Just happened

On a health kick
With its March acquisition of Dutch venture capital firm LSP, EQT cemented its position as a major player in European healthcare and life sciences. Now, the firm is looking to build upon that pedigree overseas. Its newly christened EQT Life Sciences unit and existing healthcare team are exploring a greater number of deals in the US and Asia-Pacific, René Kuijten, partner and head of EQT Life Sciences, tells Side Letter. That mission will likely be catalysed by its acquisition of Hong Kong-headquartered buyout giant Baring Private Equity Asia, which is expected to complete later this year.

The US is home to a rich seam of healthcare opportunities, Kuijten said, noting that EQT has also discussed opportunities in Asia-Pacific with BPEA’s healthcare staff. EQT owned two US healthcare businesses prior to the LSP tie-up, which brought with it 10 additional US assets, according to EQT’s website. In Asia-Pacific, EQT owns Australian cancer care provider Icon Group via its fifth infrastructure fund, as well as Singaporean private healthcare provider HMI Group and healthcare benefits administrator MHC Asia via its 2018-vintage Mid Market Asia III.

EQT’s healthcare aspirations may not end here. In November, Michael Bauer, co-head of EQT’s global healthcare team, said the firm was considering a strategy that would bridge the gap between early-stage life science investments and buyouts. Those plans are still being examined, Kuijten said. The firm’s health kick isn’t an isolated incident: a number of EQT’s peers, including Carlyle Group and Apollo, have also scooped up life science units in the past couple of years amid unprecedented demand for medicines and healthcare services during the pandemic.

With such intense attention on a single sector inevitably comes fierce competition for assets. One avenue in which GPs are finding particular success is via companies dedicated to technological advancement within the healthcare ecosystem, which enables them to meet patient demand and improve health outcomes while maximising returns, as Private Equity International explored in last month’s healthcare special report.

Bigger in Texas
Employees Retirement System of Texas is looking to slow its private equity investment pace without harming one of its top-performing asset classes, PEI reports this morning. The public pension, which has $6.55 billion in PE AUM, upped its target allocation from 13 percent to 16 percent at a board meeting last week so as to “reduce the need to drastically scale back” a strongly performing programme, it noted. A robust 2021 means that PE currently accounts for 19.7 percent of the pension’s portfolio. “The capital plan is reducing our commitment pacing to get back to our targets,” said chief investment officer David Veal at the meeting.

US public pensions have had to make tough decisions to balance their soaring allocations with the need to retain exposure to one of their highest performing asset classes. State of Wisconsin Investment Board, for example, increased the range around its allocation towards private debt and equity to 5 percent in either direction to prevent it from having to sell public equities to balance the portfolio. In June, PEI reported that New Mexico State Investment Council (regretfully) downsized its commitment to TDR Capital‘s latest fund, despite the “great job” the GP has done, to avoid the firm representing an outsized proportion of its portfolio.

Essentials

Speaking of US public pensions…
City of Philadelphia Board of Pensions and Retirement‘s private asset portfolio returned 14.7 percent on an annual basis through the end of June, our colleagues at Buyouts report (registration required). Private assets lag public markets by several months, which has led many LPs to brace themselves for possible markdowns reflecting the months of downturn in the public markets; Philadelphia’s returns suggest private assets may show resiliency in the face of a turbulent economy.

“We are waiting for some returns, but by and large, we’ve received the majority in the private market space,” said Kweku Obed of adviser Marquette Associates at City of Philadelphia’s board meeting on 25 August. “These numbers are a pretty good indicator of where things will stand when all is said and done.”

Cybersecurity goes viral
As the risks that the PE industry face around cybersecurity continue to escalate, it is little surprise that GPs are paying closer attention to the sector. According to PitchBook data, PE firms are on track to complete a record amount of cybersecurity deals this year. Firms have completed 115 such deals valued at $34.4 billion as of mid-August, already beating the $30.9 billion deployed across 225 transactions for the entirety of 2021.

Brendan Burke, a senior analyst at PitchBook, said the trend is partly driven by firms carrying out take-privates of mature companies at discounted prices amid falling tech valuations. Within this environment, cybersecurity deals offer PE firms opportunities to supplement portfolio companies and consolidate product suites, Burke added.

PE’s interest in cybersecurity isn’t limited to dealmaking: the US Securities and Exchange Commission has proposed a raft of cybersecurity risk management rules for private funds to double down its efforts to protect investors, advisers and companies against cyber-threats and attacks. KKR, for its part, hired a global cybersecurity lead in its digital value creation team earlier this year. “You need to continue staying ahead of the game,” Mattia Caprioli, partner and co-head of European PE, told PEI earlier this year. “That’s a risk that we face as an industry and we need to be on top of it.”

Dig deeper

LP meetings. Here’s an LP meeting to watch out for this week.

2 September

• Chicago Municipal Employees’ Annuity and Benefit Fund

Today’s letter was prepared by Alex Lynn with Rod James, Helen de Beer and Madeleine Farman