Private Equity News & Analysis

Side Letter: Coronavirus and consumer assets, EQT in Oz, the illiquidity premium

An update on how coronavirus is being felt by consumer-facing businesses in China; EQT makes it official in Oz; and where the FT went wrong. Here’s today's brief, for our valued subscribers only.

-

Just happened

China’s consumer hit

Face mask

The human damage wrought by the coronavirus is still unfolding. In private equity portfolios, the assets arguably on the front line are those serving the Chinese consumer. The sector has borne the brunt of fears, with McDonald’s China – owned by the Carlyle Group and CITIC Capital – among those opting to temporarily close branches amid disruption to staff and logistics. This quarter could be a “write-off” for private equity exits as firms try to ride out fears to secure the best price for their assets, Euan Rellie, co-founder of advisory BDA Partners, tells PEI. China’s already sluggish fundraising market also looks set to suffer, with most activity on hold until the situation becomes clearer and travel is uninterrupted, as we explored in last week’s Friday Letter.

EQT in Oz

EQT has officially launched its first office in Australia. The Sydney bureau, announced in its IPO prospectus in September, will be led by Ken Wong, managing director and head of EQT Australia & New Zealand, per a statement. Wong had been running EQT’s Australia activity from the Singapore office since joining from Affinity Equity Partners in 2018. The move comes as part of a broader Asia-Pacific expansion, which could include the launch of a larger regional fund and an office in Tokyo.

PE performance: worth the illiquidity?

Wellershoff & Partners head of private markets Cyril Demaria has responded to an FT comment that questioned whether pension funds are willingly accepting the illiquidity that comes with PE without being compensated for it. Demaria argues:

  • fully liquidated US and Western European LBO funds have significantly outperformed their public market equivalents;
  • it’s also difficult to assess the performance of active funds, as net asset values are calculated conservatively, and thus “NAVs will always trail the index, until assets are sold”.

Let us know what you think.

Essentials

Placement agent move scoop. Global placement business First Point Equity has added to its bench in the US: Danyal Farooqi joins the firm from Stamford, Connecticut-based Stanwich Advisors, First Point tells us.

The case for co-investments. A new white paper from Capital Dynamics makes the case for smaller LPs adding multi-manager co-investment funds to their portfolios: its research shows not only do such funds outperform single-manager primary funds but they also have more attractive risk characteristics. Co-investment team senior managing director Andrew Beaton suggests fund-investing LPs be guided by the market: with co-investments now making up 10-12 percent of the total market, “at least 10 percent of your investment portfolio should aim to be in co-investment funds”.

Dig deeper

Institution: Sacramento County Employees’ Retirement System
Headquarters: Sacramento, United States
AUM: $9.71bn
Allocation to alternatives: 27.80%
Bitesize: $10m-$50m

Sacramento County Employees’ Retirement System launched a request for proposal to explore options in the marketplace for consultants to develop and monitor SCERS’ maturing alternatives portfolio. The alternatives portfolio includes the Absolute Return, Private Credit, Private Equity, Real Assets and Opportunities asset classes. As it stands, Verus Investments is SCERS’ general consultant and Cliffwater its current consultant for Absolute Return, Private Equity, Private Credit and Real Assets. SCERS is seeking to find one consultant that can cover them all.

For more information on SCERS, as well as more than 5,900 other institutions, check out the PEI database.

He said it

“Please always prioritise the safety and health of your teams, portfolio companies and families and please let us know if we can ever be helpful.”

Yup Kim, senior portfolio manager at Alaska Permanent Fund Corporation, thanks the institution’s partners in China for being thoughtful stewards of capital as the country fights to contain the coronavirus epidemic.

We would love your feedback to help us make this newsletter more useful; click here to give us your opinion.

Today’s letter was prepared by Toby Mitchenall, Isobel Markham, Adam Le, Rod James, Carmela Mendoza and Alex Lynn.

Subscribe now and get Side Letter delivered to your inbox each day

To find out how, email peisubs@peimedia.com, or call our team:

London: +44 207 566 5432
New York: +1 646 545 6296
Hong Kong: +852 2153 3140