HL's Kramer: Capital deployment concerns

Hamilton Lane’s Andrea Kramer says that GPs ‘have money burning a hole’ in their pockets.

With a record amount of dry powder on hand and a favourable credit environment stoking investment multiples, general partners will likely be active buyers in the near future, Hamilton Lane’s Andrea Kramer told an audience at the Association for Corporate Growth’s Intergrowth 2014 conference in Las Vegas.

“We have some concerns around deployment of capital. Our expectation is that we will see people putting capital to work, increasingly,” she said. “While today, we feel GPs have done a very good job of being cautious and thoughtful … our expectation is that money will start flowing out. You can’t have money burning a hole in your pocket.”

Kramer was quick to clarify that some of that investment activity will come at the behest of limited partners, which often chafe at the prospect of paying management fees on capital that had yet to be put to work.

Evidence already suggests that the amount of capital that has yet to be put to work is having an effect on purchase price multiples. Pitchbook recently reported EBITDA pricing multiples had spiked to 10x in 2013 after hovering around 8.5x in the three-year aftermath of the financial crisis. Even so, many managers – including most recently Apollo Global Management’s Leon Black – have indicated that the pricing environment has led to a sell-off of their portfolios.

In addition to relaying her concerns with capital deployment, Kramer also urged caution on the recent surge of LP interest in Sub-Saharan African strategies. The Carlyle Group closed a Sub-Sahara dedicated vehicle on $698 million earlier this month.

“Today, geographically, the hottest area that everyone’s talking about is sub-Saharan Africa. And that’s driven in part by endowment chatter – if there are any endowments in the audience, I apologize — if you hear that from an endowment, run. [That’s] my experience. That’s how we approach that sector.”

Kramer went on to characterise emerging markets as a roller coaster ride, adding that “there are more downs than there are ups”.