Making predictions is a dangerous business, but the team at Private Equity International do not shy away from danger. Here are seven stories we think we will be analysing this year:
A big LP will turn asset manager
“Instead of bidding against each other we [LPs] are all realising it makes a lot more sense to work together in a more efficient business model instead of paying Wall Street agent fees to use our capital,” California State Teachers’ Retirement System CIO Chris Ailman told PEI in 2018. Canada Pension Plan Investment Board, as part of its long-term view, is helping Chinese asset owners and policymakers on long-term capital allocation. Japan Post Bank and Japan Post Insurance have the Japan Post Investment Corporation. We expect a major asset owner to get involved managing a peer’s assets.
More seeding platforms will be established
With more demand for private equity opportunities, investors and their advisors are thinking about how they can access the next generation of top-tier managers (and perhaps get some advantageous terms). We expect at least one more placement agent to follow in the footsteps of Sixpoint Partners and establish a platform to back fledgling managers.
Another European fund will break the €10bn mark
CVC did it in 2017 and EQT in 2018. With European LPs bracing for mega-fund mania, who would bet against another European firm raising double-digit billions. London’s Cinven is understood to be seeking at least €8 billion for its seventh fund and compatriot Apax Partners will return to market early this year (its 2016 flagship was €9 billion). Switzerland-headquartered Partners Group is reportedly seeking around €5 billion for its fourth buyout fund and UK-headquartered Permira is expected to target around €10 billion for Fund VII.
More hybrid funds will emerge
In 2018 we saw Apollo Global Management, a giant of both the private equity and the credit worlds, raise its debut hybrid debt-equity fund, Apollo Hybrid Value Fund, which has a $3 billion target. The fund had already completed two deals as of the firm’s third-quarter earnings call at the end of October. We expect to see more firms combining expertise on cross-asset funds to take advantage of opportunities that otherwise wouldn’t have a natural home.
Fundless sponsors will become more prevalent
If the fundraising environment remains buoyant, it’s likely the steady stream of spinouts we’ve seen over the last couple of years will continue – but don’t bet on all of these teams raising a traditional blind-pool fund. We expect a fair few will opt for the less cumbersome – and arguably more hands-on – deal-by-deal approach. With the possibility of higher and more frequent carried interest, it’s a tempting prospect for the industry’s younger executives.
A new type of secondaries deal will emerge
The secondaries market has evolved at a rapid pace, with terms such as “GP-led restructuring” and “stapled deal” going from arcane to commonplace in a matter of years. In 2019 we will see another deal type emerge: the “LP strip sale” will allow investors with substantial PE programmes to rebalance or de-risk their portfolios by selling slices of their younger fund investments.
Diversity discussions will turn into action
Diversity has been a point of discussion within private equity for the last few years, and we predict 2019 will be the year those discussions turn into action. ILPA has expanded its due diligence questionnaire to include a template for GPs to measure and report the gender and ethnic diversity of their teams by seniority and role, while Carlyle Group hired a chief diversity officer, sending a clear message of the value it places on addressing this issue. Where Carlyle leads, others follow, so expect to see similar roles springing up across the industry.
We would like to wish our subscribers a happy and prosperous new year. We will revisit our predictions come the end of December 2019 and hold ourselves to account. Let us know your thoughts: firstname.lastname@example.org