Side Letter: Apax valuations, North Carolina growth gains, KKR’s new hires

North Carolina has been surprised on the upside by its VC and growth portfolio. Plus: Apax updates; KKR's new hires and why DFIs need to step up to the plate. Here's today's brief, for our valued subscribers only.

He said it

“I’d have to give it a C minus. It’s misleading [and] there are some conceptual issues.”

In a webinar on Tuesday, University of Chicago Booth School of Business professor Steven Kaplan gives some constructive (and friendly) criticism to his former student Professor Ludovic Phalippou regarding the latter’s paper this year on private equity performance

Just happened

Glorious growth and venture

North Carolina State Treasury, a $107 billion public pension fund, has seen such relative outperformance from its growth and venture strategies that its private capital allocations have been thrown out of whack. Growth and VC now accounts for 34.2 percent of its overall PE programme, against a target of 20 percent and a maximum of 30 percent. Said private equity director Craig Demko: “This has by far been our strongest performing underlying strategy in the portfolio over the one, three, five, seven and 10-year figures. The amount of additional capital that’s been generated from this strategy, excess capital, has been very strong relative to what our cost basis has been.”

No word yet on whether the pension plans to take any action to rebalance. If we hear, you’ll hear. Growth and VC partners on the pension’s books include TCVTenaya CapitalNew Enterprise Associates and ARCH Venture Partners.

Apax updates

Half-year results for Apax Global Alpha – a €1 billion listed vehicle that invests in Apax Partners’ funds – were published yesterday. Some points of note:

  • Apax Partners is still raising its 10th flagship fund. The vehicle, targeting $10.5 billion, had previously been expected to close in Q1 this year, according to a November 2019 Hamilton Lane memo. Apax declined to comment on the fundraise. Fund X made four investments in H1 2020, using its credit facility, rather than drawing down any LP capital.
  • The value of the listed company is basically back to where it was in December 2019 after the covid-19-related market dislocation.
  • As with most portfolios, there have been bright spots – mainly among the tech and telco assets – but some assets (such as shoe retailer Cole Haan) are being more directly challenged by the pandemic.
  • On valuations methodology: In order to “address the uncertainty around consensus forecasts for public company comparables,” some of the portfolio companies that historically used forward-looking multiples, used backward-looking multiples during H1 2020.

KKR: Expansion team

KKR has promoted Suzanne Donohoe, former lead for the client and partner group, into the newly created role of Global Head of Strategic Growth, in which she will be responsible for “building new businesses for the firm” and growing its strategic investor partnerships. In a hint of growth to come, co-founders Henry Kravis and George Roberts said: “We decided we needed to add a leader fully dedicated to our next set of new businesses and the strategies around them.” Eric Mogelof, head of PIMCO’s US global wealth management business, is joining the firm as partner and global head of the client and partner group.

On KKR’s first-quarter earnings call, co-president and chief operating officer Scott Nuttall said the firm would leverage market volatility to embark on “aggressive” growth plans, and so far, it’s delivering: in July the firm agreed to acquire retirement and life insurance company Global Atlantic in what will be its largest balance sheet investment to date, and it’s continuing its aggressive push into Asian markets.


DFI-nal frontier

Covid-19 is DFIs’ time to shine. That’s according to CDC Group’s head of Asia, Srini Nagarajan, who tells PEI it’s incumbent on such institutions to restore investor confidence in emerging markets during the pandemic. Since March, UK-based CDC has committed at least $180 million across three funds and established permanent presences in Nepal and Egypt, per its website. The organisation committed more than $2 billion to fresh investments last year and aspires to deploy a similar amount this year through additional liquidity for existing portfolio companies, systemic support for certain sectors and via its existing pipeline.

Dig deeper

Institution: State Teachers Retirement System of Ohio
Headquarters: Columbus, US
AUM: $78.85 billion
Allocation to alternatives: 26.20%

State Teachers Retirement System of Ohio has confirmed $190 million of private equity commitments to three vehicles, a contact at the pension informed Private Equity International.

The commitments comprise $100 million to Thoma Bravo Fund XIV, $75 million to Thoma Bravo Discover Fund III and $15 million to Axiom Asia Private Capital Fund VI.

The $78.85 billion US public pension has a 7.0 percent target allocation to private equity that currently stands at 7.8 percent.

Today’s letter was prepared by Toby Mitchenall with Isobel MarkhamAdam Le and Alex Lynn.

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