believes the “great revolution” coming to PE “will be the ability to add non-accredited investors” – those with a net worth lower than $1 million – to the rosters of PE funds.
PE “ZOMBIES” HOLD 57 PERCENT MORE ASSETS THAN IN 2013, claims the Wall Street Journal. Zombies, defined as funds “that began investing between 2003 and 2008, run by an active manager that has failed to raise a successor fund since 2008,” hold $126.6 billion in unrealized investments, versus $80.9 billion two years ago. Others, perhaps using a broader definition, say the figure is much higher. Bloomberg, citing Ian Charles of Landmark Partners, puts the value of unrealized Zombie assets at $420 billion today versus $125 billion in 2012. Whatever the figure, Bloomberg notes that as the number of old funds rise, “secondary market investors increasingly see restructurings” of these vehicles as a source of deal flow. Restructurings are likely to become “common” as vehicles raised during the record fundraising years of 2005 to 2008 age. But the big question is whether restructurings pose conflicts of interest. In stapled transactions, where investments in older funds are tied to an investment in a manager’s new fund, “the new investor may pay less to LPs of the old fund if the manager presses for a bigger commitment to its new fund,” Bloomberg observes.
RHODE ISLAND’S TREASURER EXPLAINS WHY HE WROTE TO THE U.S. SEC, along with 12 other state treasurers, asking the regulator to push for greater transparency and fee disclosures from PE managers. In Private Equity International’s Q&A, Seth Magaziner, Rhode Island’s General Treasurer, says it’s not about whether the fees are justified given return levels, but comes down to “the amount of work that we have to do to figure out what we’re being charged.” While “returns in PE have been good…we would love for the Securities and Exchange Commission to produce some structured measures for the type of disclosures general partners provide to limited partners on fees and expenses.” “Having GPs provide a clear, standardised accounting of fees to LPs is less onerous than expecting LPs to engage in cumbersome detective work to figure out how they are being charged.” “For us to report to the public on what each fund manager is charging us exactly takes weeks of staff time – the amount of work that we have to do to figure out what we’re being charged” is “ridiculous.”
PE AFRICA INVESTMENT, AT A NEAR-RECORD LEVEL, IS SEEN INCREASING, notes Reuters, citing figures from the African Private Equity and Venture Capital Association. “Private equity deals in Africa totalled $8.1 billion last year, the second highest on record after the $8.3 billion posted in 2007” and “should keep rising as funds seek bumper returns.” Investors hope to “cash in on rapidly emerging middle-class consumers in Africa – home to many of the fastest growing economies in the world. PE deals in Africa between 2007 and 2013 earned 60 percent more than the Morgan Stanley Capital International emerging market index.” Big groups moving into Africa include TPG, KKR and Carlyle. “Crucially, it is getting easier to get money out of Africa. There were 40 exits in Africa in 2014, the highest in eight years.”