Side Letter: Blackstone’s inflation fears; SEC to clean house; PG targets Texas

Blackstone COO Jon Gray says the firm is gearing up for higher inflation. Plus: What to expect from the SEC under President Biden and Partners Group targets Texan capital. Here's today's brief, for our valued subscribers only.

They said it

“I feel like my fight for increased diversity is a fight that’s getting us closer to a better day and that I will somehow hand over the baton to the next generation. I’m not afraid to say it anymore. This time is different. It’s going to be better, but only if we make it better.”

Angela Miller-May, CIO at Chicago Teachers’ Pension Fund, talks to affiliate title New Private Markets after a jury found former Minneapolis police officer Derek Chauvin guilty of murdering George Floyd (registration or subscription required).

Just happened

Blackstone’s inflation fears
Blackstone’s chief operating officer Jon Gray has identified higher inflation as the “major risk that’s out there today”. Speaking on a Q1 earnings call on Thursday, Gray said the firm will target businesses whose growth can offset the pressure that higher inflation will place on multiples. “You see that in… tech and life sciences and global logistics,” he said. “In this quarter, we talked about a big push into the covid recovery travel play, which we did in a number of businesses around the world.”

Blackstone had one of its strongest quarters to date, with total AUM rising 21 percent year-on-year to $649 billion. Notable inflows include a $3 billion first close for its second Asia fund, which is now already larger than the first. Its secondaries unit, Strategic Partners, will also return to market in the near future after deploying its $11.1 billion Fund VIII in less than two years.

McKinsey’s review
McKinsey has published its latest Private Markets Annual Review. Here are some key takeaways:

  • The average number of product families for top-10 GPs grew to seven in 2020, from just two a decade ago, with credit, real estate and non-flagship buyout funds the most popular strategies. Check out PEI’s list of the top PE firms and their strategies here.
  • An investor in 2020 paid at least 30 percent more than would have been necessary a decade ago to acquire the same EBITDA. The two-year rolling average multiple for US buyouts reached 12.8x in 2020, up from 11.9x the previous year.
  • PE remains the highest-returning asset class in private markets, with a 13.3 percent median return for 2007-17 vintage funds as of 30 September.

They did the math

Virtual raises
Although 2020 wasn’t the best year for PE exits, sectors benefitting from the pivot to virtual living had a better time of it than others. IT assets sold for a 4x gross MOIC last year, compared with a 3.15x historical average, according to eFront. Likewise, telecom services traded at 3.55x in 2020, up from 2.42x previously. By comparison, exit multiples for materials and utilities fell 0.67x and 0.64x from their historical average respectively.


SEC cleans house
The SEC has wasted little time in identifying its strategic priorities under the Biden administration. In a webinar from law firm Morgan Lewis last week, DC-based partner Jedd Wider outlined what the private funds industry can expect to see from the regulator’s newly appointed chair, Gary Gensler. Here are some key takeaways:

  • We can expect the SEC to scrap Trump-era proposals to broaden access for retail investors to alternatives markets, including in the context of retirement accounts.
  • The SEC’s recently formed ESG enforcement taskforce will employ AI and data analytics to help identify firms engaged in greenwashing.
  • It may not be long before we see proposals for ESG-related investment advisor and fund disclosures, similar to current mutual fund disclosure rules.

PG targets Texas
Partners Group has tapped Andy Hayes, a former MD at placement agent FirstAvenue, to bolster its US fundraising activity, affiliate title Buyouts reports (registration or subscription required). Hayes will join in May to focus on institutional clients in Texas and the mountain states in the western US. The appointment comes amid a broader push into the US, with the Swiss-headquartered firm also ramping up its dealmaking in the country.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

26 April

27 April

28 April

29 April

30 April

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