Side Letter: Eight giant investors on their PE fears, EQT’s virtual AGM, hires for BD and HIG

We've been gathering data and views from the world's largest PE investors; here is a taster of what they are telling us. Also: new hires for HIG and BD, Blackstone's recruitment shift, and more.

Just happened

Big investors, big concerns

Warning signs: there are a few

On Wednesday, we will launch the Global Investor 100: a ranking of the largest institutional private equity investors based on the value of their PE portfolios. It has been a substantial project, much of which has (of course) involved speaking with some of the world’s most significant investors. Here is a preview – exclusive for Side Letter subscribers – of how some of these heavyweights are thinking. We asked members of the GI 100 what their greatest concern was regarding their PE portfolios.

Sebastiaan Ranner, senior manager, private equity and infrastructure, MN
Overleveraged positions within PE portfolio with liquidity needs that were not planned for in the fund.”

Investment staff, Los Angeles County Employees Retirement Association
One of our main concerns is whether the companies in our portfolio have sufficient liquidity to survive this downturn, given the high level of leverage employed by many GPs in recent years. While most of our managers took steps such as reducing costs and drawing down revolvers to improve liquidity positions across our portfolio, this issue remains top of mind.”

Chris Phillips, spokesman, Washington State Investment Board
With a 23 percent target allocation for PE, the WSIB must concern itself with continually finding sufficient high-quality PE fund opportunities at a scale sufficient to satisfy the size and due diligence requirements of our programme.”

Robert Coke, head of buyout and residential property, Wellcome Trust
It is always people. We take great care to know who the best investors are within each firm. While there will inevitably be turnover, we watch carefully to ensure a good investment process will continue.”

Steve Moseley, head of alternative investments, Alaska Permanent Fund Corporation
A sustained market downturn is the greatest near-term threat to returns, but that kind of downdraft would be temporary and self-healing. Lower returns imply lower prices, and lower prices lead to better returns. We’ve tried to position our portfolio to deliver strong returns across cycles and across generations. The greater damage to our PE portfolio could be self-inflicted. To sustain strong performance, we need to invest in our own business. That should include, for example, investing in excellent information systems, skilled investment professionals, and multiple offices. Leadership in PE requires significant and continuing investment in these areas, yet our operating budget is subject to ever-changing state fiscal and political limitations. If we don’t address this structural flaw, we’ll ultimately and inevitably fail to deliver the results Alaska needs.”

David Enriquez, head of private equity, New York City Retirement Systems (New York City Employees’ Retirement System, Teachers’ Retirement System of the City of New York)
In the post-covid environment and an economic recession, the main focus on our private equity portfolio is to diligently monitor performance and potential problem areas. While we have seen a decline in valuations from 31 December to 31 March, the impact has not been uniform and has been driven by exposure to industry sectors and business models. For the balance of 2020, we will want to understand the valuations of second and third quarters where we will see a more meaningful impact of the pandemic and economic contraction on the operations of portfolio companies. Given this environment… our team is going to continue to focus on understanding the operating capabilities of managers as well as their approaches and any changes to valuation methodologies.”

Guy Lodewyckx, head of private markets multi-management, Amundi Group
Of course, we expect some losses in our portfolios, but we are confident that GPs will be able to handle most of the problems. Ability to create value even in downturns is one of our criteria when we select funds. Furthermore, this crisis will definitely provide very good investment opportunities.

Spokesperson, Universities Superannuation Scheme
Our biggest concern is that as the PE industry has enjoyed ever-increasing assets under management, the industry has become complacent on costs and fees at a time when the rest of the asset management industry has been consolidating. As returns compress in the current environment, we are encouraged to focus on delivering the benefits of private asset ownership at a lower cost to our members, through both our direct investments across asset classes, as well as through a rigorous approach to the cost of investing through funds.

Essentials

Benchbuilding: BD and HIG
Upstart operational firm BD Capital was founded last year by former CEO of Alliance Boots Richard Baker and ex-Advent International MD Andy Dawson. It has just added Advent’s former Benelux head Bram Grimmelt (LinkedIn profile here) as partner. Press release here.

Multi-strategy firm HIG Capital has hired John Harper, veteran of LDC, Duke Street and latterly Inflexion (LinkedIn profile here), to lead its London LBO team.

Fishing in a bigger talent pool
The pipeline of talent available to PE firms is often cited as a major barrier to greater diversity; the make-up of the industry reflects the investment banking pool it fishes in. Blackstone is doing something about this, shifting away from poaching young i-bankers to recruiting only directly from schools. Those with the scale to have graduate programmes will surely follow suit.

No carbon
Sustainability-focused PE firm Ambienta said today it had achieved carbon-neutral status, having “compensated for all its direct and indirect emissions” (press release). Bravo!

‘New era of growth’ in private markets
That’s how Financial Times columnist Robin Wigglesworth describes the post-coronavirus world of asset allocation in his column (paywall) this morning.

Virtual AGMs

The Last Dance may be the hottest thing on Netflix right now, but for investors in EQT‘s funds it’s the firm’s AGM. Produced in the style of a TV show, the two-hour programme included crosses to staff around the world for updates on the Scandinavian giant’s portfolio companies and funds. Look out for our story this week on how the PE industry is coming up with novel ways of staying connected during lockdown.

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