I spy… something beginning with ‘PE cuts’
Unidentified flying objects may be floating high above Alaska, but the state’s Permanent Fund Corporation‘s CIO has his head anywhere but the clouds when it comes to the $79 billion SWF’s exposure to private equity. Marcus Frampton is due to propose major cuts to targeted allocations to PE at its board meeting today. In a presentation set for the meeting and reviewed by Side Letter and our colleagues at Buyouts (registration required), Frampton will recommend slashing the system’s PE target to 15 percent over two years, from its current target of 17 percent. The decision, if adopted, would effectively cut the target by 4 percentage points, since APFC’s current plan is to increase its target to 18 percent in FY 2024 and 19 percent in FY 2025.
Frampton’s move isn’t a total shock: in December he admitted to being “as bearish on private equity as I ever have been in my career”. His latest position is predicated in part on PE’s lack of valuation reset relative to public markets, and concerns around due diligence in the wake of November’s FTX collapse – an asset APFC was itself exposed to, per today’s presentation documents.
This would represent a marked turnaround for APFC, which has developed a reputation as something of a PE ‘rock star‘ in recent years. It’s not immediately clear how this allocation cut would look in practice, and whether the institution would actively look to reduce its exposure on the secondaries market or simply reduce its annual deployment in the asset class until the portfolio rebalances itself.
Frampton isn’t alone in the concerns he’s raised. Still, reducing Alaska’s target allocation would be a drastic step. Though we don’t expect every institution to raise its appetite in this challenging market environment, it’s also unlikely that a great many will follow APFC’s lead.
China: Back in focus?
Chinese GPs are fairly optimistic about the prospect of an economic rebound driving PE deal and exit activity this year. That’s according to the China Private Equity Report 2023 from investment banking advisory BDA Partners. Here are some key takeaways:
- GPs will increase their focus on strategic industries such as semiconductors, electronic devices and high-precision components, in line with the “self-sufficient” and “dual circulation model” promoted by the Chinese government.
- Assets that are well positioned for a sale include those in advanced manufacturing, clean energy and contract development and manufacturing.
- Tight regulations in sectors including the internet, critical resources and education will continue to pose difficulties for IPO exits; trade sale and the secondaries market will be a more prominent exit route in 2023.
- Fundraising activity will remain subdued in 2023 and continue as a lower priority for GPs, who will instead focus on exits and deployment.
- Some domestic GPs are setting up teams outside China to look for investments.
Another new player in the game
Just a few days ago, Side Letter wrote about the launch of Bluestone Equity Partners, a sports-focused GP that has collected $300 million for its first growth equity fund. At the time, we noted that such firms are increasingly common.
We weren’t wrong: yet another player has now appeared, in the form of Isos7 Growth Equity, a $750 million PE fund launched by sports- and entertainment-focused advisory firm Isos Capital Management. Isos, which was founded in 2021 by WWE veterans George Barrios and Michelle Wilson, has partnered with NBA All-Star Carmelo Anthony to launch the fund, per a statement.
The platform will target growth equity investments of $50 million to $100 million to create a diversified portfolio of sports leagues, teams, emerging properties and ancillary businesses in North America, Europe, and pan-Asia. Isos7 will also commit 1 percent of its profits to underrepresented populations and underserved communities. “It’s not a venture fund,” Wilson told Variety. “We’re looking for businesses, teams, leagues, sports betting and adjacent companies that are profitable or have a short-term path to profitability.”
Variety and its sports-focused affiliate Sportico report that Isos7 will take positions in the four major North American leagues that allow institutional investors to own passive minority stakes – the MLB, MLS, NBA and NHL. Isos7 enters a field already populated with incumbents such as Arctos Sports Partners, RedBird Capital Partners and Dyal HomeCourt Partners. And, if the past few weeks are anything to go by, more competitors await.
Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Helen de Beer