PEI 300 Highlights

Highlights from the 2012 list of the 300 largest private equity firms in the world.

Shuffling in the ranks

A look at some of the climbers, fallers and newcomers to this year’s ranking

The PEI 300 certainly isn’t static. Given it measures capital raised over a five-year period, the rankings fluctuate based on firms’ marketing schedules and broader global marcro and fundraising trends within the window measured.

It used to be considered typical for a firm to spend 12-18 months raising a fund (usually larger than its predecessor), and then to spend three or four years investing the majority of it before heading back to market to replenish dry powder. Of course, that model only holds up if the economy – and investors – allows it to. In more difficult times, firms often take longer to deploy their capital while investors may pull back on the size and pace of commitments.

With that in mind, it’s easier to understand why some firms have significantly risen or fallen in this year’s PEI 300.
Seven firms have climbed their way up the rankings over the last three years, some more quickly than others. Chinese private equity firm CDH Investments has moved up a whopping 64 rankings in that time period, raising a separate fund each year from 2007 to 2011. Distressed-for-control specialist Oaktree Capital Management, which has marketed several vehicles over the last five years, has also climbed the ranks – moving up 27 spots since 2009 to make its first appearance in the top 10 this year.

Of the firms with lower rankings this year, the most noteworthy drop was that of Permira, which sticks to raising global private equity funds and has stayed off the fundraising trail since closing an €11 billion fund in 2006. It later reduced the fund to €9.6 billion to help liquidity-starved LPs post-Lehman Brothers. Because funds closed in 2006 do not count in this year’s PEI 300, the European-based private equity firm fell from being 16th overall in 2011 to not making the list in 2012. However, don’t count Permira – or any of the firms that have fallen in the ranks – out in 2013. The firm is targeting €6.5 billion for a 2011 vintage, which may help catapult it back to the top next year. 

BIG DROPS

These PEI 50 firms have fallen at least 10 spots in our rankings from the previous year
Clayton Dubilier & Rice 
Nordic Capital
Permira
TA Associates

OUT OF THE TOP 50

These firms appeared in last year’s PEI 50 but not in this year’s
3i
AlpInvest Partners
Ares Management
Charterhouse Capital Partners
Cinven
Energy Capital Partners
GTCR Golder Rauner
Lindsay Goldberg
Madison Dearborn Partners
Permira
Summit Partners

NEW ENTRANTS

These firms made it to the PEI 50 for the first time this year
ArcLight Capital Partners
Equistone Partners Europe
Hony Capital
Leonard Green & Partners
Mount Kellett Capital


Not so ‘private’

The industry’s largest firms are becoming publicly listed asset managers with multiple business lines

This year, five of the 10 largest firms on the PEI 300 – Apollo Global Management, The Blackstone Group, Goldman Sachs, Oaktree Capital Management, and Kohberg Kravis Roberts – are publicly listed companies. (Oaktree, led by Bruce Karsh and Howard Marks, just made the cut by listing a portion of its management company on the New York Stock Exchange in April).

One characteristic that sets listed firms apart from the rest of the still-private industry, aside from a ticker symbol, is the fact that they are multifaceted asset management firms that in most cases have a wide range of private equity funds as well as other strategies. KKR, for example, has set the pace for large-scale institutionalisation and diversification, forming, among other things, a capital markets division as well as investment platforms for mezzanine, energy and other strategies.

The Blackstone Group’s president, Tony James, said during a recent earnings call that going public allows a firm to raise capital for acquisitions or other business development and also serves as a means to retain and motivate employees. Not all limited partners, however, like the idea, worrying that a firm could become too focused on short-term results to please shareholders.

Yet the percentage of “public” private equity firms gracing the top 10 could rise, given the Carlyle Group’s plans to list and rumours about a few other mega-firms considering the prospect. Watch this space. 


Sovereign sponsors

State-backed investment groups feature prominently among the world’s largest private equity groups

Sovereign funds have become major sources of capital for private equity managers via fund commitments, separate accounts and even stake sales in private equity firms’ management companies. But they increasingly do direct deals, partnering and competing against private equity firms, thus for the first time they have been included on the PEI 300. In prior years, only institutional investors with direct investment programmes, such as the Canada Pension Plan Investment Board, had been included.

Abu Dhabi’s International Petroleum Investment Company was the largest sovereign fund on this year’s PEI 300, placing at no. 43 on the list with a $6.3 billion total. The fund, established by the Abu Dhabi government in 1984, formed a joint project in March with Mubadala Oil and Gas, a business unit of fellow sovereign fund Mubadala Development Company,

no. 55 on the list that will work to secure gas supplies to meet the energy demands of the United Arab Emirates’ growing economy.

Another example of direct investment is Brazilian investment bank BTG Pactual, which at press time had just raised nearly $2bn in an IPO. The sponsors set up to profit from that success were a group of private equity heavyweights and sovereign funds, including JC Flowers, GIC, CIC, Ontario Teachers’ Pension Plan (Teachers’ Private Capital) and the Abu Dhabi Investment Council. Sources say to expect more such consortia going forward. 


Bright lights from afar

Fund managers in Asia, Latin America and the Middle East are attracting increasing levels of investor interest

As the eurozone crisis rolls on and growth prospects in the US continue to flounder, it’s perhaps unsurprising to learn emerging markets-focused managers have been gaining ground on the fundraising trail. Four emerging markets firms were included in the PEI 50 this year, compared to just one (Abraaj Capital) in 2011.

Asian firms continue to feature most prominently on the PEI 300 – in fact, Asia has displaced the UK as the second-largest region in which PEI 300 firms are headquartered (North America still leads).

But fund managers from other regions, too, are rising in the ranks – for example, the number of Latin America-headquartered firms on the 2012 PEI 300 is double last year’s figure – catapulting a number of newcomers on to the list.

Latin America shattered regional fundraising records last year, and no firm went bigger than Gávea Investimentos – Latin America’s sole representative in the emerging market top 10. In 2011, Gávea raised $1.8 billion, the largest amount ever raised for a Latin American vehicle. And the firm wasn’t alone on the fundraising trail (or in the PEI 300 ranking): Vinci Partners, BTG Pactual and Pátria Investimentos were among the other Brazilian managers that closed large funds last year.

Even with a surging Brazil, Asian firms dominated the emerging market top 10 this year; three China-headquartered firms featured prominently in the rankings. Investor appetite for the region has been strong; a recent report from Private Equity International’s data team found that 84 percent of Asian-based GPs are able to raise their funds in 18 months or less, beating the global average. Hony Capital set records when it held a final close on its $2.4 billion fourth US dollar-denominated fund after only four months, a fundraising success that moved the firm to 46th from 90th on the PEI 300 rankings.

Middle Eastern-headquartered firms and institutional investors were also among the largest emerging markets managers ranked by the PEI 300. Dubai-headquartered Abraaj was once again the largest emerging markets firm, having moved up eight places in the PEI 300 to seal 40th place. Abraaj grew substantially last year when it annexed rival Amundi’s North Africa operation, and is expected to grow further still given its recent agreement to purchase emerging markets-focused Aureos Capital.