Side Letter: Blackstone’s Gray on Ukraine; Rede’s Hong Kong launch; Abraaj latest

Blackstone's Jon Gray believes the second-order effects of the Ukraine crisis may vindicate its recent investment strategy. Plus: Rede is aiming to fill the white space left by Asia's placement agent shake up and an update on the Abraaj saga, courtesy of the SEC. Here's today's brief, for our valued subscribers only.

Just happened

Jon Gray, Blackstone

Blackstone’s inflation vindication
Firms that have spent the past year preparing for inflationary pressures may find themselves in a strong position to weather the storm arising from Russia’s invasion of Ukraine. That’s according to Blackstone president and chief operating officer Jon Gray, who told Side Letter in an interview last week that the second-order effects of the crisis on its portfolio, which has minimal direct exposure to the region, provide a degree of vindication to the firm’s recent investment strategy.

“For more than a year we’ve been concerned about inflation and this [conflict] will exacerbate that,” Gray said. “We’ve already seen it in energy prices.”

The conflict is likely to hurt certain European banks with exposure to Russia and may lead central banks to step in, Gray added. It could also speed the transition towards renewable energy, prompting governments to reconsider the benefits of nuclear power and natural gas as a transitionary fuel.

Since at least the start of 2021, Blackstone has been focusing on “good neighbourhoods” such as life sciences and digitisation – sectors in which revenues can grow quickly enough to outrun inflationary pressures. It has also targeted floating-rate credit and inflation-linked infrastructure investments for the same reason. You can read our coverage of how other firms were approaching inflation last year here.

Keep an eye out for our full interview with Jon Gray in Private Equity International‘s April issue.

Rede-ing the room
European and US placement agent Rede Partners has set up shop in Hong Kong, PEI reported exclusively overnight. The firm, which previously covered Asia from London, has tapped former Atlantic-Pacific partner Charles Wan to lead its expansion in the region. Rede’s timing is logical: Asia’s placement agent landscape has been all change during the pandemic, with many senior executives either launching new ventures or moving in-house to GPs during a difficult fundraising environment. “The placement agent world in Asia has been shaken up and there’s some empty space,” Wan told us. “It’s a good entry point for us from a competitive standpoint.” Rede is likely to focus on mandates for pan-regional funds in the near-term.

Abraaj latest
Abraaj’s former managing partner and head of impact investing, Sivendran “Sev” Vettivetpillai, and head of investor engagement Mark Bourgeois have been banned from conducting any financial services-related business by the US Securities and Exchange Commission, affiliate title Regulatory Compliance Watch reports (registration required). The cease and desist order issued last week against Vettivetpillai found that the former Abraaj key man was aware of and took actions that assisted Abraaj Investment Management Limited in the misappropriation of assets from the Abraaj Global Markets Health Fund and in misleading the investors and potential investors in Abraaj Private Equity Fund VI, which was targeting $6 billion at that time.

In a guilty plea statement from July last year, Vettivetpillai said: “While I took no affirmative steps to manipulate Abraaj’s books and records or otherwise conceal the misconduct, I did not promptly advise either the board or all investors – again, existing or prospective – of my concerns. I recognise that my silence added to the misperception that other Abraaj members were advancing about the state of Abraaj’s financial wellbeing… I compromised the integrity of my judgment, and for that I am disappointed with myself and very sorry.”

Bourgeois, meanwhile, was found to have wilfully aided and abetted and caused AIML’s violations. Without admitting or denying the SEC’s findings, he agreed to the entry of the order and to pay $1,993,880 – the amount he received in 2018 as a bonus from Abraaj for his success in raising funds for APEF VI – within 24 months of the order. Both Vettivetpillai and Bourgeois agreed to cooperate fully with the SEC on the investigation.

Essentials

Cash in hand
Direct PE activity among the UK’s wealthiest individuals skyrocketed last year. High-net-worth investors deployed £2.3 billion ($3 billion; €2.8 billion) in 2021, more than double the prior year’s total and the highest figure in a decade, per research from law firm Boodle Hatfield. “An increasing percentage of the UK’s HNW investors are from an entrepreneurial background, partner Kyra Motley said in the release, noting that a predilection for directs was in part influenced by fees. “For them, leading a PE deal doesn’t seem that much of a stretch from leading their own company.”

The research comes hot on the heels of PEl’s February Deep Dive into private wealth and its rising importance as a source of capital for PE. “Europe has seen an exponential increase in first-generation entrepreneurs who have achieved major liquidity events,” Cyrus Shey, co-founder of Bregal Milestone, told PEI last month. “That capital is often being recycled into PE.”

Dig deeper

Institution: Minnesota State Board of Investment
Headquarters: St Paul, US
AUM: $94.1 billion
Allocation to alternatives: 17.4%

Minnesota State Board of Investment approved more than $2 billion-worth of private equity commitments across 18 vehicles at its February board meeting, a contact at the organisation confirmed to Private Equity International.

These commitments include:

MSBI allocates $10.54 billion to private equity investments, comprising 11.2 percent of its total investment portfolio. The organisation’s recent private equity commitments have focused on buyout and venture capital vehicles globally in multiple sectors.

For more information on MSBI, as well as more than 5,900 other institutions, check out the PEI database.


Today’s letter was prepared by Alex Lynn with Rod James and Carmela Mendoza.