Side Letter: Carlyle on resilience, UBS on bargains, deeper into Dyal’s NBA play

We will soon see more private equity investment in sports franchises; that's what our team is hearing as they research an upcoming deep dive on the subject. In the meantime, we have some more details on Dyal's entry into that industry. Plus: the window for bargains came and went, more on the development of "natural capital", and Carlyle's impact head on operational resilience. Here's today's brief, for our valued subscribers only.

They said it

“Australia, Canada, the UK, France, Japan and the European Union are all working towards some form of climate risk reporting for companies, but New Zealand is moving ahead of them by making disclosures about climate risk mandatory across the financial system.”

James Shaw, New Zealand’s minister for climate change, discusses the new requirement for asset managers and financial institutions to report on the risk that climate change poses to their business and portfolios. Full story on Infrastructure Investor.

Just happened

A new PE playbook

For PE investors, it’s hard to find an industry with similar dynamics to sports. A sticky, often fanatical customer base, multiple entities to invest in (think leagues, teams, broadcast rights, stadiums, sports tech and nutrition to name just a few), and potential global revenue streams. Plenty of successful PE execs have made personal investments in sports franchises, but until now only a handful of funds, such as those managed by CVC Capital PartnersBridgepointKKRAdvent International and Silver Lake, have thrown their institutional hats into the ring. That’s about to change, as we’ve been finding out in our reporting for a deep dive into the topic to come later this year. In part this is down to changes to ownership rules by various major leagues in the US. The latest arrival is Dyal Capital Partners, on whose HomeCourt Partners venture with the NBA we have more detail here.

Quick dip

PE sponsors holding out to make the best use of this year’s crisis may have already missed the boat. Speaking on a breakfast media call this morning, Simona Maellare, global co-head of UBS’s alternative capital group, said the window for buying companies on the cheap opened and closed fairly quickly. “This would have been a perfect vintage for PE, because an over-inflated environment of high multiple and valuations was finally becoming a bit more rational and again PE could buy assets at more reasonable valuations. Actually, this hasn’t happened,” she said. In Europe, the bulk of the deals to happen have not been for bargain buys but for companies that have proven to be covid-19 and recession resilient, she added.

Essentials

Super Natural

HSBC Global Asset Management last month entered a JV with climate change advisory firm Pollination to “create the world’s largest dedicated natural capital asset management company” (Side Letter 27 August), targeting a debut fund of $1 billion. Agri Investor editor Binyamin Ali has provided subscribers with some more context around the emergence of the “natural capital” asset class. Some salient points:

  • Increasingly erratic weather brought about by global warming has grown in its consistency and intensity across the world, while the global pandemic we’re now living through follows in a line of zoonotic (animal borne) diseases attributed to the degradation of the natural environment caused by human activity.
  • The need to invest in and protect the natural world has been identified by countless reports over the years, directly linking its prosperity with that of every living creature.
  • Trouble is, decision-makers “often consider nature’s benefits ‘free’, so market pricing is difficult, sometimes unfeasible, and they are often valued at zero”, as former US Treasury secretary Henry Paulson recently wrote in the Financial Times (paywall). Paulson also called for the creation of a new asset class comprised of things like productive soils, crop pollination and watersheds, citing data that estimate the loss of “services” from pollinators such as bees would equate to a $200 billion loss in agricultural output.
  • If ‘natural capital’ is to grow to become a bona fide asset class in its own right, it will require a rethink that challenges and updates PE’s understanding of the benefits we derive from the natural world – and not simply a rethink of what actually constitutes an asset class.
    Subscribers to Agri Investor can read the full version here.

Operational lessons learned

Carlyle‘s head of impact Megan Starr says a workshop her firm ran several years ago to assess the impact of an extreme weather event on the firm’s operations had put the organisation in a good place to deal with the covid-19 pandemic: “As a result of that exercise, we found we really needed to invest more heavily in better remote working technology, much better firm-wide communications, our ability to communicate with people quickly, efficiently, seamlessly, and more IT and data resiliency.”

Dig deeper

Institution: New Mexico Educational Retirement Board
Headquarters: Santa Fe, United States
AUM: $12.44 billion
Allocation to alternatives: 23%

New Mexico Educational Retirement Board committed $50 million to OrbiMed Private Investments VIII at its September 2020 board meeting, according to a the meeting agenda.

OrbiMed Advisors’ fund launched in August and is targeting $1.4 billion, according to Private Equity International data.

For more information on New Mexico Educational Retirement Board, as well as more than 5,900 other institutions, check out the PEI database.


Today’s letter was prepared by Toby Mitchenall with Adam Le and Carmela Mendoza.

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