What we know about Apax from its listed trust

Listed private equity trusts often serve as a window into the inner workings of some of the industry’s largest firms. Apax Global Alpha is the latest of these vehicles to release its H1 results, providing a peek behind the curtain at London-headquartered Apax Partners.

The €943.9 million listed trust is turning its attention to derived debt opportunities amid concern over deployment pace in private equity and volatility in the public markets. But what does AGA’s interim statement tell us about its affiliated firm?

Subscription credit line use

Apax Partners is one of a growing number of private equity houses to embrace the use of subscription credit lines.

AGA committed €25.3 million to signed and closed Apax Funds investments in H1, down from €39.7 million for the same period last year, according to the statement. As the Apax funds use credit facilities to bridge capital calls from investors on a short-term basis, AGA expects capital calls of €22.7 million from these drawings in the coming months, the results said.

Apax IX, a $9 billion 2016-vintage, Apax VIII, a $7.5 billion 2012-vintage, and the $1 billion 2017-vintage Apax Digital Fund usually “bridge capital calls for up to 12 months after each drawdown”. For AMI Opportunities Fund, a $504 million 2015-vintage Israel-focused fund, “drawings of the bridge facility are generally repaid once each year”.

LPs are divided on the use of subscription credit lines. Those that favour IRR as a metric – either for the sake of their own personal compensation or for the sake of comparing private equity with other asset classes – are more in favour than those that focus on multiple of invested capital, as the lines can boost the former.

Take-privates and healthcare are looking attractive

AGA identified tech and telecommunications, healthcare, consumer and services, as well as the digital space, as having less exposure to political risks. The majority of AGA’s look-through private equity investments by value were made in healthcare during H1. Apax is likely to increase its activity in areas less prone to macroeconomic and political headwinds.

“If relative valuations remain the same, we would expect healthcare and consumer as well as services transactions to figure more prominently in 2H18 and 2019,” the results noted.

“In addition, due to stock price declines in some markets and the increased risks ahead, we believe that so called ‘public-to-privates’ or ‘PIPEs’ could play a larger role in the next 18 months. The art will be in finding the few reasonably priced opportunities in a sea of highly-valued private equity opportunities.”

Fund IX status

The $9 billion Apax IX is now 43 percent invested across 13 portfolio companies, the results said. The vehicle is the second-largest contributor to AGA’s NAV, accounting for €144.6 million, or 22 percent, as of 30 June.

“Many investments have made remarkable progress in the past year and the fund has largely moved out of the ‘J-curve’ effect,” the results added. “It is now seeing not only an increase in valuation but also IRR.”