Side Letter: Brexit fundraising troubles; Distressing price tags; A GI-normous close

An EU directive around pre-marketing could prove troubling for UK fund managers. Plus: investors are hunting distressed credit opportunities in the secondaries market and how Europe's largest healthcare fund compares to its peers. Here's today's brief, for our valued subscribers only.

They said it

“The state depends on us more than ever, so this is a high-stakes game being played with serious impacts on the lives of every Alaskan, which could be felt for a long time to come. I encourage everyone to get back to the table so that we can continue to do our work uninterrupted and generate revenue for the State of Alaska.”

Angela Rodell, chief executive of the Alaska Permanent Fund, says staff have been working to develop a business continuity plan as the state government approaches its second shutdown in five years.

Just happened

Brexit fundraising considerations
UK fund managers take note: an incoming EU directive pertaining to third-party pre-marketing activity could exacerbate the fundraising challenges posed by Brexit. In Private Equity International‘s latest Fund Admin special report, lawyers from Debevoise & Plimpton outline the potential implications. While the full guide is well worth a read, here’s the bottom line:

Marketing funds under [the national private placement regime] is a well-established concept and UK fund managers are able to deal with it. More problematic is the involvement of third parties (group IR teams or placement agents) in the marketing process. UK firms have considered several solutions as Brexit contingency plans: setting up an EU-based subsidiary with the relevant licence, using EU host AIFM structures for chaperoning or tied agent solutions, various secondment models, or ensuring the UK firm only conducts non-regulated activities.

LGBTQ+ shout out
To commemorate Pride Month, PEI is keen to discuss LGBTQ issues within the PE industry. Do you have any thoughts, concerns or stories you’d like to share? Carmela Mendoza would love to hear from you.

Distressing price tags?
With concerns that primary opportunities in distressed credit may not be as numerous as they were anticipated to be following the pandemic, investors appear to be taking their chances on the secondary market instead. According to the latest Price Report (see here for archive) from intermediary Setter Capital, average pricing for stakes in distressed credit funds rose by 10.35 percent between April 2020 and April 2021.

This came amid a continuing rally in pricing for fund stakes of many alternatives strategies – led by growth and energy funds, which were up 26.1 percent and 19.5 percent, respectively. However, mezzanine was one of only two strategies to have a price decrease over the period (-1.93 percent) along with timber (-2.41 percent).

We did the math

Healthy fundraise
Yesterday, we broke the news that GHO Capital Partners has raised more than €2 billion for what is already Europe’s largest healthcare fund. The chart below puts GHO Capital III in context.

Essentials

GI-normous fundraise
San Francisco-based GI Partners has collected $3.9 billion for its sixth control fund (press release here). Fund VI had a $3.25 billion target and is about 41 percent larger than its 2017-vintage predecessor. Capital was provided from LPs across 15 countries, including the California State Teachers’ Retirement System and Albuquerque Community Foundation, according to PEI data. The vehicle was activated in November and has since completed two acquisitions, including software provider Aras.

Bags of Gold(ing)
Munich’s Golding Capital Partners has held a €161 million first close on its latest co-investment vehicle, per a statement this morning. Here are three things to note about the fund:

  • Golding Buyout Co-Investment 2020 has a €200 million target and is expected to close by year-end.
  • The fund, which targets defensive sectors such as health and technology across Europe and North America, is aiming for a 13-15 percent net IRR.
  • It has backed 10 companies and is expected to be fully deployed by 2022 in more than 20 portfolio companies.

Dig deeper

Institution: State of Wisconsin Investment Board
Headquarters: Madison, US
AUM: $148.90 billion
Allocation to alternatives: 17.3%

State of Wisconsin Investment Board has confirmed more than $1.1 billion-worth of private equity commitments to 15 vehicles, according to the pension’s June board meeting materials.

The new commitments comprise $350 million to Hellman & Friedman Capital Partners X; $200 million to PSG Encore Warehouse; $100 million to Atlas Capital Resources IV; $75 million to Sterling Group Credit Fund II; $60 million to Charlesbank Equity Fund X alongside $15 million to Fund X’s Overage vehicle; $60 million to JMI Equity Fund X; $50 million apiece to Percheron Capital Fund IHedosophia Partners IV and Activant Capital IV; $35 million to Avenue Growth Partners Fund I; and $25 million each to Shamrock Capital Debt Opportunities Fund I and VMG Partners V.

SWIB also confirmed a pair of add-on commitments to two vehicles it had already allocated to: $20 million to Great Range Capital Fund II and $15 million to Seaside Equity Partners I. This brings the pension’s stake in these two funds to $55 million and $50 million, respectively.

At the end of Q3 2020, SWIB’s private equity portfolio (excluding investments in venture capital and private debt) had a market value of approximately $8.8 billion, representing 8 percent of the pension’s Core Trust Fund, which comprises most of its assets.

By the end of 2020, the private equity portfolio had risen to $9.4 billion in value, though the asset class’s allocation as a proportion of SWIB’s CTF had dropped to 7.8 percent. This slight drop in private equity’s effective current allocation reflected the pension’s assets sharply rising in the final three months of the year.

SWIB also mentioned that including its investments in venture capital and private debt, the pension envisaged its wider private equity portfolio eventually comprising up to 11 percent of its total investment portfolio in the next 12-24 months.

The $148.9 billion pension’s recent private equity commitments have predominantly targeted North American funds investing across a variety of sectors.

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


Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Andy Thomson.