Maitland/AMO Private Equity Monitor – 2019 Wrapped Up

20th December 2019

Dear Esteemed Readers,

We’d like to take this opportunity to wish you a very happy festive season and all the best for the new year and decade. We are extremely grateful for your subscription to and (hopefully) enjoyment of our private equity monitor, which is going strong into its fifth year.

It has been another eventful year on both sides of the Atlantic on the political front, with the US/China trade war and Brexit negotiations unsurprisingly dominating market chatter, while Elizabeth Warren has burst onto the scene in the US, drawing particular attention for her comments on the private equity “bloodsuckers”. There has also been a great deal of debate about whether retail investors should be allowed to access private equity, while ESG in the asset management industry generally has firmly moved into the mainstream.

Fundraising continues apace, with Blackstone’s record-breaking $26bn private equity fund leading a raft of mega-raises, including Advent’s $17.5bn – the top ten fundraises this year near a staggering $150bn. The top ten deals, meanwhile, are not far behind and combine for a cool $90bn.

We hope you enjoy this overview of 2019, which includes some of our favourite private equity quotes of the year, the most important people moves and a selection of the more interesting tales and trends from the industry. Here’s to another successful decade for the private equity industry and each and every one of you!

Best wishes,

Your Maitland/AMO Private Equity Monitor team and humble servants – Finlay, Andrew, Mia and Harry

“Time is a sort of river of passing events, and strong is its current; no sooner is a thing brought to sight than it is swept by and another takes its place, and this too will be swept away” – Marcus Aurelius

Worth a read


The private equity bloodsuckers

The private equity industry is used to criticism from the political echelons, famously being likened to locusts in Germany and now vampires by Democratic presidential candidate Elizabeth Warren. Warren has published proposed legislation to curb private equity activity in corporate America named the Stop Wall Street Looting Act. According to Private Equity News, industry aces are split on whether she would actually be able to get this piece of legislation through, with David Bonderman of TPG the most high-profile to speak out publicly against this likelihood, depisute endorsing her bid.

No deal > Corbyn

Financial News conducted a poll which found that financiers in the Square Mile woould rather the UK crash out of the EU without a deal than have Labour leader Jeremy Corbyn take over as PM. The City is very much opposed to the idea of a no-deal, but the poll also found that 46% of those surveyed were open to the idea of a Corbyn-led government, much higher than expected by many commentators.

To float or go private? It's clear what the FT thinks...

In a pointedly critical article about merits of private equity as opposed to the stock market, Jonathan Ford, the Financial Times’ City Editor, argues that stock markets have been eroded by hungry private equity companies hoovering up increasing numbers of pension funds and thereby diluting stock markets. He writes that the number of American IPOs declined from 700 in 1996 to barely 100 in 2017. Ford is somewhat chippy about private equity, arguing that the source of private equity’s superior performance is from “financial engineering, not running companies better”.

Abraaj too far for regulators to work in unison?

Prior to Abraaj Group’s collapse at least $600m of investor money was moved without the knowledge of most investors, exposing a gap in the oversight of the global financial system, according to Private Equity News. It has emerged that no single regulator was responsible for supervising the firm, with regulators simply ignoring the funds created outside of their jurisdiction. There are ongoing arguments as to who was to blame for overseeing the firm’s main units, however the case emphasises why regulators need to work closer together to close these gaping loopholes.

Investors demand ESG focus

Buy companies which languish at the bottom of the ESG pile, flip them around and sell for a song following much needed improvement. Lovely jubbly. But Private Equity News writes that it’s not just about finding the black sheep of the ESG family and making higher returns. The sphere of influence has changed: ESG, once a niche happy add-on has swiftly supplanted the gas guzzlers and cigar chompers to become the bedrock of many PE firms. And inside a fairly crowded market, firms are trying to think as innovatively as possible in order to differentiate themselves from other ESG offerings, bowing to investors’ demands. Interestingly it’s not seen as a zero-sum gain: many houses don’t have to sacrifice financial performance at the altar of non-financial impact.

The $1trn goal

The Financial Times trumpets that 2019 is all set to be a record year for fundraising. According to a (yet another) survey, a record 3,749 private equity funds heralded the new year by touting their wares for fresh capital, nearly 63% up compared to January 2018. Private equity managers are hoping to raise close to $1tn in new cash this year but with an increasingly crowded field, competition to attract fresh capital is extraordinarily fierce. Let the games continue…

Financial obesity: Too much money can be a bad thing

Private equity is sitting on a pretty prized plum. So prized in fact that it’s starting to rot. At least that’s according to Private Equity News: private equity’s fundraising bonanza has apparently been “polluting” the market which could be unhealthy for target investors. The problem is that if you have $2.5tn in cash, you can’t always find a quality asset. Several buyout giants have actually specifically set up growth strategies. But Gabriel Caillaux, head of EMEA at General Atlantic argues there’s something of a cultural disconnect: the larger buyout groups may struggle with origination as they’re used to hunting for “big elephants”.

