Side Letter: CalPERS goes fee-lite; LatAm LPs back buyouts; Europe’s SPAC battle

CalPERS prioritised SMAs and co-investments towards the end of last year in a bid to improve cost efficiency. Plus: what to expect for SPACs in Europe, and LatAm LPs acquire a taste for buyouts. Here's today's brief, for our valued subscribers only.

They said it

“Washington poses a risk because of one party’s control and the anti-capitalist policies of its most progressive members. My hope is that the narrow majorities render radical legislation less likely.”

In his latest memo, Oaktree’s Howard Marks outlines why he’s not calling the top of the market.

Just happened

Californian co-investors
The California Public Employees’ Retirement System is prioritising lower-fee structures. The pension committed about $4.3 billion to PE between September and the end of January, of which only $900 million was via fund investments, sister title Buyouts reports. It committed $2 billion to five customised investment accounts and the remainder to co-investments. PE head Greg Ruiz, tasked with rebooting the $30.8 billion PE programme, told the investment committee last September that these structures would be the primary way to increase cost efficiency.

Its neighbour, the California State Teachers’ Retirement System, has done similar. The fund committed $4.4 billion to PE in H2 2020, of which $2.2 billion went to direct co-investments or co-investment funds, as it looks to bring more investment capability in-house.

CalPERS on SPACs
Asked about the SPAC phenomenon at its investment committee meeting on Monday, CalPERS’ interim CIO Dan Bienvenue said the area was fraught with potential misalignment and governance issues. Steve McCourt of the pension’s investment consultant, Meketa, also noted that the vehicles were adding to pricing pressure in the private markets. His concerns may be justified: half of the capital raised for SPACs is chasing the same deals as buyout shops, per Bain & Co.

Speaking of…
Though the strategy has yet to take off in Europe, industry participants expect a busier 2021 for SPACs in the region, PEI reports. Here are some key takeaways:

  • UK listing requirements that render the market unsuitable for SPACs are under government review and could be tweaked.
  • Amsterdam will be London’s biggest rival for SPAC market share thanks to a capital market-friendly reputation and US-style listing rules.
  • SPACs are also pricing in Paris and Frankfurt, with the Nordics another potential contender.

Essentials

More spinout news
Hamilton Lane‘s Brazil team spun out last summer and is set to launch a secondaries fund, sister title Secondaries Investor reports. Signal Capital is seeking $400 million for the fund, which will target LP stakes and GP-led deals in the Brazilian market. It is also planning to partner with global secondaries firms to help them carry out due diligence and monitor GP-led investments in the region.

LatAm warms to PE
An unusually high proportion of CD&R‘s latest buyout fund came from Latin American investors. LPs in the region committed $1.2 billion to Fund XI, which held its final close on $16 billion last month, per a Tuesday statement from advisory firm HMC Itajubá. Andean LPs accounted for 74 percent, with Brazil and Mexico contributing 16.6 percent and 9.3 percent respectively. A series of regulatory changes in recent years have bolstered LatAm pension appetites for alternative assets, as PEI explored in 2019.

Placement promotion
Scoop: Placement firm FirstPoint has promoted Joshua Dorfman – who has covered distribution on the East Coast of the US for the firm since 2017 – to partner.

Dig deeper

Institution: Maine Public Employees Retirement System
Headquarters: Augusta, US
AUM: $16.6 billion
Allocation to alternatives: 46.1%

Maine Public Employees Retirement System approved $55 million of commitments to a pair of private equity funds at its March board meeting, a contact at the pension told Private Equity International.

The commitments comprised $40 million to Capricorn Investment Group’Technology Impact Fund II and $15 million to Bain Capital Venture Coinvestment Fund III.

The $16.6 billion US public pension has a 15 percent target allocation to private equity that currently stands at 17.6 percent.

MainePERS’ recent fund commitments have focused on North American funds, predominantly targeting investments in the TMT sector.

For more information on MainePERS, 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.

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