Side Letter: First time funds in the time of covid-19, Verdane hire, NAV-based lending

Will the current crisis cut budding managers down before they raise Fund I? Probably not, fundraisers tell us. Plus: the future for GP-led secondaries, new hires for Verdane and Black Diamond, and much more. Here’s today's brief, for our valued subscribers only.

Just happened

Covid-19 challenges first-timers

It’s hard enough to raise money when you’re a first-time fund manager, let alone when a pandemic is slamming on the economic brakes. First-timers, especially those that haven’t had in-person meetings with LPs, are being forced to postpone capital raising plans. “We are frankly saying to GPs which have yet to kick off initial roadshows, ‘Look, there’s no way of coming out right now,’” Julian Pearson, co-founder of placement firm FirstPoint Equity, told Private Equity International. There could be opportunities, however, for those raising capital on a deal-by-deal basis.

Nordic personnel scoop

Scandinavian direct secondaries-cum-buyout firm Verdane has hired a software exec from software giant Visma (itself a PE success story). Nils Vold, who joins as a partner based in Oslo, will help invest the firm’s SKr3 billion ($302 million; €274 million) Edda fund.

Given the current market conditions, we asked Vold – who has 19 years’ experience in the industry – whether there was a silver lining for the software sector amid the covid-19 chaos. “Software is helping to relieve some of the problems that are arising [amid the crisis]. E-commerce, software communication tools – these are helping people to continue to do work. So some part of the sector will have some opportunities in this uncertainty,” he said. How pricing for software assets will be affect is still too early to tell, he added.

He said it

“I think in a downside scenario we’d be pretty resilient, but it has not been tested yet.”

Hark Capital’s Doug Cruikshank, speaking to Private Funds CFO, discusses the nascent area of NAV-based lending: how GPs are using it, and how it may perform in a downturn. Full video here.

Essentials

Sub line clean down. Are limited partners going to be able to honour capital calls? According to Fi Dinh, a fund finance director at ING, some managers have indicated they’ll consider calling capital to repay their outstanding loans early, rather than risk their LPs defaulting at a later date. The move won’t be popular among all investors, some of whom are urging their GPs to use credit lines as long as possible, lest there be a rush of drawdowns to prop up portfolio companies down the line, Zac Barnett of Fund Finance Partners warns.

Black diamond. Connecticut-based Black Diamond Capital Management has hired former Carlyle MD Rodney Cohen as its new head of private equity. Cohen will be responsible for overseeing the firm’s four private equity funds, which have an aggregate AUM of around $4 billion. Full press release here.

EIB’s €40bn virus measure. The European Investment Bank Group has earmarked up to €40 billion to support European companies under strain from the coronavirus pandemic and its economic effects. That figure includes up to €20 billion of dedicated guarantee schemes to banks for immediate deployment, €10 billion of liquidity lines to ensure working capital support for SMEs and mid-caps, and €10 billion of asset-backed securities. “Europe needs another ‘whatever it takes’ moment. The EU bank will help in this crisis as it did in every past moment of hardship in Europe,” said EIB president Werner Hoyer in a statement.

They did the math

Counting covid impact. A survey of 69 LPs conducted over the past two weeks by Eaton Partners has found the coronavirus is having a significant effect on activity, with 70 percent saying it’s impacting investing activity or plans. On a list of factors likely to have the most significant impact on Q2 investment strategy, coronavirus comes in second only to a possible US recession (for which coronavirus is itself a driving factor).


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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LePhilippa KentCarmela Mendoza and Alex Lynn.


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