Maitland/amo Private Equity Monitor – 24 June 2022

Worth a read

SuperReturn: Pessimism

The consensus at SuperReturn last week was pretty pessimistic – KKR private equity co-head Philipp Freise says that this is “a time of reckoning for our industry”, while co-president of General Atlantic Gabriel Caillaux states that many are going to “wake up with a terrible hangover”. According to the Financial Times, at least four senior dealmakers privately referred to the flood of deals struck at high valuations from the pandemic years to risk turning a series of funds into a “bad vintage”.

Overexposed to PE?

The WSJ reports that investors, such as pensions and endowments, are finding themselves overexposed to private equity. This overexposure comes from decline in public stocks, bonds and slower cash distributions from private equity funds, which pushed the value of portfolios to upper limits of what allocation policies allow. Looking for ways to lighten the load so they can continue investing, many are considering a range of financing options to make room for new commitments. This includes selling stakes on the secondary market, exploring preferred-equity financing, asset-backed securitisation, and collateralised fund obligations.

A breakthrough in Japan

Bloomberg writes that the Toshiba deal is allowing private equity to change its damaging public image in Japan – a nation where dealmakers are better known as “vultures”. If successful, the prospective deal will become the largest ever PE deal in Japan, signalling that the industry is becoming more accepted in the country. It is observed that companies are increasingly approaching private equity, with deals reaching an all-time high last year, while receiving supportive comments from the government.

Sell-to-yourself, part 1

The FT’s Big Read on Tuesday takes a look at how private equity groups are increasingly buying companies that they already own, selling to themselves through continuation funds. Although these deals allow managers to reap great financial rewards, it notes that there has been some criticism and complaints from investors as they appear not to benefit all parties involved. Nonetheless, the industry expects that this type of transaction is here to stay due to its position as a structural addition to the private equity ecosystem. The article also looks at how the deal works in practice, current regulations and disclosures, and how carried interest plays a role.

Sell-to-yourself, part 2

On the same subject, Helen Thomas of the FT comments that the use of continuation funds is a “wild ride”, similarly believing that LPs and third-party investors are getting the short end of the stick. She points out that there is asymmetry of information and experience between private equity groups and thinly staffed investment offices, where the former might ask the latter to make quick decisions on limited information. She also notes that terms might be “recut”, with PE firms introducing “super-carry” or other changes to the advantage of the buyout fund in bespoke deals. In all, she warns that others should consider implications towards public markets and pension funds, especially with assets being kept in private hands for longer and longer.

Wall of money

Brookfield raises US$15bn for ‘world’s largest private fund’ focused on the energy transition

Brookfield Asset Management has raised US$15bn as part of its Brookfield Global Transition Fund, which focuses on investing in the transition to a net zero carbon economy. Announced yesterday, the oversubscribed fund, which Brookfield claimed was the “world’s largest private fund dedicated to facilitating the global transition to a net-zero carbon economy”, was backed by more than 100 LPs, with Brookfield being the largest investor.

HGGC closes biggest fund to date by pulling in $2.54bn for fourth flagship fund

Mid-market buyout house HGGC has closed its largest fund to date after collecting $2.54bn for its fourth flagship fund, beating its already target of $2.25bn. The fund will continue to  focus on buy-and-build, business transformation and organic growth strategies, and expecting to see more opportunity on the take-private side.

LGT Capital Partners soars past Crown Asia-Pacific Private Equity V target to strike $1.65bn hard cap

Swiss alternative investment specialist LGT Capital Partners held the final close of its fifth Asia Pacific fund-of-funds at a hard cap of $1.65bn, which exceeded the $1bn target. The largest family-owned private banking and asset management group in the world said in a press release that the fund, Crown Asia-Pacific Private Equity V, attracted commitments from more than 50 institutions, including pension funds, insurance companies, university endowments, and foundations.

ECP set to close on $1.6bn for Calpine continuation fund

Five years after the US power company’s $17bn take-private, ECP is rolling about 20% of its existing LPs into a new single-asset vehicle. New Jersey-based Energy Capital Partners is set to close a $1.6bn continuation fund for US power company Calpine Corporation in the next couple of weeks, according to Infrastructure Investor. The energy fund manager has been working with PJT Partners to raise the single-asset vehicle and will see 20% of the existing LP base roll over into the new fund, with Pantheon also a lead investor. ECP’s ownership of Calpine has been held by both its 2013-vintage Energy Capital Partners III and 2017-vintage Energy Capital Partners IV vehicles.

Deal chart

Movers and Shakers

UK & Europe

Palatine has strengthened its team with the appointment of Danielle Garland, from Mobeus Equity Partners, as investment director in its buyout team based in London.

17Capital has appointed Claire Hedley as ESG director. Hedley joins from Goldman Sachs Asset Management, where she led its ESG Client Strategy Group, in London.

EY has added three to its PE partnership. Jason Spencer, Naveen Tiwari and Peter Renon join EY’s transaction strategy and execution (TS&E) team, based in London.

North America

Brookfield Asset Management has hired Nicholas Apostolatos from Barclays to lead healthcare investing in its private equity.

KKR has hired former IDEX Corp chief executive Andrew Silvernail as advisor to help buy and operate companies in the industry and to boost industrial, healthcare, consumer sectors dealmaking.

From the horse’s mouth...

“When sponsors and other buyers cannot get adequate amount of leverage at reasonable prices, it hurts their ability to pay prices which would have been possible when markets were more conducive. This is creating a huge delta between buyer and seller expectations on value, and we are seeing deals stalling or falling apart because of that.” – Alison Harding-Jones, Head of EMEA M&A, Citigroup.

“The idea is, you can create a greatest hits album.” – Tony Colarusso, global head of private capital advisory at Morgan Stanley, on fundraising from secondaries businesses. 

“By forgetting the past and by throwing myself into other interests, I forget to worry.” – Jack Dempsey, American professional boxer, born on this day in 1895.