Side Letter: Global Investor 100, Summit’s double, Oxford battle

The launch of our ranking of PE's biggest investors, plus notes from the Oxford debate. Here's today's brief, for our valued subscribers only. 

She said it

“We have decided that Ardian will not ask for any state support on its own account. Other companies’ needs are greater than ours.”

Dominique Senequier, president of Ardian, says the French investment giant will not seek government support for itself or its employees. It’s unclear whether the firm has received state aid for any of its portfolio companies.

Just happened

The biggest PE investors in the world

The Global Investor 100 is now live! This is our debut proprietary ranking of the world’s largest private equity investors based on their exposure to the asset class. Along with the main ranking you’ll find out what the world’s biggest private equity investor thinks about the future of the asset class, how the world’s largest compare by both dollars invested and percentage allocation, and opinions from some of the leading figures at GI 100 institutions on some of the most pressing questions for the industry today.

PE showdown

The hottest ticket in town this week was the remote showdown between PE-baiter Ludovic Phalippou from Oxford University and David Robinson of Duke University. No industry folk accepted professor Phalippou’s challenge to debate, but they certainly tuned in. Over the course of an hour the pair exchanged academic blows over PE performance, the role of the asset class in society, incentive structures and more. You can watch the replay here. Here are some takeaways from a genuinely thought-provoking exchange:

  • Sustainable private markets are the key to the future. Private markets are the only ones that can control and improve companies for the betterment of society. Without a level playing field, standardisation of contracts and disclosure of performance, private markets will not survive (Phalippou).
  • PE does not mint billionaires by robbing our savings, it mints billionaires by making companies better. Every time $1 billion of carried interest is generated, $5 billion of net returns have been created, $4 billion of which have gone back to our savings coffers (Robinson).
  • The carry model is flawed: GPs take 20 percent of the upside but do not pay investors back 20 percent of losses if a fund loses money. Why do managers even need peformance-related incentives? Nurses and academics work hard without the carrot of outsized compensation. Alignment on both the up and the downside would be better achieved through managers taking direct stakes in the companies (Phalippou).
  • Comparing PE returns to public markets returns over the last decade is problematic – quantitative easing has pumped trillions of dollars into capital markets since the GFC. We are standing in the shadow of the greatest ever liquidity intervention: we should recognised that central bank intervention has placed a “giant thumb” on the scales of measuring relative performance (Robinson).
  • Portfolio company performance is inevitably a mix of luck and skill. Investors should not reward PE managers for simply for being lucky (Phalippou). On the other hand, if we set up incentive systems on the front end, we have to live with the consequences of them on the back end, and this includes rewarding PE managers for sometimes being lucky (Robinson).
  • Linking hurdle rates to public markets could be one way to more appropriately benchmark PE performance and compensation. Each time a GP makes a capital call to its LPs, the floating preferred return could be marked relative to public markets (Robinson).

Summit’s double

Summit Partners held a one-and-done on its two latest offerings, securing €1.1 billion for its third Europe growth equity fund and $1 billion for its fifth VC fund. Both were significantly oversubscribed, according to a statement.


ESG: must try harder

A long read by lecturer and former COO of Timberland Ken Pucker and consultant Sakis Kotsantonis gives a thorough assessment of where PE has got to in terms of sustainable investing on Institutional Investor. The verdict? Much as we concluded in our analysis on the topic (which is cited in the report), the advent of a coherent standardised, data-led approach is a long way off. Collective LP action will change this, the authors write: “Given the size of the largest LPs, one could imagine a like-minded group of fewer than 10 asset owners having the ability to influence the entire PE asset class. Were such a group to demand standards for PE sustainability reporting (eg, along the lines of SASB), it would have a catalytic impact.”

Market watchers…

…Listed PE investor NBPE has published a portfolio update for end May valuations. In short: TMT up a little and all other sectors down (with energy down a lot).

Dig deeper

Institution: Teachers’ Retirement System of the State of Illinois
Headquarters: Springfield, United States
AUM: $50.50 billion
Allocation to alternatives: 30.3%

Teachers’ Retirement System of the State of Illinois has approved $775 million-worth of private equity commitments across six vehicles, a contact at the pension informed Private Equity International.

The commitments comprise $200 million apiece to EQT IX and Silver Lake Partners VI; $150 million to New Mountain Partners VI; $100 million to Altaris Health Partners V; $75 million to Vista Foundation Fund IV; and $50 million to Pamlico Capital Management V.

The $50.5 billion US public pension allocates 12.1 percent of its portfolio to private equity.

Today’s letter was prepared by Toby Mitchenall with Isobel Markham and Adam Le

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