PE pressure gauge
- 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
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.”
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.
- 2 December – Arkansas Teacher Retirement System is holding an investment committee meeting
- 3 December – Alaska Permanent Fund is holding a board meeting
- 4 December – Oklahoma State Regents For Higher Education and South Carolina Retirement System are both holding board meetings; and Louisiana State Police Retirement System (LSPRS) and Marin County Employees’ Retirement Association (MCERA) are both holding investment committee meetings
- 5 December – City of San Jose Police & Fire Department Retirement Plan is holding a board meeting; New Mexico Educational Retirement Board is holding an investment committee meeting; Wyoming State Loan and Investment Board is holding an investment committee meeting; Oklahoma State Regents For Higher Education is holding a board meeting; San Bernardino County Employees’ Retirement Association is holding a board meeting; Texas County and District Retirement System is holding a board meeting; Los Angeles Fire & Police Pension System is holding a board/investment committee meeting
- 6 December – Montana Teachers’ Retirement System is holding a board meeting
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.
They 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.
We would love your feedback to help us make this newsletter more useful; click here to give us your opinion.
Subscribe now and get Side Letter delivered to your inbox each day
To find out how, email firstname.lastname@example.org, or call our team:
London: +44 207 566 5432
New York: +1 646 545 6296
Hong Kong: +852 2153 3140