The Private Equity International editorial team has spent the last three weeks poring over the hundreds of submissions to our PEI Awards 2021. This year has seen the highest number of nominations ever received for our annual recognition of industry achievements.

We’re approaching the finish line and will be calling on you, our readers, to vote across 72 categories starting from next week.

As the year draws to a close, we thought we’d take look back at some of our favourite Friday Letters from the past year. From the controversial case of a GP removal, to alleged subscription credit line fraud, to the challenges long-hold funds face, 2021 was a year in which there was no shortage of topics up for discussion.

Novalpina dispute: A masterclass in misalignment

Over the summer, Novalpina Partners, a London-based mid-market manager best known for its investment in Israeli spyware provider NSO Group, faced the possibility of being removed as GP. The exact reasons for the falling out between the firm’s two founders – which began as early as January – were unclear, though it’s likely the seed of bad blood between the founders began much earlier than that.

The case was a stark reminder that misalignment between LPs and their GP can occur at any level.

LPs stand to lose from the alleged sub line fraud

In March, our colleagues at Private Funds CFO reported that subscription credit lenders were doing some navel gazing after Silicon Valley Bank revealed it had $70 million in net credit exposure on a $95 million sub line to a fund with allegedly at least two LP commitments that were fabricated. In such cases, the real potential victims are LPs who are on the hook to stump up for any shortfalls in contributions in the event of a capital call default or in this case fictional LP commitments.

Something may be missing from the process of lenders’ due diligence and the LP community, lenders and managers alike need to set their minds on how such a disaster can reasonably be avoided.

Long-term funds face a double whammy

Long-term funds – vehicles that aim to hold assets for 15-20 years or more – have always been a mixed bag among LPs. Sovereign wealth funds with decades-long investment horizons may love them; other investors may wonder why holding assets for three times longer than usual and removing the ‘L’ from ‘LBO’ is an attractive bet. In 2021 this trend appeared to play out with BlackRock lowering the target of its debut long-term vehicle from $12 billion to as little as one-third of that. The double threat of the uncertainty caused by the covid pandemic and increased competition from continuation funds means long-term vehicles face challenges on at least two possible fronts.

Shadow capital is here to stay

In September, Partners Group gathered $15 billion for its latest direct buyout programme, of which $9 billion came from separate accounts, mandates and other investment programmes. The raise reflected the trend of managers adapting to appetite from LPs who want to access more single-asset investment opportunities on a direct basis. So-called ‘shadow capital’ continued to rise this year, and while data is notoriously difficult to come by, adviser Triago notes that such capital accounted for about one quarter of total private markets fundraising last year, an almost 5 percentage point-increase from 2015.

Our bet? We’ll continue to see more managers raising larger amounts of capital via non-traditional fund structures in the years to come.

Why 2022 will be a time for discipline

News that a sponsor had raised $15 billion or more for its latest fund used to send ripples through the Private Equity International newsroom; 2021 was the year when that changed. Fundraising in the first nine months of the year hit a record high, with mega-funds closing left, right and centre. The enormous sums being raised add to an already staggering amount of unspent capital, something that’s led to fierce competition and higher pricing. As we face 2022, it will take discipline and a certain amount of collective common sense to ensure the LPs’ strong appetite for private equity is rewarded.

Read all our Friday Letters here.