Side Letter: Fundraising in 2022; Ares Springs into action; KKR’s $4bn capital injection

With a slew of mega-funds lined up in the year ahead, Private Equity International explores whether there is enough capital supply to match demand in the year ahead. Plus: Ares has completed another secondaries tie-up and KKR has raised $4 billion for a sector in rude health. Here's today's brief, for our valued subscribers only.

They said it

“The definition [of impact] is always evolving and every CIO has an idea of what it is.”

Scott Barrington, CEO of impact secondaries firm North Sky Capital, tells affiliate title Secondaries Investor that LPs are selling portfolios of impact stakes due to shifting priorities rather than for liquidity reasons (registration or subscription required).

Just happened

Supply and demand
Sponsors’ thirst for capital remains as strong as ever, with an estimated 15 managers in market intending to raise more than $15 billion. These include the Carlyle Group and Thoma Bravo, which are each targeting $22 billion for their latest flagships. Demand is one thing, but it remains to be seen whether LPs have the capacity to match it, as Private Equity International explores this morning in its fundraising look-ahead. Here’s what you need to know:

  • Private equity’s outperformance has pushed some LPs (23 percent, per PEI‘s LP Perspectives Study 2022) above their allocation limits, just as a raft of established firms return to market seeking big cheques.
  • For over-allocated LPs, this means a more circumspect approach to deploying capital, which is likely to benefit the firms with which they have longstanding relationships and hurt emerging managers.
  • Established names still aren’t immune to these pressures, with many employing placement agents for the first time in years as even reliable LPs duck out or write smaller cheques.
  • GPs may have to fish in a larger sea of potential LPs in 2022 as, although the failure rate is likely to be higher than in previous years, there are still investors with money to commit.

Last chance to vote!
If you haven’t already voted in this year’s PEI Awards, today is your last chance to do so. Voting closes on Wednesday 12 January. Be sure to have your say here.

Springing into action
Private credit behemoth Ares Management has completed yet another secondaries tie-up. This time the firm has partnered with Spring Bridge Partners in a deal that brings more than $150 million in assets under the Ares banner and two industry veterans (former Coller Capital execs Sebastien Burdel and Luca Salvato) into the fold, per a Monday statement. News of the potential tie-up was first reported last month by affiliate title Secondaries Investor (registration or subscription required).

Spring Bridge marks Ares’ second foray into the strategy after its $1.08 billion purchase of Landmark Partners in June. There have been at least five other acquisitions over the past year, including CVC Capital Partners’ purchase of Glendower Capital and PGIM’s acquisition of Montana Capital Partners. There are few remaining independent secondaries shops and two of them, Coller Capital and 17Capital, are rumoured to be up for sale as secondaries M&A remains white hot.

Essentials

A sector in rude health
KKR has collected $4 billion for its second healthcare strategic growth fund, per a statementHCSG II is nearly three times the size of its $1.45 billion, 2016-vintage predecessor, according to PEI data. The vehicle will invest in biopharmaceutical, medical devices, healthcare services, life sciences tools and healthcare IT companies primarily in Europe and North America. KKR committed about $500 million via its balance sheet, affiliates and employee commitments. Its enormous jump in size relative to the predecessor is little surprise, given that healthcare funds are the most attractive for LPs currently, according to Probitas’s latest PE investor trends survey.

London calling
Rampant appetites for large UK assets in 2021 helped drive the market to its busiest year for PE to date, according to research from the Centre for Private Equity and MBO Research. Some £29.9 billion ($40.6 billion; €35.8 billion) of the £45.8 billion invested last year came from 12 transactions valued at more than £1 billion, including Clayton, Dubilier & Rice’s £7.1 billion acquisition of supermarket chain WM Morrison and TDR Capital’s £6.8 billion carve-out of ASDA. TMT and healthcare were the UK’s hottest sectors, attracting £7.1 billion and £3 billion, respectively. The factors drawing PE to the market are myriad, and include undervalued public markets, in addition to flexible labour laws and takeover rules. You can read more about this ongoing trend in our latest Deep Dive.


Today’s letter was prepared by Alex Lynn with Helen de BeerRod JamesCarmela Mendoza and Michael Baruch.