Side Letter: Florida SBA’s ‘tactical’ SMA; HEAL’s debut dosh; Munich PEP’s close

Today's Side Letter will be the last of the year – the crew is taking a much-anticipated break and will return on 3 January. Until then, thank you for reading, and we hope you enjoy our holiday content.

Just happened

Florida SBA: ready to snap up attractive opportunities (Source: Getty)

SBA’s cool SMA
As prescient investors go, there are a handful that spring to mind: Australia’s Future Fund is one, as we posited here. For the $217.5 billion Florida State Board of Administration, a separately managed account it set up last year in anticipation of attractive investment opportunities appears to be paying off. The US pension was “feeling kind of a pinch” last year in terms of its private equity allocation relative to targets, and figured other LPs were likely experiencing the same, John Bradley, senior investment officer for private equity, said at a June IC meeting, according to minutes released this week. Anticipating a dip in pricing for second-hand fund stakes on the secondaries market, the SBA decided to put together a $100 million separate account so it could “buy things at pretty large discounts to market value” when the market breaks, Bradley said.

And break it did. Second-hand interests in buyout funds swapped hands at an average discount of 12 percent to NAV in the first half of the year, down from a mere 3 percent discount last year and almost par to NAV in 2017 and 2018, according to data from Greenhill. Florida SBA is also using the account to bid on energy fund stakes from ESG-driven sellers, according to Bradley.

Aegon Asset Management is the manager of the SMA, though it’s not clear who decides on which fund stakes to buy. With more uncertainty set to continue into the new year, a tactical buying account such as Florida’s could prove a smart move.

A HEAL-thy sum
First-time funds may be finding the fundraising process slow going, but they’re still capable of getting over the line. Case in point: Australia-headquartered growth equity firm HEAL Partners, which has closed its debut fund on A$200 million ($136 million; €128 million), managing partner Martin Robinson tells Side LetterFund I, which launched in 2020 with a A$100 million target, was seeded with three businesses founded by the HEAL team and has since deployed A$170 million across nine healthcare and education assets in North America and Asia. Its capital was mostly provided by domestic family offices.

The close comes as HEAL returns to market with a successor fund, for which it is seeking $350 million to $500 million in US dollars, per a statement earlier this year. Fund II will be anchored by activist investing giant Elliott Management, which has pledged to commit 20 percent of whatever the fund raises. A first close is expected in the first half of next year. The vehicle will pursue larger tickets at a later stage of the company cycle than its predecessor and up to half of the deals it completes will be follow-on investments into Fund I assets.

HEAL may feel quietly confident about its ambitious Fund II target given the macroeconomic environment into which it would be deployed. “I think it really is the best time since the GFC to be investing in health and education,” Robinson says. “You’ve still got the big macro sort of tailwinds, whether it’s the growing middle class in Asia or the active technology innovation and disruption, but they also have some defensive… and resilient qualities during challenging periods like we’re entering into now. These are also the best valuations I’ve seen since the GFC, which means an opportunity to drive superior returns for our investors.”

Show me the Munich
German fund of funds Munich Private Equity Partners has closed its latest fund programme on €392 million, north of its original €250 million target, managing directors Christopher Bär and Hans-Christian Moritz tell Side Letter. The programme is more than double the size of its predecessor, MPEP Fund III, which closed on €161.6 million in 2020. The fundraise comprises both MPEP Fund IV North America, which made up 52 percent of commitments, and MPEP Fund IV Europe which swallowed the remainder. The vehicles will look to make 15 to 20 commitments each to lower-mid and mid-market PE managers within their respective regions. To date, the fund of funds has committed to 28 vehicles across Europe and North America.

Asked about the fundraising outlook for 2023, Bär said he does not anticipate a slowdown. “We’re trying to find the best fund managers that will often only select a handful of new investors, and for those the fundraises don’t really change,” he said. “In good or bad times, it’s only a very select group, so those [managers] don’t take longer in fundraising.”

Essentials

Europe’s tech bulls
Tech entrepreneurs remain bullish on the sector of choice in spite of a pretty ugly year. That was one key takeaway from VC firm Atomico’s 2022 State of European Tech Report. Some 77 percent are either more optimistic or retain the same level of optimism as they did 12 months ago, citing talent in the region and the pipeline of promising early-stage companies as factors that underpin the longer-term prospects of European tech. Here are other findings, as reported by our colleagues at Venture Capital Journal (registration required).

  • Tech investing slowed in August and September, with Q3 totals down 40 percent on the same period in 2021.
  • Both public and private tech companies in Europe saw nearly $400 billion of value wiped out since the beginning of 2022.
  • There were only 31 unicorns created in the first three quarters, compared with 105 in full-year 2021.
  • Eight in 10 European entrepreneurs said raising fresh capital became harder in 2022.
  • Nearly two-thirds (62 percent) of companies in Atomico’s sample had at least one founder or C-level leader with experience of a previous tech downcycle.

Today’s letter was prepared by Alex Lynn with Adam LeCarmela Mendoza and Madeleine Farman.