Side Letter: 1 in 5 LPs to slow pace, ILPA on CARES, fundraising extensions

The advice to LPs is keep on committing. They won't all follow it. Here’s today's brief, for our valued subscribers only.

We did the math

Investors respond to covid-19. One in five investors plan to slow their private equity commitment pace as a direct result of covid-19, according to a survey by Private Equity International. Between 25 and 27 March, we asked 77 institutional investors with allocations to private equity how they are responding to coronavirus. Expect more data to land in your inbox soon.

Just happened

April’s PEI is now online

In the era of remote working, what could be better than April’s edition of Private Equity International magazine? Now available to subscribers as a PDF.

ILPA presses on CARES

The Insitutional Limited Partners Association has called on the US government to ensure job-protecting loan programmes are available to PE- and VC-owned small businesses. Businesses with fewer than 500 employees qualify, but those owned by a fund could find themselves lumped together with other portfolio companies.

CEO of ILPA, Steve Nelson, wrote: “We see no reason why being owned in a fund structure should result in these businesses having less access to the capital needed to keep their employees on the payroll.” Read the letter in full.

No one would argue that shareholders should or will abdicate their responsibilities, but to argue that businesses should be discriminated against because they are owned by a private fund would be a difficult position to defend.

LP defaults

Our story from Graham Bippart this week on LP defaults (LP defaults are ‘already happening’) has instantly become one of our most engaged with pieces of content of all time. Clearly a chord has been struck and it has us wondering whether the two instances of LP default referenced are merely investor-specific blips or a sign of things to come. We’ll be investigating this, so please drop me a note with your view:

Fundraising extensions are not a given

Covid-19 is clearly a hugely disruptive force, but it alone is not a reason to persuade all LPs to approve fundraising extensions, market participants tell PEI. Several factors need to be considered: how much capital has been raised thus far and whether the fund is right-sized for the investment strategy. GPs that have already deployed capital from the fund but are yet to hold final closes also face the issue of those seed assets dwindling in value in recent weeks. Carmela Mendoza has the details.

He said it

“In the last six weeks I have seen the best of times and the worst of times.”

Oaktree Capital Management‘s Howard Marks‘ latest memo lays out two interpretations of the short- and medium-term: one positive and one negative. The latter is twice the length of the former.


Returns vs jobs. The Financial Times adds more colour to the industry’s lobbying efforts to access the rescue loans earmarked for US small businesses (see ‘ILPA presses on CARES’ above).

One notable quote attributed to an anonymous advisor to a large private equity firm: “We need to act in the best interest of our investors, which include pension funds. If the government wants to limit funding for companies we own just to punish the private equity industry, we will have to take drastic measures … that means cutting costs aggressively, and restructuring.”

There is a clear message in this anonymous quote: returns take precedent over job protection, even in these extraordinary times. Is this a view you share? Please email me:

Mario’s take. Hamilton Lane CEO Mario Giannini posted his take on the current global situation as it relates to covid-19. Some highlights:

  • “The equity opportunity will come but, today, the places to be looking carefully [for new investments] are the debt markets.” This is something we are hearing from multiple sources, some looking at debt in their own portfolio companies.
  • The EU – with its lack of central fiscal power – is “far behind the rest of the world” when it comes to immediate and dramatic economic responses, says Giannini. Also, poorer countries will be less able to enact monetary and fiscal measures to respond to a lockdown or severe outbreak. “This is hugely problematic from both a human and economic perspective.”

Dig deeper

Institution: State of Michigan Retirement Systems
Headquarters: Lansing, United States
AUM: $74.75bn
Allocation to alternatives: 38.90%
Bitesize: $100m-$200m

State of Michigan Retirement Systems announced $615 million-worth of private equity commitments to seven vehicles in Q4 2019 in its recent board meeting packet.

The commitments comprise of $250 million to Green Equity Investors VIII, $100 million each to Jade Equity Investors and TSSP Institutional Credit Partners III, $60 million to Advent Latin America Private Equity Fund VII and $35 million each to FirstMark Capital OF III, FirstMark Capital V and SKCP Catalyst Fund I.

For more information on Michigan, as well as more than 5,900 other institutions, check out the PEI database.

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Today’s letter was prepared by Toby MitchenallIsobel Markham and Carmela Mendoza.

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