Side Letter: Future Fund’s prescient sale, Asia 3.0, let’s go to Tokyo!

Australia's Future Fund made a huge move in the secondaries market this year and it seems like a prescient one. We've been treated to a first-hand account and a look around the PE programme. Plus: a new firm in Asia and platforms merging. Here's today's brief, for our valued subscribers only.

He said it

“I don’t have a crystal ball. I just know it’s going to be different.”

David Enriquez, head of private equity for New York City’s pension systems, believes some of the changes wrought to working practices by the pandemic will stick around, he told listeners to a webinar from sister title Buyouts (subscription required).

Just happened

See you in Tokyo – virtually!

Private Equity International’s Virtual Responsible Investment Forum: Tokyo starts today. You’ll hear from big names including GPIF’s head of private equity and infrastructure, Yoshitaka Todoroki, on how the world’s biggest pension is addressing responsible investing. PEI’s Adam Le and Alex Lynn will be moderating panels on Wednesday, including on how climate investors are turning up the heat and how ESG is making its mark on the industry. There’s still time to register for the event.

Knowing what the Future holds
Coronavirus is a sobering reminder that no one can predict the future with absolute certainty – and yet, Alicia Gregory, head of private equity at Australia’s Future Fund, has come pretty close. The A$161 billion ($118 billion; €99 billion) institution offloaded around A$6 billion of private equity assets in Q2 2020, just as covid-19 battered global markets. This was no knee-jerk reaction. Gregory tapped secondaries advisor Greenhill in the second half of 2019 to rebalance its hefty exposure to PE at the tail end of a 10-year bull market, sensing that cash and liquidity would soon grow in importance. PEI caught up with Gregory to discuss the fund’s rationale and how it got such a complex process over the line during the pandemic.

Here are some key takeaways from the discussion:

  • Anything is for sale at the right price. Future Fund didn’t approach the sale with any particular assets in mind, but instead conducted a bottom-up analysis of the portfolio to determine what to offload. “The combination of our desire to lighten the exposure, as well as analysing from the bottom-up what we think the forward-looking returns for investments might look like and how the secondary market is pricing a lot of opportunities, was part of [deciding what to sell],” Gregory said.
  • Tech will play a key role in any rebuilding. The institution is under no pressure to maintain or raise its allocation to the asset class. If it does pile back in, tech opportunities will be front and centre. “Getting access to the innovation cycle is an important component of what we’re looking for in our portfolio – making sure we can do that at a reasonable price and making sure we’re getting paid for the risk and illiquidity we’re taking.”
  • Alignment is everything. Managers hoping to secure a new commitment from Future Fund must be able to demonstrate solid alignment of interest. “The average GP commitment to a fund is around 2 percent, but not all 2 percent commitments are created equal,” Gregory noted. “For some, that represents quite a substantial part of their net worth, whereas for others it might not be very much at all.”


Thakran’s fund

Ravi Thakran, former managing partner of L Catterton Asia, will seek between $1 billion and $1.5 billion for his new firm Asia 3.0, which will target emerging Asian brands, he told the Financial Times (paywall). The platform was first announced in a Singapore Venture Capital & Equity Association webinar in July. Thakran has been busy since his departure from L Catterton, having also raised $225 million via a New York-listed SPAC last week. He was one of a host of senior executives to depart L Catterton Asia in recent times and is expected to be joined by some of his former colleagues at the new Asia firm.

Small change, big results

If every PE firm consciously appointed one female operating partner, that would have a “massive impact” on the industry, argues veteran PE recruiter Gail McManus, in a guest article in the PEI Operational Excellence awards issue. PER’s 2020 UK Private Equity Investment Professionals Compensation Report reveals that 75 percent of firms have no female operating partners.

Crowdcube & Seedrs

The largest crowdfunding platforms in the UK, Crowdcube and Seedrs, are to merge, reports TechCrunch. The $140 million combined entity will bring the scale needed to “serve companies and the investors who support them”, Seedrs CEO Jeff Kelisky told the publication.

Individuals have invested more than £2 billion ($2.6 billion; €2.2 billion) in private businesses since the companies were founded in the years after the global financial crisis. In August, Kelisky spoke to sister title Secondaries Investor about the key role the secondaries market would play in scaling Seedrs’ operation: “A business will do one or a few primary fundraises, whereas secondaries sales can happen many times if the demand is there,” he said.

Dig deeper

Institution: Border to Coast Pensions Partnership
Headquarters: Leeds, UK
AUM: £46 billion

Border to Coast has confirmed $500 million-worth of fund commitments across 10 private equity vehicles, according to a recent press release on the pension pool’s website. These commitments mark the first of two commitment rounds the pension pool is pursuing, after which a total of $1 billion will have been invested in private equity opportunities.

The commitments comprised $40 million to GreatPoint Innovation Fund II, £40 million to Palatine Private Equity Fund IV and $60 million to both Baring Asia Private Equity Fund VII and Greenspring Opportunities Fund VI.

Further commitments of $100 million to NB Strategic Co-Investment Partners IV, $75 million to StepStone Secondaries Opportunities Fund IV, $70 million to Blackstone Life Sciences Fund V and $50 million to Digital Alpha Fund II were also approved.

In addition to this, the pension pool committed to two funds managed by Hg – $90 million to Hg Saturn Fund 2 and €35 million and Hg Genesis Fund 9, respectively.

For more information on Border to Coast, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Toby Mitchenall with Adam LeRod JamesCarmela Mendoza and Alex Lynn.

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