Should private equity be a retail investors' market?

The launch of “radical” platform Truffle Invest and other similar competitors has led to questions about whether retail investors should be exposed to the complicated private equity markets and the risks of investing in this type of company. Leading private equity industry figures suggest that “it is an extremely bad idea”, as alternatives are already proving difficult for sophisticated institutional investors. Private Equity News writes that those entrepreneurs launching such platforms claim to be responding to a flood of demand in the market.

Secondaries: no longer second fiddle?

In the past five years the popularity of buying and selling assets in secondary transactions has soared. According to advisers Triago, transactions in the secondary market have trebled since 2013, amounting to $66bn today. The Financial Times‘ Lex column comments that, given the 26% return profile, the popularity of this asset class is unlikely to diminish in the near future.

Private equity and sport - on the same team?

Private equity individuals and sporting teams have always had a slight affinity – for instance, Josh Harris of Apollo has interests in Crystal Palace and the New Jersey Devils. However this year has seen a rising interest in sports assets from private equity firms, particularly CVC Capital Partners, which bought Premiership Rugby and has been linked with the Six Nations and global football tournaments, according to articles in the Financial Times. Silver Lake also took a stake in Manchester City’s football group. Could this be the start of a happy marriage between sport and private equity?


Wall of money


1. Blackstone collects $26bn for largest ever PE fund

The world’s largest private equity firm also made history this year with the largest ever private equity fund, just pipping the $24.7bn raised by Apollo Global Management in 2017. Founder Stephen Schwarzman said “it was a proud moment” and also claimed that he did not make a single presentation to investors when raising the fund, evidence of Blackstone’s excellent reputation and track record.

2. Advent raises $17.5bn for buyout fund

Advent International has raised $17.5bn for its latest buyout fund, one of the largest amounts ever raised for leveraged buyouts and a record for the company. The fund surpassed its $16bn goal and will predominantly target North America and Europe.

3. Warburg Pincus holds first close of $14.8bn

Warburg Pincus has held a first close on the Warburg Pincus Global Growth Fund on $14.8bn, exceeding the initial $13bn target, according to sources. The fund was launched in May last year and has a $15bn hard-cap, meaning it is larger than the predecessor, Warburg Pincus Private Equity XII.

4. Thoma Bravo closes largest flagship fund

Technology investor Thoma Bravo has closed its latest fund at a whopping $12.6bn, reaching the hard cap. According to the firm, the fund will invest in enterprise software companies and is the largest ever pool of capital raised to do so.

5. Leonard Green raises $12bn for flagship strategy

Los Angeles-based buyout firm Leonard Green & Partners has raised $14.75bn for two new funds, $2.75bn focused on the mid-market and $12bn for its flagship buyout strategy. The firm is best known for its investments in Shake Shack, J.Crew and Pure Gym.

6. Lexington nears $12bn for record secondaries fund

Lexington Partners was said to be nearing its $12bn target for what would be the largest ever secondaries fund, eclipsing the $10.8bn raised by Ardian in 2016. The secondaries market enjoyed its busiest ever year in 2018 as institutional investors use the market to manage their private equity portfolios.

7. TPG raises nearly $14bn for two funds

According to American regulatory filings, TPG has raised $11.2bn for its latest flagship buyout fund, TPH Partners VIII LP and another $2.57bn for TPG Healthcare Partners LP. The latter marks TPG’s first fund dedicated exclusively to healthcare deals.

8. Blackstone closes secondaries fund

Blackstone’s Strategic Partners division has collected $11.1bn to invest in the growing secondary market, making it the firm’s largest vehicle for such investing. The fund will invest in private equity, real estate, real assets and direct equity transactions.

9. Permira closes its seventh fund at €11bn

Permira has closed its latest buyout fund at €11bn, having started fundraising in January this year. Permira said it already made two new investments from the fund but has declined to disclose further details.

10. Platinum nears second close for its fifth fund

The private equity firm led by Tom Gores was reported to be approaching a second close of more than $9bn for its latest fund, which will be its largest ever. The firm said it expects to hit the hard-cap of $10bn before the end of the year.


