Side Letter: Co-investment shake-out, Softbank kicks in more for Fund II, in tech we trust

SoftBank's Son is keeping faith with his vision, but investors will take more convincing. Plus: carry in the crosshairs, co-investments as secondaries dealflow, Hg's tech success and more. Here's today's brief, for our valued subscribers only.

They said it

“I think most people even in private equity know that taxes will have to rise. There’s not much you can do about it [and] to an extent it’s fair enough. Maybe it will calm down feelings of inequality.”

An unnamed London-based private equity executive tells the Financial Times that the industry’s fight to ensure carried interest continues to be taxed as capital gains will get tougher (paywall).

Just happened

When the co-investing gets tough
Secondaries buyers take note: we’re hearing of a potential shake-out of co-investment assets as a result of the liquidity crunch earlier this year. Although the majority of funds would have had a portion of committed capital earmarked for follow-on investments or, as was more likely this year, liquidity support for businesses hit by the pandemic, not all institutional investors had this luxury. One institutional LP advisor tells us some investors with large co-investment portfolios were unable to provide all the necessary funding during the pandemic and, as a result, are now left with multiple underperforming assets on their books. As Private Equity International explored in its recent co-investment roundtable, not having follow-on capital can put co-investors in a very bad position. Witnessed something similar? We’d love to hear from you.

‘Not that popular’
SoftBank Group has doubled down on the second Vision fund as it seeks to build a solid track record before seeking third-party capital. Vision Fund II had $10 billion of committed capital as of 9 November, up from $5 billion at 30 September, according to its Q2 earnings statement on Monday. It is 100 percent financed by SoftBank Group and yet to hold an external close, though it is expected to admit third-party investors in future. “Vision Fund II and Vision Fund III are open always to third-party investors but at the moment we are not that popular yet,” chief executive Masayoshi Son said. Full report here.

Trust in software
Results from HG Capital Trust, the listed entity that invests in Hg funds and deals, show how good a year it has been for those invested in software and service businesses so far. The £1.15 billion ($1.51 billion; €1.27 billion) market cap vehicle has received £470 million in distributions this year and deployed £410 million into new investments. Chairman Jim Strang says: “While the global impact of the covid pandemic continues, the investment strategy, targeting software and technology-enabled business services companies, has left HGT well positioned.”

Download now, read at leisure
In case you missed it last week, you can download our November edition in full, including an in-depth report on private equity’s pro sports game plan; special reports on investing in tech and China; a co-investing roundtable; plus much more…

Essentials

Hony I raised VC
Chinese buyout shop Hony Capital has raised its first venture capital fund. The Beijing firm, perhaps best-known in the West for its troubled ownership of UK restaurant chain Pizza Express, collected $130 million for Hony Ventures Fund I earlier this month, the Wall Street Journal reports. The new vehicle will target early-stage deals in China’s consumer, internet and digital enterprise service sectors.

Who’s the busiest LP?
Our debut investor report is out today, showing disclosed LP commitments over the most recent quarter and the most active known investors. The top 10 most active investors have made a total of 168 fund commitments to 2020-vintage private equity funds so far this year. Download the report here.

Listen: Race and private capital
This 10-minute podcast from sister title Buyouts’ Justin Mitchell is required listening for anyone thinking about diversity and their organisation. Buyouts subscribers can listen here. Alternatively you can find it and other PEI Media podcasts on: iTunesStitcherSpotifyGoogle Play and Podbean.

Dig deeper

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

9 November

10 November

11 November

12 November

13 November


Today’s letter was prepared by Toby Mitchenall with Adam LeRod JamesCarmela Mendoza and Alex Lynn.

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