Side Letter: Coller’s barometer, co-investment thirst, no trade-off in diversity

It's surveys galore with Coller Capital and Rede Partners having published LP reports in recent days. Luckily they're distilled in today's brief, for our valued subscribers only.

Just happened

PE pressure gauge

Two industrial manometers show almost critical pressure on the pump.Secondaries specialist Coller Capital’s winter barometer is out this morning. A few quick takeaways:

  • LPs say they’ll need to modify their PE portfolios to get them ready for the impending economic downturn. This could include things like rebalancing by geography or strategy
  • Investors expect the next downturn to shake out a two-speed market when it comes to returns – which will have a knock-on effect on terms and conditions
  • Investors want industry organisations to do more to defend private equity’s licence to operate – a particularly pertinent topic in the US as we head into an election year

Gimme co-investments

Speaking of market surveys, Rede Partners‘ latest investor sentiment report is also out, and shows that demand for co-investments is at an all-time high. Fully 93 percent of LPs expect to maintain or increase allocations to co-investments in the coming months, and 100 percent of LPs with PE allocations greater than €30 billion are expecting to increase deployment to the strategy. LPs and GPs are enthusiastic about embracing “collaborative approaches to deal-making”, Rede co-founder Adam Turtle says. More findings to come later today.

Gender diversity matters

LPs that want to maximise returns in their PE investments should add a gender diversity filter, said Oliver Gottschalg, associate professor, strategy and business policy at Paris’s HEC, in a press briefing last week. Gottschalg’s report (published last July) revealed that investment committee teams with at least one female member perform better and have a lower risk of failure than all-male teams. “I’ve seen LPs struggle a bit with gender diversity, thinking they need to sacrifice returns,” he said. “That’s not a trade-off, but actually reinforcing the need to hire more gender-diverse teams.”

Essentials

Thirst for debt. Investors won’t be able to achieve the 6-8 percent return they need without private credit investments, Ares Management co-founder Michael Arougheti tells sister title Private Debt Investor in this eight-minute video. “The global thirst for yield right now is insatiable,” he says, adding there’s been a wave of capital from traditional fixed-income into alternative fixed-income credit. Arougheti also shares his thoughts on the growth of the market and how, when the market turns, “structural nuances” such as EBITDA addbacks and restricted payments baskets will be tested.

Secondaries upstarts. In the first of a series on tech disruption in the secondaries market, sister title Secondaries Investor looks at Tel Aviv-headquartered Rivver. The start-up plans to use tokenisation and blockchain technology to eliminate the need for lawyers and advisors in the sale of fund stakes. “It’s very rare that I come across a secondary fund GP that tells me, ‘This will never happen – this is not something that the markets need’,” says founder David Benizri.

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

Dig deeper

LASERS (investment) focus. Louisiana State Employees’ Retirement System has agreed to commit $100 million to Insight Venture Partners XI.

LASERS is a repeat investor in the fund series, having committed $50 million to Fund X in 2017. Here’s a breakdown of the $11.43 billion pension’s portfolio. For more information on LASERS, and more than 5,900 other institutions, check out the PEI database.

Chart showing LASERS private equity allocationThey said it

“We can’t even send them Christmas cards”

A New York-based external fundraiser laments to PEI about New York City Retirement System’s strict rules around dealing with placement agents. More to come in our interview with NYCRS’s David Enriquez tomorrow.


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Today’s letter was prepared by Isobel MarkhamAdam LeCarmela Mendoza and Rod James


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