Side Letter: A new PE boss at OTPP, Europe’s buyout slump, Tenzing’s virtual fundraise

Anyone getting excited about managing defined contribution will have to grapple with three distinct issues. Plus: GPs on life amid covid-19, European buyout data, OTPP's new PE boss and Tenzing's virtual fundraise. Here's today's brief, for our valued subscribers only. 

She said it

“Everybody seems motivated to demonstrate that they have a working syndication model for fund finance”

Shelley Morrison, a senior investment director in Aberdeen Standard Investments’ fund finance group, tells sister title Private Funds CFO that bank lenders in the subscription credit line business are looking to syndicate their facilities, and that they are either “trying to transfer a lot of risk” or “preparing themselves by ‘testing the plumbing’ […] so they have options”.

Just happened

Barriers to DC

Since US defined contribution pension funds received the green light to incorporate private equity, there has been a frenzy of competitors either restarting initiatives focused on DC or exploring new ones. It is not a straightforward proposition.

Though US pensions aren’t restricted by a cap on fees, it takes careful design and negotiation to incorporate an alternatives product that offers daily reporting and some liquidity at a price point that makes sense to members, according to pension executives who have done it in the UK. Educating members on how PE works and how assets are valued with no active market is another thing entirely.

One pension fund chair said: “For pensions with less ability than us to negotiate down the price of other funds in their blended defaults, it’s hard to have more than 10-15 percent in the illiquid fund without costs getting too high. And there comes a point where you have to ask whether the benefits are worth the trouble.”

Adapting, surviving

Our latest study examining fund managers’ thinking in light of covid-19 is out now. Three things that caught our eye:

  • Managers are more pessimistic on fundraising than LPs: GPs expect an average drop of around 13 percent in fundraising over the next year compared with the previous 12 months, while investors only expect an 8 percent drop.
  • Only 10 percent of managers expect to ask investors for greater flexibility in their investment mandates, compared with 32 percent when we surveyed managers in March.
  • Fully 83 percent of managers expect to hold more online LP meetings once ‘normal’ business life returns.

You can hear the Private Equity International senior editors discussing this study and its corresponding LP survey on the latest episode of our Spotlight podcast.

Buyout slump

Covid-19 pushed the European PE deal volume in H1 2020 to its lowest level since the global financial crisis, according to provisional data from Imperial College Business School. PE-backed acquisitions were fewer but larger in H1 (205 deals worth €41.1 billion) compared with the equivalent period last year (331 deals at €44.3 billion). Other findings:

  • The UK remains Europe’s largest market by value and volume, with 64 deals valued at £13 billion ($16.2 billion; €14.7bn) in H1 2020. Approximately 80 percent off these took place in Q1.
  • Both Germany and the Benelux region experienced a 50 percent drop in deal volume from Q1 to Q2.
  • Telecoms, media and technology was the most buoyant sector in terms of both volume and value, with 55 deals valued at €15.3 billion.

Essentials

OTPP’s new hire

Ontario Teachers’ Pension Plan has hired PE veteran and banker Karen Frank to lead its 100-strong in-house private capital team, sister title Buyouts (paywall) reported. Frank was latterly co-head of the European sponsors group at Barclays Private Bank and replaces Jane Rowe, who in April was named OTPP’s vice-chair, investments. Rowe held the job for 10 years, becoming one of the world’s most influential private equity professionals. Press release here.

Single asset secondaries

The boom in single-asset secondaries deals, in which an asset is moved from one fund to a continuation vehicle with the same financial sponsor at the helm, rolls on. Listed firm ICG is currently involved in a deal to move HSE24, a German home shopping TV network, from Providence Equity Partners VI into a continuation vehicle. Subscribers to Secondaries Investor can read more here.

Zooming up

Tech-focused buyout shop Tenzing Private Equity has raised £400 million ($499.9 million; €442 million) for its second fund and has done so without a single face-to-face meeting. The firm, which raised £200 million for its 2016-vintage debut, took nine weeks to complete the fundraise. “[Investors] recognised the opportunity, are long-term decision-makers and were open-minded to ‘Zooming’ through a significant amount of work in the new virtual world,” said managing partner Guy Gillon.

Dig deeper

Institution: School Employees’ Retirement System of Ohio
Headquarters: Columbus, US
AUM: $14.21 billion
Allocation to alternatives: 27.10%

School Employees’ Retirement System of Ohio has confirmed $250 million-worth of private equity commitments to five vehicles, a contact at the pension informed PEI.

The commitments comprise $50 million each to Francisco Partners Agility Fund II, KKR Dislocation Opportunities and Francisco Partners VI, as well as a further $50 million top-up each to HPS Specialty Loan Fund V and LBC Credit Partners V.

The $14.21 billion US public pension has a 12.0 percent target allocation to private equity, with a current allocation of 10.8 percent.

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


Today’s letter was prepared by Toby Mitchenall with Isobel Markham, Adam Le, Rod James, Carmela Mendoza and Alex Lynn.


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