Side Letter: Future Fund’s Carlyle hire; China’s buyout boom; BlackRock’s LP survey

Australia's sovereign wealth fund has tapped a former Carlyle boss to lead its private equity programme. Plus: Why buyouts could boom in China; and results from BlackRock's inaugural private markets survey. Here’s today's brief, for our valued subscribers only.

Just happened

Australia’s Future Fund: adding PE talent (Source: Getty)

Crossing the (Carl)aisle
There have been a fair few examples in recent years of senior LPs crossing the aisle to a GP – the opposite move is a little less common. Future Fund Management Agency, the organisation managing Australia’s eponymous sovereign wealth fund, has today appointed David Bluff, a former partner and managing director at Carlyle Group, as its head of private equity.

Bluff spent more than 14 years with Carlyle, where he was head of Australia and New Zealand. He will report to Alicia Gregory, who has been acting PE head since her promotion to deputy CIO in 2021. Bluff is joined in the PE team by director Sarah Azzi, who was previously an investment director at Anacacia Capital, and before that a member of Mercer’s private markets team.

Unlike its superfund compatriots, which tend to have single-digit allocations, Future Fund is Australia’s most bullish PE investor, according to PEI’s Global Investor 100. As of December, the institution had a 16.9 percent exposure to PE, representing A$33.2 billion ($22.3 billon; €20.4 billion). With such a large portfolio, the newly installed Bluff will have his work cut out – not least because he joins at a critical time for asset owners and their GPs.

“We think there will be a shakeout that’s already started between well-credentialled, highly capable managers who have… demonstrated [the] ability to add value through their skill and have done that for some time and through cycles, and newer managers quite often who have really been sailing with the wind at their back,” chief executive Raphael Arndt said during an August media briefing. “And we’re very focused on the quality of our portfolios and ensuring that we continue to have access to the best managers in the world.”

Hearty appetites
BlackRock on Tuesday published the results of its inaugural Global Private Markets Survey, which surveyed capital allocators representing $15 trillion of AUM and $3.2 trillion in the private markets. Here are some of the most interesting findings:

  • Respondents’ average portfolio allocation to private markets is 24 percent. More than 70 percent of investors plan to raise their allocations to PE this year, with 43 percent doing so to a significant degree.
  • In PE, the biggest opportunities are expected to be found in mature companies, followed by VC and secondaries.
  • It’s a mixed picture for private credit, with 30 percent of respondents planning to cut their allocations to the asset class – 23 percent doing so significantly – and more than half planning to increase their exposure. APAC investors are the most bullish.
  • Though income generation is the most important factor driving private markets allocations, 43 percent said ESG was a key driver. Only 16 percent said lower volatility was a factor.
  • Nearly half (49 percent) said illiquidity was the main barrier to private markets allocations.

They did the math

Finger on the pulse
Individual investors’ appetite for buyouts rebounded last year, following a lacklustre 2021 that saw growth equity the most favoured PE strategy, per this morning’s Moonfare Pulse 2023. Allocations to buyouts made up more than half (55 percent) of all investments made via Moonfare’s platform in 2022, compared with just 22 percent in 2021 and a hefty 77 percent in 2020.

Starting in late 2021 and into 2022, investors were drawn to “strategies with recession resilient characteristics… venturing into secondaries in particular”, the report noted. Secondaries climbed nearly 7 percentage points year-on-year to roughly 12 percent of allocations made in 2022. Data was drawn from 74 feeder funds in Moonfare’s platform from January 2020 to December 2022. Here are some notable takeaways from the report:

  • Younger and more risk-tolerant investors (between 25-34 years) made larger bets on PE (12 percent in 2022, versus 6 percent in 2020).
  • More individuals with larger portfolios (worth more than $25 million) are active in riskier assets like VC than those with less than $500,000.
  • Tech accounted for half (50.3 percent) of capital deployed in Q1-Q3 of 2022, versus 30 percent in full-year 2020.


China’s buyout boom
A report this week from Bain & Co illustrates the severity of China’s PE slump. China-focused fundraising fell around 68 percent year-on-year from $107 billion in 2021 to $33 billion in 2022, according to the consultant’s Greater China Private Equity Report 2023. The biggest drop in fundraising was between Q3 and Q4, from $15 billion to $3 billion, likely an aftershock from Shanghai’s covid-19 lockdown.

A tough fundraising environment is likely to continue in China this year. Capital will be concentrated with certain GPs, while other players get smaller allocations, especially first-time funds. According to the report, domestic managers have been the most active players in China, responsible for 37 percent of total deal value last year, while US fund managers mostly adopted a ‘wait and see’ approach.

Though still Asia’s most active PE market, China’s deal value fell by 53 percent last year. However, Bain noted that such a decline may also be an inevitable consequence of China’s exponential growth and subsequent maturation over the past 10 years. “China is going through a transformational year, surely there will be fluctuations in the short-term, say three-five years, but in the long term, China is still too big of a market to be ignored,” Hao Zhou, head of Greater China private equity practice, tells Side Letter.

The report expects China’s buyout market to outgrow other asset classes in the next five years due to multiple factors, including China business carve-outs by multinational companies amid growing geopolitical tensions. Apart from hedging against regulatory risks, companies opt for carve-outs “also to allow their branches in China to reach their full potential and perform better in the competitive market,” Zhou added.

More PE firms have been tapping into the market via China’s Qualified Foreign Limited Partnership scheme, which grants approved entities permission to convert a limited amount of US dollars into yuan for domestic investments, Private Equity International reported last month. Zhou, however, says the trend could be short-lived as “it may be difficult to navigate different systems in raising an RMB fund versus a USD funds, given regulatory changes and China’s regulations change quite frequently”.

Gilde’s latest raise
European healthcare firm Gilde Healthcare Partners has gathered €600 million for its sixth venture and growth vehicle, per a statement from the firm this morning. It is unclear what the target is for Fund VI. Capital raised is about €200 million more than the amount it collected for Fund V, which held its final close in March last year. Venture and Growth VI will invest between €10 million-€60 million in digital health, medtech and therapeutics companies in Western Europe.

Along with Fund VI, Gilde is also investing its buyout-focused, €517 million Healthcare Private Equity IV. Healthcare private equity deal volume fell to $89 billion last year, from $151 billion the previous year, due to inflationary pressure and the war in Ukraine, according to Bain & Co’s latest healthcare PE report. The report notes that life sciences remains a bright spot in Europe and “is likely to continue to grow more competitive” in the region.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Katrina Lau