Side Letter: Family offices lose PE faith, EQT eyes massive close, Goldman revenue drop

UBS finds family offices are less bullish on PE's ability to deliver alpha, while EQT continues its fundraising spree amid the pandemic. Here's today's brief, for our valued subscribers only. 

He said it

“The single biggest mistake we see investors make, and it’s why so many underperform, is consistency. They fall in love with the market when it’s high and then they get scared when it goes down and so they want to get out.”

Hamilton Lane chief executive Mario Giannini tells the California Public Employees’ Retirement System‘s board that LPs learned from previous crises the importance of maintaining a consistent investment pace.

Just happened

Family values

Family offices are less bullish on private equity’s ability to outperform public markets. Only 51 percent expected PE returns to exceed their public counterparts as of May, down from 73 percent in early March, according to the UBS Global Family Office Report 2020. Only 28 percent of those surveyed planned to increase their direct private equity activity as of May, a major decline from 49 percent at the beginning of the year. UBS speculates that the shift in sentiment could have reflected the appeal of bargain stock prices following March’s financial crash.

No slowdown for EQT

EQT expects to hold the final close on its ninth flagship vehicle, which was launched in January with €15 billion hard-cap, in the third quarter, according to the firm’s Q2 2020 summary statement. Chief executive Christian Sinding had said in April fundraising for EQT IX will take longer due to the market environment. Here are some takeaways from the Q2 summary call:

  • On covid-19 impact: There was no change in estimated capital needed (less than 5 percent of committed capital) to support portfolio companies in key funds.
  • Value creation initiatives will take longer with the exit pipeline continuing to be skewed beyond this year, bid-ask spreads increasing and financing becoming more complicated for some sectors, Sinding noted.
  • Preparations for its growth strategy and Asia-Pacific strategy are ongoing and the firm expects to launch more concrete funds around these two in 2021, Sinding said.
  • On tapping the US defined contribution market: EQT is figuring out exactly which of the firm’s products will suit DC investors and has a strategic team to work on this.

Earnings Watch: Goldman Sachs

Goldman Sachs took a hit to its private equity revenues in the second quarter. The banking giant earned net revenues of around $290 million from PE investments, significantly lower than the $1.2 billion generated for the same period last year, per its latest earnings yesterday. Goldman oversaw $17 billion of private equity assets under management, including real estate, as of 30 June – down from $19 billion the previous quarter.

Essentials

Summer reads: Haldane by John Campbell

Today’s recommendation comes from our editorial director Philip Borel, who’s been in the grip of Haldane: The Forgotten Statesman Who Shaped Modern Britain by John Campbell, co-founder and non-executive chairman of private markets advisory firm Campbell Lutyens. One of the most intellectually formidable political leaders of his time, Richard Haldane (1856-1928) devoted his life to building modern institutions for Britain’s education, medical research, defence and intelligence systems that would stand the test of time and continue to benefit the country to this day.

Why read about him now, Philip? “Covid-19 looks certain to force the reconstruction of our societies and a fundamental realignment of the public and private sectors. It’s at this moment that Campbell is urging decision-makers in government, private enterprise, finance and markets to draw inspiration from Haldane, focus on delivering long-term socially sustainable outcomes and help bury the divisive short-termism that’s raging in the world today. Haldane showed what principled, thoughtful action can achieve. His example provides one of the most important ingredients for our time: optimism.”

Inside tip

We’re hearing one of the US’s biggest energy-focused private equity firms has just closed a large secondaries process involving a power asset. Got details? Get in touch: adam.l@peimedia.com

Dig deeper

Institution: European Investment Fund
Headquarters: Luxembourg
AUM: €2.96 billion
Allocation to alternatives: 35.0%

The European Investment Fund has confirmed commitments to vehicles managed by Espiga Capital and Enern, according to the institution’s June meeting minutes. The EU organisation has a 26.4 percent allocation to private equity, as illustrated below.

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


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


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