Private equity fund managers should avoid investing in popular countries or recently fashionable regions, TPG founder David Bonderman said during a panel conversation at the Milken Global Conference Wednesday.
While firms such as TPG and Apollo are pursuing global opportunities, neither Bonderman nor Apollo's Black expressed enthusiasm for emerging markets.
“We're investing in companies not countries, so we are going to take a case by case look,” Bonderman said. He listed Vietnam as one emerging country where TPG has had luck in the past, but was quick to point out that he wouldn't advocate a specific country or set of countries as having a strong national investment story.
“If you talk to LPs now, everyone wants to be in Africa, which probably means its a bad place to invest,” he said.
Black echoed his concerns. “One of the problems with emerging markets is that you're a minority, not majority partner. If something goes wrong you don't always have the sole authority to fix it. Emerging markets from a company perspective are also a hard value play for us.”
So far this year, Apollo has invested roughly $850 million in transactions, the bulk of that being based in the US.
At a separate panel on M&A activity, participants noted that some of the bad deals of the pre-crisis boom are coming back as firms hunt for opportunities. Credit terms are starting to loosen again, and covenant lite deals are returning into mainstream dealflow. Part of that loosening is being driven by the shadow banking industry, which has stepped in swiftly and significantly to provide private capital to entities that have had a hard time finding liquidity with traditional banks, according to Nicholas Schorsch, chief executive officer of American Realty Capital.
“A lot of the fundraising that is happening is going on in shadow banking areas like non-traded BDCs,” Schorsch said. American Realty Capital is currently in talks to merge with NorthStar Realty Finance Corp.
Pension funds on the institutional investor panel noted a shift to more internal portfolio management. Panelists from Teacher Retirement System of Texas, New York City Retirement System, China Investment Corp., Harvard Management Company, and La Caisse de dépôt et placement du Québec all noted that they are working to shift away from relying so heavily on external consultants.
Michael Sabia of La Caisse de dépôt et placement du Québec said La Caisse is refocusing the culture of the pension system to a total or absolute return view, and will be willing to take high conviction, “concentrated positions if the value is clear.”