Side Letter: Gensler’s PE fee focus; ICG’s exit explosion; PE pay bumps

The SEC appears to have academia on its side in the push to boost transparency around private equity fees and conflicts. Plus: exits have exploded this year for ICG Enterprise Trust and PE compensation is on the rise in Europe and Africa. Here's today's brief, for our valued subscribers only.

They said it

“We are comfortable with a CIO who has a concentrated, co-invested portfolio.”

Washington University Investment Management Company‘s executive chairman Eric Upin tells Institutional Investor he supports its bets on emerging markets and co-investments following a record 65 percent return during the 2020-21 fiscal year.

Just happened

Shining a light on PE
The subject of transparency in private equity was front and centre yesterday. Testifying before the House of Representatives Committee on Financial Services, US Securities and Exchange Commission chair Gary Gensler said that transparency over conflicts of interest and fees were two areas where the industry needs to up its game and will be priorities during his tenure, which began in April. You can read his testimony here.

Gensler has received academic reinforcement in the form of a September paper by Stanford University and research firm FEV Analytics entitled An Economic Case for Transparency in Private Equity: Data Science, Interest Alignment and Organic Finance, which argues that a lack of asset- and industry-level data makes it impossible for LPs to understand the risk-return profile of their assets, and that opacity has in turn led to a reputation for “misconduct, misrepresentation, and outsized economic rents”.

Not only could a lack of transparency block PE firms’ access to new sources of capital, such as individual investors, but new data collection and analytics technology will inevitably allow LPs to identify genuinely top-quartile GPs regardless of their co-operation, the report said. With pressure on two fronts – Gensler’s SEC and the tech revolution – regarding transparency, GPs might consider swimming with the tide rather than against it.

ICG’s healthy half
ICG Enterprise Trust has had its best realisation period in the past five years, according to the listed vehicle’s half-year earnings results on Tuesday. The trust recorded total proceeds of £175 million ($237 million; €205 million) across 34 full exits in the six months to 31 July, generating a 26 percent uplift to its previous carrying value and a 2.8x multiple to cost. That total is roughly the same as the trust’s full-year average over the past five years.

Deployment stood at £133 million for the half-year, including five direct investments. The trust also invested heavily to expand its co-investment and secondaries personnel, said head of PE funds Oliver Gardey during an accompanying earnings call. It generated a 14.9 percent portfolio return on a local currency basis over the six-month period, and 48.5 percent over the past 12 months. This year mark’s ICG’s 40th anniversary, with the trust having grown from £20 million to £1 billion in this time.

They did the math

How much are EU paid?
Pandemic uncertainty hasn’t stopped PE executives across Europe and Africa from receiving pay bumps over the past year, according to Heidrick & Struggles. The executive search firm’s 2021 Europe and Africa Private Capital Compensation Survey, published this morning, found that associates have enjoyed the strongest compound annual growth rate of total compensation since 2019, at 22.21 percent. Managing partners and principals also reported increases of 8.9 percent and 11.2 percent, respectively, over the period.


DCP Capital
China’s DCP Capital Partners has so far collected $2.16 billion for its sophomore vehicle, per a SEC filingFund II looks set to overtake its 2018-vintage predecessor, which at $2.5 billion was among the largest debut funds ever raised, according to PEI data. DCP, founded in 2017 by former KKR bosses David Liu and Julian Wolhardt, featured in our August list of Chinese GPs to watch. Its current fundraise comes at a tricky time for Chinese PE, which has been rocked by a series of regulatory actions over the past year. You can read more about that in next month’s Deep Dive.

Main’s quickfire double
European software specialist Main Capital Partners has held a one-and-done on two funds. The Netherlands-based firm collected €1 billion for Fund VII and a further €210 million for Main Foundation I, a new vehicle focused on smaller deals, per a Wednesday statement. Both funds were in market for less than four months and closed on their hard-caps, with 60 percent of committed capital from existing LPs. Fund VII is nearly double its 2019-vintage, €564 million predecessor.

Today’s letter was prepared by Alex Lynn with Rod James and Carmela Mendoza.