Side Letter: A step closer to DC, Motive Partners steps up, Baratta interview

PE has taken a "major step" towards capturing defined contribution pension capital. Plus: a fintech fundraise scoop and data on ESG in a crisis. Here’s today's brief, for our valued subscribers only. 

They said it

“We are stronger because of our differences. Our firm is better because of our diversity. And our commitment to inclusion and diversity will keep making KKR a better firm. We also recognise that we can do more than acknowledge these atrocities, and the first step is to listen and learn from each other.”

In a statement responding to the killing of George Floyd by police officers, KKR’s senior leadership announces the launch of KKR Conversations, which will include internal and external speakers on “tough topics like racism and discrimination”.

Just happened

Juicing the nest egg

The US Department of Labor said yesterday that DC plans can incorporate certain private equity products without violating ERISA laws, a big breakthrough in bringing retail investors into PE.

Many DC plan managers had proved reluctant to incorporate private markets for fear of failing to comply with their fiduciary duty under federal law. The ruling was in response to a request for regulatory guidance made by Partners Group and Pantheon, the two firms to have developed products designed for inclusion in 401(k)s.

Robert Collins, managing director and head of Partners Group’s New York office, said the DOL has taken a “major step” in modernising DC plans, while Pantheon’s Susan Long McAndrews said retirees will no longer have to go without the 40 basis points per year that PE brings to the table. More than 100 million Americans are covered by DC pension plans with assets in excess of $7.5 trillion, according to data from asset manager Vanguard.

Read Rod James’ 2018 deep dive on how various operators are creating products that meet the strict regulatory requirements of DC investors.

Highly Motive-ated

The small club of funds that have successfully started fundraising since global lockdowns began in March is about to gain another member: Motive Partners. The fintech-focused firm counts fundraising veteran Bob Brown (of BearTooth Advisors and Houlihan Lokey fame) in its number and since 2018 has been backed by emerging manager investor Constellation Capital. The firm has returned with its sophomore fund and is eyeing a first close this month, PEI has learned. This time round the firm is seeking as much as $1.5 billion which, if hit, would be more than triple the size of its debut vehicle which closed at the end of last year.

We’ll be delving more into the world of fintech investing in our July special report.

Essentials

PE, strong and steady. Is it better to be PE-backed in a crisis? Blackstone’s Joe Baratta thinks so. Speaking to us for our PEI 300 coverage, Baratta says the private equity ownership model was proven in the post-global financial crisis period, and it will be again through this period: “[The capital] which is in the hands of private equity fund managers I think will be beneficial to the economy because we will provide capital for businesses to make long-term investments in their growth, in their ability to operate and employ more people, and to expand their productive capacity.” Read the full interview here.

Expansion-through-acquisition. French debt manager CAPZA (previously Capzanine) has forayed into growth equity investing via its acquisition of tech investment firm Time for Growth, the firm tells Side Letter. Financial details of the transaction were not disclosed but the deal is said to have been in the works for the past 18 months, according to managing partner Laurent Benard. Following the acquisition, TFG’s three partners will join CAPZA. It plans to raise its debut growth vehicle by year-end.

We did the math

A little wiggle room ESG. Half of LP respondents in our latest covid-19 survey are sticking tightly to their current ESG policy. More than one in 10, however, are prepared to relax their policy.

Dig deeper

Institution: State Teachers Retirement System of Ohio
Headquarters: Columbus, United States
AUM: $77.90 billion
Allocation to alternatives: 27.60%

State Teachers Retirement System of Ohio has confirmed a $50 million commitment to Francisco Partners Agility Fund II, a contact at the pension told Private Equity International.

The $77.90 billion US public pension has a 7.0 percent target allocation to private equity that currently stands at 8.80 percent.

For more information on STRSO, 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, Adam Le, Rod James, Carmela Mendoza and Alex Lynn.


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