Side Letter: GIP’s Berlin message, Meteor5 plus 1, Penn fusion

We are infrastructure-flavoured today, because this week nearly 3,000 infra delegates are swapping cards, thoughts and capital commitments in Berlin. Here’s today’s brief, for our valued subscribers only.

Just happened

Berlin dispatches: Time to get creative

There are real risks to investing in emerging market infrastructure, but investors should also make much better use of the de-risking tools at their disposal – and stop thinking about emerging markets as a “single risk pool”. That was the key message from former World Bank president Jim Yong Kim (now vice-chairman at Global Infrastructure Partners, pictured) at the opening of sister publication Infrastructure Investor’s Global Summit (which, by the way, is the event in the global infra calendar).

Failure to do that could see investors miss out on a promising growth story. Increasing automation virtually ensures future emerging-market development will not come from industrialisation.

“It’s not going to be about cheap labour anymore. It’s going to be about access to capital and access to human expertise,” Kim pointed out. That includes capital and expertise for transport, energy and broadband – the kind private investors specialise in, if they can overcome their OECD obsession…

Stay tuned for more updates from the world’s largest infrastructure conference and watch our senior editor for infrastructure, Bruno Alves, give his highlights from the event so far.

Meteor5’s new star-hunter

Meteor5 – a firm that funds the start-up financing of new managers in exchange for a cut of the management fee and carried interest on the firm’s first few funds – has appointed industry veteran Kevin Albert as a senior advisor to help it assess which new managers to back. Albert, who retains his roles as senior partner and partnership board member at Pantheon, where he leads the defined contribution business development initiative, previously worked with two of Meteor5’s co-founders at Merrill Lynch.

I Secondaries that emotion*

GP-led secondaries deals such as fund restructurings can be incredibly complex from a technical and legal standpoint, but how about from an emotional one? Panellists at the British Private Equity & Venture Capital Association’s secondaries forum on Tuesday agreed complex secondaries deals typically involve cases where GP-LP alignment has broken down, so the trick for buyers and advisors is to work out how to solve this.

“There’s mistrust, there’s people who have fallen out, everything’s long overdue. There are so many things that are dysfunctional,” said Hollyport Capital partner Steven Nicholls.

Advice: the reputation secondaries buyers build in their approach to deals plays a huge role in putting GPs’ minds at ease.

*Smokey Robinson, of course.


Mamma mia! A lawsuit against Blackstone is calling into question Italy’s viability as an investment destination. Market participants are concerned the country could become toxic for the real estate industry if RCS Media Group prevails in a lawsuit against the investment juggernaut, which acquired the publisher’s Milan headquarters more than five years ago. RCS wants to nullify the sale, arguing Blackstone paid too little for the property when the company was financially unstable. Sister title PERE is reporting transactions in the country are on hold until the lawsuit is resolved.

Penn fusion. Pennsylvania’s two public pension systems have hired McKinsey to explore merging their investment offices in a bid to save up to $10 billion over 30 years, a number put forward in a December report by the state’s Public Pension Management and Asset Investment Review Commission.

The commission criticised high investment fees and lack of transparency in disclosing details on GPs by both Pennsylvania Public School Employees’ Retirement System and Pennsylvania State Employees’ Retirement System. Last May, Pennsylvania treasurer Joe Torsella made clear his views on the topic, saying the two systems wasted up to $5.5 billion in investment expenses and could have been better-served by a low-cost passive strategy.

There’s no timeline for the combined investment office, which would share manager selection, monitoring and risk control work. PSERS and SERS hope the merger will bring more favourable contract terms, eliminate redundancies and develop internal capacity.

ICG’s $1bn spin-out of Standard Chartered Private Equity was the largest emerging-market complex secondaries deal yet. The winner of our Secondaries Deal of the Year in Asia, it shows just how far things have come since the vanilla days of LP portfolio sales. The deal involved bottom-up analysis of 35 companies across Asia, the Middle East and Africa, the spin-out of a 55-person team and the need to juggle the interests of several other secondaries firms, which gained exposure to Stan Chart’s portfolio via a de-risking exercise years before. Stay tuned this week for an in-depth look.

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including Global Infrastructure PartnersMeteor5Blackstone and Standard Chartered from today’s Side Letter.

He said it

“Leverage has been beautiful so far. But if you look at the decisions today – underlying asset leverage at 6-7x, 40 percent LTV – how does that look with a 20 percent correction to your NAV?”

ICG Strategic Equity managing director Ricardo Lombardi warns a panel at the BVCA Secondaries Forum on Tuesday about the use of debt in secondaries deals.

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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeBruno AlvesRod JamesCarmela Mendoza and Kyle Campbell.

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