The Ontario Teachers' Pension Plan owns a French funeral business that has a 45 percent market share in the country.
“Whether it's Le Pen or somebody else, fundamentally, we think people will still be dying years from now,” said Ron Mock, chief executive and president of OTPP speaking at the Milken Institute Global Conference in Los Angeles last week.
It did turn out to be “somebody else” as on Sunday, French voters chose Emmanuel Macron, a former Goldman Sachs banker, as the president of a country that is the Europe's second largest private equity market. The keenly observed contest between former Front National leader Marine Le Pen and Macron was the latest example of a political event that has captivated audiences.
Two weeks before the final vote, Private Equity International had been in Paris conducting its annual France roundtable with industry heavyweights discussing topics including the expanding focus of French GPs, the vibrant fundraising environment and what's in store for the country's private equity scene. We look forward to sharing their insights with readers in the June issue of PEI.
While the wider world is often focused on macro developments – think the formal triggering of the Brexit process in March and Donald Trump's inauguration in January – private equity focuses on the micro. Investing in unlisted companies often has little correlation with which leader happens to be in office, as the comments from OTPP's Mock attest.
Italy-focused private equity firm Clessidra, for example, announced a €400 million exit that generated 3x invested capital the day after the country's constitutional reform referendum in December. To Carlo Pesenti, chairman of the firm, this showed that “private equity is truly a micro business and its performance is almost entirely disconnected from what happens at the political level”.
The same seems true for shocks. In the UK, Europe's largest private equity market, fundraising has been rampant since the Brexit referendum – £6.7 billion ($8.7 billion; €8 billion) was raised for sterling-denominated funds between June 2016, the month of the vote, and this March, according to PEI data. This was almost twice the £3.6 billion raised in the corresponding period the previous year. Perhaps UK-based GPs have rushed to build up their war chests before exit negotiations begin in earnest; what we can say for sure is that LPs have not been discouraged.
And this picture is reflected in an S&P Global report published in April. It notes that in France, for example, previous presidents and their policy agendas have had “little impact on the fortunes or direction of the French economy in general or the private equity industry in particular”. To demonstrate, it cites its own data that show private equity investments in French targets dropped following the elections of pro-business Chirac and Sarkozy, while total invested capital rose following the election of so-called 'anti-business' Hollande.
Participants in PEI's France roundtable echoed this finding. One pointed to the buoyant US economy after the election of Trump, while another highlighted instability in the Middle East and the Korean peninsula as not having stopped global business.
“Ultimately what we all do is a micro bet on individual assets,” one of the participants said.
Upcoming elections in Iran in May and Germany in September may prove crucial globally, but data and sentiment from the industry suggest they will have little effect on fundraising, dealmaking and exits.
Is there a danger that the historic strength of the asset class has bred hubris? Certainly, it is conceivable that at some point there could be a change in political leadership in a major private equity market so convulsive that the industry's resilience will be tested like never before. For European businesses, Brexit negotiations breaking down could have genuine spoiler potential, too.
In the meantime, however, for OTPP's Mock and others in the business of private equity investing, there are more fundamental trends to monitor. Politics – for those in PE – is not a matter of life and death.