As the year draws to a close, here are eight predictions for 2020 that will almost certainly not come true:
Mega deal mirage: The industry bands together to use an estimated $1 trillion of dry powder to delist Saudi Aramco, the world’s most valuable company. The monster club deal comprises a consortium of firms including Blackstone, Carlyle Group, KKR and every other PE house in existence.
Pretty muted impact, actually: A leading multi-strategy firm raises $1 billion in 12 weeks for its debut “Zero Impact” fund. Investors are impressed by its “robust, proprietary” system for measuring and reporting impact, and its pledge to come out “roughly net neutral” in terms of the portfolio’s impact on society and the environment. “We’re really not bad,” the managing partner tells delegates at Davos, “but we are not great either.”
Catnip for tech funds: Reeling from the write-down of WeWork, SoftBank turns to the steady world of medical devices for its next investment. Masayoshi Son is shocked to discover that CatScan Inc. is not a medical imaging provider, as thought, but an app that allows cats to make free video calls to their owners. The deal turns into a 12x home run.
No more nomenclature: A duo spins out of a mega PE shop, only to find that all generic firm names based on landmarks and colours have now been used up. “Rivers, cliffs, oak trees, mountains: they’ve all gone,” said a co-founder. “Even the word ‘Landmark’ itself is taken.” The founders decide to switch to a numerical naming convention, only to find One Equity unavailable.
Say yes-yes to ‘pref-pref’: A start-up firm identifies an underserved part of the market: preferred preferred equity, much like preferred equity but with a slightly different risk-return profile. Tactical Liquidity Solutions I is an investor smash, raising $1 billion in the space of six weeks, and the “pref-pref” strategy becomes the talk of the town.
Never let go!: The volume of PE-backed M&A deals drops to record lows as nearly all buyout firms decide they don’t want to part with any of their assets. Instead, they use the secondaries market to restructure existing assets into continuation funds. “It just seemed easier than finding new companies to buy,” notes one dealmaker.
Key robot: In a bid to cement its tech credentials, a fund of funds firm starts listing its proprietary algorithm as a key person on its new funds. The plan backfires when the algorithm is discovered making unauthorised political campaign contributions in breach of pay-to-play rules. It is switched off, triggering a key-person event.
Revolution: After a big push from industry groups on both sides of the Atlantic, 90 percent of private equity firms are led by women, with majority-female investment teams dominating. Early indicators show positive effects on performance. A Men in Private Equity conference series is launched.
The Friday Letter will return on 10 January. PEI wishes all our readers a Merry Christmas and Happy New Year.
PS. Have you voted yet? Polls are open for the 2019 PEI Awards and the competition is heating up.