Side Letter: Advent’s timely $26bn; Cathay’s €500m health kick; UK’s climate crackdown

Advent International's gargantuan fundraise should be well placed to capitalise on new take-private opportunities. Plus: Cathay Capital has joined the life sciences party and the UK is getting demanding when it comes to climate disclosures. Here's today's brief, for our valued subscribers only.

Just happened

Advent International: A $26bn war chest (Source: Getty)

A fundraising Advent-age
A lot has been written about the torrid fundraising environment that many private equity managers are having to contend with. Advent International appears to be one of the few exceptions. The Boston-based buyout shop this morning said it had collected $25 billion for Fund X against a $23 billion target in just six months on the road. That figure, which is understood not to include a roughly $1 billion GP commitment, makes Fund X the second-largest fund raised this side of the global financial crisis.

In an interview with Private Equity International’s Rod James, Advent’s global co-head of LP services Robert Weaver attributed the firm’s success in no small part to its past performance. That hypothesis holds up under scrutiny: according to data from the California Public Employees’ Retirement System, Advent GPE V, VI, VII and IX were all marked at a multiple of 2x or higher as of 30 September.

PE’s strong performance has been something of a double-edged sword for other firms this year, with many LPs at or exceeding their allocation limits, thanks to the numerator effect. This dynamic had forced some to cut back on their commitment pacing or ticket sizes just as a host of brand-name managers returned to market with bigger funds.

The correction in public markets – which some have feared could also lead to a denominator effect in LP portfolios – should play to Advent’s strengths. The firm has led or co-led several high-profile public-to-private transactions, including the $14 billion acquisition of antivirus giant McAfee in March. Advent was 13th in last year’s PEI 300; of those that ranked higher, at least seven are in market with flagship vehicles, including Blackstone, EQT and Vista Equity. The gauntlet has been well and truly thrown down.

OpEx Awards launched!
Calling all best-in-class operators: nominations for PEI‘s annual Operational Excellence Awards open today, with trophies up for grabs across the Americas, Asia-Pacific, Europe, the Middle East and Africa. OpEx recognises the achievements of managers that have delivered exceptional operational value to portfolio companies in the past year. Submit your entries to OpEx@peimedia.com by Tuesday, 21 June 2022. Details here.

Cathay’s health kick
Life sciences has become one of PE’s hottest sectors in recent years, with some firms making acquisitions to enter the sector, such as Apollo Global Management’s minority investment in Sofinnova Partners this month. Cathay Capital, the France-headquartered mid-market and VC firm, has become the latest entrant to this party. The firm is seeking €500 million for Cathay Health, its first VC and growth fund dedicated to companies producing tech-enabled products relating to medicine, per a statement.

The vehicle, which is already backed by the likes of Bpifrance and AXA and held a first close last week, will sign cheques of between €5 million and €50 million in Series A through D companies across the globe. Key sectors will include diagnostics, advanced therapeutics and medical devices. Cathay has already invested nearly €500 million in the healthcare sector to date across 34 companies and across three continents from its existing, non-life sciences dedicated vehicles.

They did the math

Getting technical
PE’s enthusiasm for investing behind digitalisation trends is well documented, but what of their willingness to invest in their own digital future? Research from online fundraising platform Bite Investments (which we profiled here) and Mergermarket has found that almost half of private markets firms with more than $1 billion of assets under management plan to increase the amount they put towards internal digitalisation by up to 50 percent over the next two years, and 15 percent expect to spend even more.

Portfolio or fund management and analysis was flagged as a top priority for additional investment by large firms, followed by client or investor onboarding, relationship management and communication. For smaller firms, due diligence would be the primary beneficiary of digital spending.

Essentials

Shining a light on climate disclosures
The UK’s newest climate-related disclosure rules, which came into force in January, will demand more from the country’s largest asset managers in terms of risk assessment and reporting, as PEI explores in its latest Legal special report. Managers with more than £50 billion ($66 billion; €60 billion) in AUM will now be expected to report on the financial risks posed by climate change, in a move that promises greater transparency. Without adequate disclosures, risks to capital may not be accounted for in fund valuations, leaving investors in the dark about how resilient certain portfolios really are.

Fund lawyers will play a key role in the rollout of these new requirements, Leonard Ng, financial regulation partner at Sidley Austin, tells PEI. “The disclosure requirements will be extended beyond climate change to cover sustainability impacts, sustainability risks and opportunities, and alignment with the UK’s Green Taxonomy,” he notes.


Today’s letter was prepared by Alex Lynn with Adam LeRod James and Helen de Beer