Private Equity News & Analysis

Side Letter: First-time fund database; Josh Harris’s new firm; EQT’s €2.4bn

A new database lists first-time funds and the key things to know about them. Plus: Apollo co-founder Josh Harris has formally launched his firm; and EQT has beaten the target of its debut growth vehicle. Here's today's brief, for our valued subscribers only.

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Just happened

First-time fortitude
It’s not exactly the easiest time to be raising a first-time fund. Many LPs have struggled to keep pace with the sheer volume of re-ups reaching their desks, let alone had time to think about forming new relationships. Add market volatility, interest rate hikes and a potential recession to the mix, and you have one very challenging environment for first-time funds indeed.

And yet, as this database from our colleagues at Buyouts shows, emerging manager fundraising has been marching on in spite of these challenges (registration required). The database, assembled via a mix of market sources and official documentation, includes 35 funds (and counting) in market, how much they’ve raised, what they’re targeting, their strategy and who runs them.

New additions to the list include Nexa Equity, launched by ex-Insight Partners executive Vlad Besprozvany for software investments; Marlinspike Partners, led by Neil Keegan and Mislav Tolusic for investments in “dual-use” tech with government and private industry applications; and Sandbrook Capital, targeting $1 billion for investments in the energy transition.

Last year, first-time funds set a record, collecting about $14.1 billion across 60 funds, according to PitchBook’s 2021 Annual US PE Breakdown. The struggle to find capacity for new relationships this year has prompted some investors to earmark specific pools of capital for first-time or emerging managers, which tend to outperform more established vintages.

New firm on the block
Speaking of first-time funds, Apollo Global Management co-founder Josh Harris has formally launched his firm and is teaming up with ex-Brookfield Asset Management and Goldman Sachs Asset Management execs on the venture. 26North Partners will initially focus on private equity, credit and insurance, and will launch with at least $5 billion in AUM, according to a statement.

Harris is joined by Mark Weinberg, who led Brookfield’s US PE business, and Brendan McGovern, former head of Goldman’s private credit group, as part of a more than 40-strong team that includes former Blackstone, Centerbridge Partners and Apollo executives.

Harris disclosed in May last year that he was stepping down to return to his roots as an investor, after fellow co-founder Marc Rowan was tapped to take over from Leon Black as CEO.

Nordic growth
EQT has held the final close on its debut growth vehicle, gathering total commitments of €2.4 billion, surpassing its €2 billion target, per a statement this morning. The fund was mainly backed by sovereign wealth funds, pensions, asset managers and high-net-worth investors from around the world. About €200 million was gathered from EQT employees and its network of 600-plus industrial advisers. One-third of the fund has been deployed across seven deals in tech sub-sectors in climate, healthcare, consumer and enterprise.

Marc Brown, EQT’s head of growth, tells Side Letter that the first-time fund was a milestone for the firm given what’s going on in the public markets and the uncertain macro environment: “Because of the strategy, story and the team, LPs are still willing to commit.”

Asked about how EQT’s growth team of more than 20 professionals is navigating the tech downcycle and rising rate environment, Brown notes there has been no direct impact on its portfolio companies (including fintech company Mollie, circular economy business Vinted, and Bought by Many, an insurtech focused on pet insurance). He added that it’s mostly equity in their companies, so “there’s not a lot of debt or interest rate products that these companies have on their balance sheets that would be impacted by rising rates”.

Brown is also sanguine about the public markets and tells us he hopes to take many of their portfolio companies public. “We’ll have to see the environment we’re in when those times come. Our focus is on building companies with strong growth qualities that can do that profitably. Whenever that time comes – taking the companies public – those will be the prized assets in the market, no matter what the interest rate environment is at that time.”

Essentials

ESG fightback begins
Asset managers have come out fighting after the state governments of Texas and Florida moved to diminish the importance of ESG in the investment decisions of state public pension funds, our colleagues at New Private Markets report (registration required).

The head of BlackRock’s US business described its blacklisting by the state of Texas as “anti-competitive” in comments to the FT. The director of sustainability research for the Americas at Morningstar went a step further, arguing that pushback from these two Republican governments was really about “protecting the fossil fuel market” from free market forces. Jon Hale said the pushback against ESG was “an attempt to gin up another phony grievance about how ‘liberal elites’ are destroying the country” and a “staple of the Republican playbook today”.

In August, Florida State Board of Administration passed a resolution preventing the pension from taking into account ESG considerations when making investment decisions. Around the same time, Texas comptroller Glenn Hegar published a list of 10 companies and 348 investment funds that will be barred from doing business with the state’s pension funds because they “boycott energy companies”.

The battle lines are being drawn, largely along political lines. Last week, Oregon state treasurer Tobias Read – a Democratic state – said that fighting against ESG was like debating gravity. “If you’re not as a treasurer thinking about all the things that impact your ability to deliver returns and fulfil your obligation to beneficiaries, then you’re not doing your job,” he said.

Either way, a lot is at stake. Florida SBA is the 28th biggest PE investor, according to our GI 100 ranking, while six Texan pensions appear in the top 100.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

13 September

14 September

15 September

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