Deal chart


Acquisition TargetBuyerSellerValueDate AnnouncedRegionSector
US warehouse networkBlackstone GroupGLP$18.7bn03/06/2019USLogistics
SymantecPermira, Advent International-c. $16bn09/09/2019USCybersecurity
Merlin EntertainmentsBlackstone Group, CPPIB, Kirkbi-£5.9bn28/06/2019UKEntertainment
Axel SpringerKKR-€6.8bn12/06/2019GermanyPublishing
Acelity-Apax Partners$6.7bn15/10/2019USHealthcare
Tech DataApollo Global Management-$6bn03/12/2019USTMT
US industrial warehousesBlackstone GroupColony Capital$5.9bn30/09/2019USLogistics
CobhamAdvent International-£4bn25/07/2019UKAerospace
CepsaThe Carlyle Group-c. $4.8bn08/04/2019SpainOil & Gas
Häagen-Dazs USPAI PartnersNestlé£4bn12/12/2019USFood & Drink

Movers and Shakers


Europe

Graham McDonald, Aberdeen Standard’s head of global private equity is due to depart following a review of the firm’s division.

Partners Group has hired former British Prime Minister, Gordon Brown, who will advise the Swiss firm on impact investments.

North America

Apollo Global Management has promoted partners Matt Nord and David Sambur to co-heads of its private equity business.

KKR announced that Pete Stavros and Nate Taylor will co-lead the firm’s private equity business in the Americas. Mattia Caprioli and Philipp Freise, based in London, will do so in Europe, while Hirofumi Hirano and Ashish Shastry will lead the firm in the APAC region.

Värde Partners has named partner Illfryn Carstairs as its new co-CEO to work alongside co-founder and current chief executive George Hicks, the appointment will be effective from 1 January 2020.

Egon Durban and Greg Mondre were named co-CEOs at Silver Lake Partners, a week after the firm acquired a stake in City Football Group.

Clayton Dubilier & Rice has appointed Nathan Sleeper as CEO while David Novak and Rick Schnall will serve as co-presidents.

Omers has named Blake Hutcheson as its new chief executive, taking over from Michael Latimer when he steps down next year. Hutcheson has been with Omers for 10 years and is currently president and chief pensions officer.

General Atlantic has promoted three executives, Anton Levy, Gabriel Caillaux and Martin Escobari to the new role of co-president.

Intermediate Capital Group (ICG) has appointed Alan Jones as senior managing directorto build its private equity practice in North America. He joins from Morgan Stanley after 25 years with the firm.

Hg has also opened its first office in the US, in New York, which will be led by Ben Meyer and Gero Wittemann, who joined from Temasek and CVC Capital Partners respectively.

Asia

Hamilton Lane has promoted Mingchen Xia and Collwyn Tan to co-heads of Asia investments to bolster the firm’s activities in the region.

French private equity firm Eurazeo has announced the opening of an office in Seoul, to be run by Solomon Moos, who has been in charge of corporate development at subsidiary Idinvest since 2016.


From the horse’s mouth...

“You need to be [either] a watermelon, hard outside and soft inside, or a peach, soft outside and hard inside. We like peaches.”Christian Sinding, CEO of EQT in an interview with the Financial Times

“I’ve still got enough money to buy decent wine, eat good meals and I don’t do a lot else.”Guy Hands, Founder of Terra Firma Capital Partners

“We need private equity, we need more of it, and we need it now.”Ben Meng, CEO of the California Public Employees’ Retirement System

“At some point they could kill the golden goose”Steve Ketchum voices his concerns on private equity firms which are sabotaging the market by relaxing terms on loans to investors.

“The UK is still going to be a major economy, it’ll grow more slowly and I don’t have to necessarily pay the same price as before. The currency is cheaper than it was.”Jonathan Gray, president and COO of Blackstone provides his reasoning as to why Brexit in fact renders Britain an attractive bargain

“People who work in private equity funds need to be opinionated, and not afraid to express their opinions. It’s a sports team, but it’s also a contact sport.”Simon Marc, managing director and head of private equity at PSP Investments, the $14bn private equity arm of Canada’s public sector pension investment board

“People used to think that private equity was basically just a compensation scheme, but it is much more about making companies more efficient.”David Rubenstein, Co-founder of The Carlyle Group

“The U.K. is a phenomenal country. It will be an excellent place to invest in the fullness of time; in the [near future] it is a bit unsure. None of our businesses have been affected by anything going on today.”Bruce Flatt, CEO of Brookfield Asset Management on Brexit

“The weaker players might not be able to compete. But boohoo. That’s capitalism.”Warren Buffett on the dangers posed by Elizabeth Warren and the fact that private equity firms with management expertise have little to fear

“The discipline of the written word punishes both stupidity and dishonesty.” – John Steinbeck, American author who died on this day in 1968