Side Letter: AMG’s Pantheon pleasure, Eurazeo results, US buyout multiples up

Earnings season rumbles on and the news is actually pretty sunny. Here's today's brief, for our valued subscribers only. 

He said it

“Great brands are built over the long term, but private equity takes a short-term view and to hell with the consequences – running businesses very hot and stripping out costs works near-term, but leaves a hollowed-out husk.”

Peter Williams, co-founder of collapsed fashion brand Jack Wills, criticises the role of private equity in the high street’s demise in The Times (paywall).

Just happened

In early on the Act

Affiliated Managers Group was buying stakes in managers before it was the strategy du jour. The listed investor is now feeling smug about its investment in Pantheon, one of the firms at the forefront of developing PE products for defined contribution investors. Said chief executive Jay Horgen on the firm’s second-quarter earnings call on Monday: “We invested strategic capital four years ago to launch their ’40 Act fund, their CIT and to support their efforts in the wealth and individual channel and private equity … That capital has been returned to us because those products have now scaled.”

On the firm’s investment pipeline: AMG is looking for more managers of illiquid assets, particularly independent partner-owned firms. It also wants to provide more growth capital, rather than just offering liquidity or succession solutions.

Expensive taste

In terms of dealmaking, the flight to quality amid the coronavirus pandemic pushed the average multiple for a US buyout in Q2 up to 15.2x earnings, according to a report from consulting firm PwC, up from 12.9x in the previous quarter and 11.5x for the same period last year. The pricing spike was driven by opportunistic investing and some sectors – such as technology, media and telecommunications – experiencing a “sugar-rush” of sudden demand, the report said.

Eurazeo results

Paris-listed investment firm Eurazeo‘s H1 results are out. The firm has split its assets into four categories depending on the degree of exposure to the pandemic fallout. Circa 10 percent of its assets are “Category 4”:  those directly hit by the lockdown, such as travel and leisure. These have seen 56 percent of their value marked down from December 2019. The rest of the portfolio valuations remained stable. Press release here.

Says chairwoman Virginie Morgon: “In an unprecedented context, our diversified platform has acted as a stabiliser: our third party assets under management are growing and our Net Asset Value is both resilient and prudent. Excellent fundraising in an uncertain market over the past six months has also confirmed the momentum of our asset management activity.”


Since inception misconceptions

Very rarely does Side Letter agree with the musings of Jonathan Ford in the Financial Times (previous debate here). But he recently contended (paywall) that “since inception IRR”, a number brandished by many of the largest firms in the business, is a misleading number that demonstrates nothing more than “a big flaw in the way IRR itself is calculated”. Given that the reinvestment assumption that is a facet of IRR makes those since inception numbers almost impervious to recent performance, one has to agree.

Summer reads: UBS’s Simona Maellare

Side Letter caught up with Simona Maellare, global co-head of UBS’s alternative capital group, who recommends Permanent Record by Edward Snowden: “It is a fascinating book which makes you think about the side effects of technology and how it impacts our personal freedom.”

Dig deeper

Fund name: Madison Dearborn Capital Partners VIII
Launch date: October 2019
Current size: $4.08 billion
Target size: $4.5 billion
Fund status: Still fundraising

Madison Dearborn Capital Partners has successfully raised $4.08 billion for its Madison Dearborn Capital Partners VIII fund. The vehicle will focus on buyouts and corporate debt in North America.

For more information on Madison Dearborn, 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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