Apax’s listed trust goes long on debt as PE spending drops

The listed private equity trust's derived debt exceeded its derived equity exposure in the first half of this year.

Apax Global Alpha, the listed private equity trust of London-headquartered Apax Partners, expects to increase its exposure to debt as high valuations hinder private equity deployment.

The pace of new investments in the private equity portfolio slowed in the six months to 30 June amid “expensive” market pricing, according to its H1 earnings report. The vehicle committed €25.3 million to Apax investments in the period, down from €39.7 million in H1 2017.

AGA generated €112.1 million of expected proceeds from exits signed or completed in H1, compared with €48.2 million in the first-half of 2017. Apax funds returned €22.3 million to AGA in the period, with three full exits signed from Apax VIII, a $7.5 billion 2012-vintage, generating a 54.3 percent gross IRR and 4.2x MOIC.

“Spreads have risen in H1 and US base rates have also increased, resulting in yields expanding in the western markets,” the results noted. “Consequently, we believe that risk-reward profiles in debt have improved and we expect the share of debt to increase within AGA’s derived investments.”

Apax Partners does not manage credit vehicles. AGA invests in derived debt and equity in existing Apax portfolio companies and opportunities generated by the firm’s dealflow. Derived debt accounted for 19 percent of the invested portfolio as of 30 June, compared with 16 percent for derived equity, and this ratio is likely to shift as a result of the pivot to debt.

Distributions have significantly outweighed capital calls industry-wide in recent years as a surplus of dry powder and growing competition for assets makes reasonably priced assets hard to come by, according to data from private equity software provider eFront.

AGA’s net asset value increased by €31.5 million to €943.9 million during H1, largely driven by a higher positive contribution from private equity. The vehicle posted an 11 percent total return for its private equity portfolio in the six months to 30 June, a marked improvement from the 3.3 percent returned in 2017.

“The strong fundamentals of the underlying companies have now started to come through in the reported numbers, as the return drag from under-performing investments in 2016 and 2017 ceased,” the report added.

AGA also acquired two carried interest stakes from Apax alumni in the first half, increasing its exposure to the 2007-vintage Apax Europe VII by €7.7 million and gaining a €3.4 million exposure to the 2005-vintage Apax Europe VI.