Buyout firms unfazed by competition from LPs on deals

The appearance of limited partners on the buyside of deals has helped open up the market, according to dealmakers from KKR, Bridgepoint, PAI Partners and Astorg Partners at a conference in Cannes.

Increasing competition from institutional investors doing direct deals is beneficial to the market and not something buyout firms are worried about, Europe-based private equity executives told a conference on Wednesday.

Speaking at the International Private Equity Market conference in Cannes, dealmakers from KKR, Bridgepoint, PAI Partners and Astorg Partners said traditional LPs have helped expand the market.

“They’re here, and of course they do deals, and of course it’s new competition, but it’s not like we haven’t had any new competition for the last 20 years,” said Thierry Timsit, managing partner and co-founder of Astorg. “This industry is constantly reshaping itself, it’s constantly growing as well. The share of the economy that is taken by private equity is growing, so I’m not really worried.”

Traditional LPs making direct investments in private companies was “very hot” last year, as the head of private equity at a large pension fund told Private Equity International in December. Examples include sovereign wealth fund Abu Dhabi Investment Authority, pension funds Canada Pension Plan Investment Board and Ontario Public Services Employees Union Pension Trust, family office Man Capital ond Chinese fund of funds Gopher Asset Management.

Notable large deals by pension funds last year include CPPIB’s November acquisition of a 30 percent stake in online insurance business BGL Group and fellow pension fund CDPQ’s $400 million investment in Hyperion Insurance Group.

For Frédéric Pescatori, a partner at Bridgepoint who oversees French investments, the emergence of LPs as buyers has helped open up the market.

“Most of these guys are also investors in our funds. It’s not like we don’t know them,” Pescatori said. These LPs can also be helpful when buyers need to write large cheques of €1 billion or €2 billion.

“You want to have people along side you,” he said, adding that the entrance of LPs as buyers is “clearly a very good thing” when it comes to finding exits for assets.

Competition from Chinese strategic buyers is yet to make a serious impact, according to Stefano Drago, a partner focusing on healthcare at PAI Partners.

“You can play with speed and beat them,” Drago said. “In a matter of six months, one year, they’re going to be more technically apt to compete with us,” he said, adding that at the moment Chinese buyers are “excellent for us at exit”.

For Nicolas Gheysens, director at KKR, partnering with LPs on deals depends on the clarity of the LP’s mandate.

“There are certain deals that are perfect for them, there are certain deals that don’t fit their mandate,” he said. “Sometimes we do [deals] together, sometimes they come after us… it’s all about the partnership and the clarity of the mandate.”