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Highlights:

– Q1 Fundraising Just Shy of the Record
– Big Firms are Killing It
– The Hottest Fundraising Corner is Tech
– A Retail Exchange for Private Equity
– The Bad Rap of Restructurings Dissipates
– PE KeyTrends Quick Question Results



FIRST QUARTER PE FUNDRAISING IS JUST SHY OF THE 2008 RECORD,
as the trend of more money going to fewer vehicles continues. WSJ Pro reports a first quarter estimate of $99 billion for global private equity fundraising, 5.7 percent less than the record of $105 billion raised in Q1 2008. Private Equity International, with a broader definition of what strategies fall into PE, notes that while Q1 fundraising has risen through three years – up 28 percent since 2015 – investors commit more to fewer managers. Some 163 funds closed in the latest quarter, versus 195 closings in the first three months of 2015. If capital for non-fund private equity investment structures – co-investment, separate accounts and direct investing – were added to the above figures (estimates aren’t yet available), Q1 2017 would almost certainly mark a new record. Despite relative plenty, fundraising competition is intense, particularly for smaller funds.

WSJ PRO
PRIVATE EQUITY INTERNATIONAL



BIG FIRMS ARE KILLING IT.
Bloomberg provides evidence that fundraising is good for the largest private equity firms, even as they force smaller managers to compete more intensely. Jumping off with the news that KKR closed on $13.9 billion for the largest North American-focused buyout fund ever, Bloomberg recounts the successes of Advent, which raised $13 billion in just six months, after collecting $10.8 billion for its previous fund; Thoma Bravo, the software and technology specialist, which announced a $7.6 billion fund closing, twice the sum committed to its last vehicle; and Vista Equity Partners, a Thoma Bravo competitor, which has “received billions of dollars in demand” beyond the $8 billion target of its latest fund. The ambitions of large groups are far from modest: Carlyle, for example, is looking to raise $100 billion for its funds between 2016 and 2019 – that’s more than 20 percent of the global fundraising total in 2016.

BLOOMBERG



AS MORE IS COMMITTED TO PE, “THE HOTTEST CORNER OF ALL” IS TECH,
observes WSJ Pro, documenting the continuing confidence of investors, despite high prices for sector acquisitions generated by record fundraising. Paraphrasing Read Simmons, a Bain & Company partner, WSJ Pro writes that at a time of relatively sluggish economic expansion, “details like profit margins, growth rates, and rates of recurring revenue,” mean tech firms are “extremely attractive to private equity investors and justify higher deal prices than are usual in other sectors.” Currently, 541 tech funds of all types – from early-stage seed finance vehicles to late-stage growth and buyout funds – are seeking $224 billion worldwide. “Those [fundraising] numbers sound large” but “tech is a very big part of the economy and there seem to be plenty of potential technology investments out there to absorb,” concludes Simmons.

WSJ PRO



A RETAIL EXCHANGE MAY BE A KEY TURNING POINT FOR PE INVESTMENT.
That’s the implication of a WSJ Pro story detailing U.S. Securities and Exchange Commission approval for Nasdaq (mainly a public stock market operator) to start an exchange in the second half of 2017 that will permit private equity feeder fund stakes to change hands. Feeder funds, so far few in number, operated by or in conjunction with specific PE managers, give unaccredited individuals with relatively modest sums to invest, the possibility to buy private equity funds that would otherwise be beyond their reach, given the vehicles’ status as lightly regulated private placements seeking minimum seven-figure commitments. The new marketplace – tentatively named Nasdaq Private Market Alternatives – would be the first formal venue offering individuals a way to cash out of illiquid private equity. Illiquidity is one of the largest barriers to overcome in order to make private equity attractive for individuals.

WSJ PRO



RESTRUCTURING’S BAD RAP IS DISSIPATING, WITNESS THIS STORY.
Restructurings involving the transfer of PE assets to a new investment vehicle represent as much as a quarter of the secondary market for private equity fund stakes. Yet they are widely viewed as transactions involving mediocre funds, that frequently short-change investors by forcing them to accept discounts if they sell, or, if they choose to roll over into a new vehicle, to offer undeserving managers a favorable reset in compensation. But restructurings often allow investors to cash in on capital gains, while providing others a means of holding onto assets with promise. Detailed in this WSJ Pro story, Investindustrial, backed by AlpInvest, offered investors the choice of cashing out of a fund at net asset value, or rolling over for five years. Investindustrial, which began investing the fund in 2008, believes its crown jewel, the Ferrari-themed Spanish amusement park PortAventura, has plenty of potential – although yearly cash flow has nearly tripled to E95 million since acquisition. The 45 percent of investors leaving will get an annual gross return in excess of 25 percent.

WSJ PRO


AND NOW THE RESULTS OF SOME OF OUR RECENT KEYTRENDS QUICK QUESTIONS:

  • 51 percent of limited partner respondents say today’s record-high dry powder levels for buyout funds are leading them to invest in other PE strategies.
  • 59 percent of respondents believe PE managers court excessive risk when they invest in creative businesses like Cirque de Soleil.
  • 70 percent of limited partner respondents who invest in first-time managers say they are committing more to first-timers via deal-by-deal structures than was the case three years ago.