Side Letter: Dyal gets dialled, NJ ups allocation, Fortress Oz

New Jersey has jacked up its PE allocation, while GPs are looking to jack up their investment capabilities. Here’s today's brief, for our valued subscribers only.

Just happened

Jacked up allocation

The New Jersey Division of Investment has fast-tracked the adoption of a 15 percent allowable allocation to private equity to help manage times of volatility. The pension plan upped its PE allocation to 12 percent effective 1 October and was already planning to increase the allowable allocation from 12 percent to 15 percent to accommodate the new target. The fast-tracked action is particularly pertinent as the private equity allocation was measured to represent 12.8 percent of the pension fund as of 20 March. As well as cushioning the portfolio from the denominator effect, the increased headroom allows the pension to take advantage of short-term opportunities as they arise, sister title Buyouts previously reports.

GPs Dyal in for cash

Michael Rees, managing director of Dyal Capital Partners, says his firm is receiving “a quite noticeable” number of inbound calls from GPs wanting to raise cash, either to seed opportunistic funds or warehouse opportunistic investments. Dyal invests in GPs, giving them an influx of balance sheet capital; this is frequently used to seed a new investment strategy. As well as new enquiries, Dyal’s existing partners, Rees tells us, are “using balance sheet capital to pivot from, for instance, buying a software asset for 20x to buying distressed debt in good software companies with senior loans trading at 75 cents on the dollar. The more nimble [firms] are acquiring some of this unbelievably dislocated paper at very attractive prices”.

Be there

CFOs and COOs, we have some dates for your schedules:

He said it

“We’re not short-term capital and can accelerate exits when buyers are more confident. At the moment, our first priority is to protect our portfolio companies and continue to add value.”

Carlyle Group’s Kazuhiro Yamada spells out the advantages of private capital to PEI‘s Alex Lynn.

They did the math

It’s all about liquidity. Liquidity risk is the dominant concern for the 260 institutional investors that participated in a March survey by investment consultant bfinance. Immediate solvency and funding concerns are less of a priority.

Essentials

Fortress Oz. Australia is tightening its restrictions on foreign investment amid worries overseas companies will take advantage of market dislocation and acquire Australian businesses on the cheap. In practice it means the Foreign Investment Review Board will now consider all foreign investments, rather than just deals in sensitive sectors or above a size threshold. Daniel Kemp on sister title Infrastructure Investor has the details.

Better off private. Listed investor Better Capital has told the market it will delist from the public markets “in the coming weeks”: “The very obvious effects of this pandemic will be both widespread and of considerable duration. It now seems improbable that any of the portfolio businesses can be exited sensibly within the remaining lifetimes of the Cells. It is also the case that the considerable costs of maintaining a listed company status are increasingly disproportionate to the value of the portfolio.”

PE in Japan. The coronavirus crisis could accelerate the need for Japan’s corporates to dispose of non-core assets (bread and butter for private equity firms in the country), says a thoughtful piece in the Financial Times. Rather than being a last resort, “private equity could become an acceptable part of the mix for managing the way through”, the paper notes. Keep an eye out for PEI‘s Japan Special, online tomorrow.

Dig deeper

Institution: New Hampshire Retirement System
Headquarters: Concord, United States
AUM: $9.55bn
Allocation to alternatives: 29.2%
Bitesize: $50m-$100m

New Hampshire Retirement System has agreed to commit $75 million each to HabourVest International Private Equity Partners IX and Coller International Partners VIII, a contact at the pension informed Private Equity International.

The $9.55 billion US public pension has a 10 percent target allocation to private equity that currently stands at 12.4 percent.

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

Correction: In yesterday’s Dig Deeper we ran the wrong chart showing New York State Common Retirement Fund’s investment portfolio breakdown. The correct chart is below. Apologies.


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Today’s letter was prepared by Toby MitchenallIsobel Markham and Alex Lynn.


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