Riding high

The full listing

Rubenstein’s take on the future as Carlyle tops PEI 300

PEI 300 generates better IRR than last year’s

Risers and fallers over a decade of the PEI 300

All change at the top of the PEI 300

PEI 300: top 50 firms visualised

The PEI 300 is without a doubt Private Equity International’s most hotly anticipated issue of the year, and the one people return to the most after publication. I’m sure this iteration, which will be revealed on Tuesday, will be no exception.

The 2018 ranking is record-breaking. Between them, the 300 firms that make up our ranking have a five-year fundraising total of almost $1.5 trillion, with the top 10 alone accounting for almost $400 billion.

This is cause for celebration. Limited partner appetite for the asset class clearly isn’t abating. Insurers, for example, intend to up their allocations to PE more than any other asset class, according to Goldman Sachs’ data. As David Rubenstein tells us in an exclusive interview in our May issue, when you see enormous amounts of money going into the asset class, you have to conclude investors believe it represents a good opportunity.

Behind all this is performance. According to Bain & Company’s latest Global Private Equity Report, as of mid-year 2017, the median net return of private equity holdings in the portfolios of public pension funds over a 10-year time horizon was 8.5 percent, compared with 4.2 percent for public equities, 4.5 percent for real estate investments and 5.2 percent for fixed income.

But our blockbuster PEI 300 also comes in a month in which private equity was dealt a significant blow. Norway’s finance ministry decided to block its sovereign wealth fund – the largest in the world – from investing in private equity, partly due to concerns over transparency on fees.

And that apprehension is not to be found solely in Norway. Last month we shared views from an industry conference in Edinburgh at which pension fund managers, trustees and advisors cited hidden fees, liquidity issues and a lack of transparency over financial engineering at portfolio companies as reasons they were steering clear.

So what does all this mean? In sum, that the industry can’t take anything for granted. Historically it’s been successful, but it needs to work hard to avoid becoming a victim of that success. There are signs that this is starting to happen.

Sandra Robertson, chief investment officer and chief executive of the UK’s £3 billion ($4.3 billion; €3.4 billion) Oxford University Endowment Management – which manages assets on behalf of 32 investors, including the University of Oxford, 25 colleges and six associated charitable trusts – echoed concerns of many LPs this month when she drew attention to the challenges of accessing top-quartile managers which have the luxury of selecting their LP base and limiting their fund size.

Speaking at a panel discussion during the Fiduciary Investors Symposium at the University of Oxford, Robertson also questioned LPs allocating to the asset class on the basis of past returns, making the assumption these will continue.

Some will say Norway’s decision – and the reticence from some other investors – is neither here nor there. After all, today there’s clearly more than enough capital to go around. But if the industry is to grow as much in the next decade as it’s done in the last, it must take heed of the concerns of potential future LPs. After all, what are private equity funds without their investors?