Side Letter: Goldman Sachs’ Chinese walls, Illinois’s diversity push, fund finance bonanza

We have some context behind a new(ish) entrant to the secondaries advisory business: Goldman Sachs. Plus: Illinois TRS goes looking for emerging managers and 17Capital toasts a busy year for fund finance. Here's today's brief, for our valued subscribers only.

They said it

“[T]he visibility on calls offered by subscription lines has, in many cases, given the funds the confidence to continue to invest in what should be attractive 2020 and 2021 vintages”

A note from investment bank Jefferies describes how listed private equity investment trusts have benefited from subscription credit lines amid this year’s turbulence

Just happened

Illinois’s diversity push
The Teachers’ Retirement System of the State of Illinois will increase the size of its emerging manager programme from $750 million to $1 billion. The $54 billion pension, which has around $7 billion in private equity investments, said in a statement: “The increase in the size of the EMP is just one part of a multi-pronged ‘re-imagining’ of the 15-year-old programme and the system’s efforts to increase diversity.” The programme currently comprises 17 relationships and $724 million of the pension’s capital.

Fund level borrowing boom
This has been a banner year for providers of fund level leverage, if an announcement by 17Capital is anything to go by. The firm, which started out as a preferred equity investor, said it has closed 10 deals this year worth $1.5 billion in total, which would be around twice its total figure for last year. This year the firm has also branched out into the budding market for net-asset-value-backed lending.

Goldman enters the arena
Readers with an eye on the secondaries market will know that Goldman Sachs is a key player, having raised $10.3 billion for its latest Vintage VIII secondaries fund. What most readers might not know is that the bank also advises on secondaries deals via a unit in its financial sponsors group run out of New York.

Goldman has been somewhat on the sidelines of the advisory market so far, with other names – think Evercore and Lazard – dominating. This could be about to change. The bank is hiring Alex Mejia, a former Lazard managing director who is set to join in May, as sister title Buyouts reported last week (subscription or registration required).

Goldman’s focus on the advisory side will initially be on so-called single-asset secondaries deals – GP-led restructurings that involve sole companies – a market that has boomed during the pandemic as GPs’ hold periods have been pushed out. Goldman’s Vintage investment team is also a major buyer in this market (see sister title Secondaries Investor’s scoop on Hightower Advisors in October).

Side Letter understands that in addition to the standard Chinese walls to mitigate conflicts of interest between its investment and advisory units, Goldman the advisor will always have a third-party co-advisor alongside it on a deal, working solely with Goldman the investor. The Hightower deal is a case in point. It was backed by Goldman’s Vintage investment team alongside Neuberger Berman and Coller Capital. The process was run by Goldman and Evercore, though they are not mentioned in the press release.

Goldman is hoping that its market-leading standing in the M&A world will convince GPs – as it did with TH Lee – that potentially paying fees to two co-advisors on a single deal will be worth their while if it can avert any perceived or actual conflicts of interest.


Aussie-Sino spat
Trade tensions with China are not the preserve of the US. Australian superannuation fund Hostplus has been given pause for thought over its Chinese investments amid deteriorating relations between Canberra and Beijing. Said private equity head Neil Stanford: “Our politicians [are] really struggling for any sort of coherent strategy in terms of how to move that relationship forward. It’s got a lot of ramifications in terms of our asset allocation.” Full story here.

What you’re reading

Here’s a quick catch-up on our most-read content from December so far:

Dig deeper

Institution: City of Philadelphia Board of Pensions & Retirement
Headquarters: Philadelphia, US
AUM: $5.77 billion
Allocation to alternatives: 20%

City of Philadelphia Board of Pensions & Retirement has confirmed a $50 million mandate to Earnest Partners following a private equity RFP issued in late 2019. The RFP was issued after the Philadelphia Board of Pensions made the decision to divert capital away from Fisher Investments following questionable comments made by its chief executive, Ken Fisher.

During the RFP selection process, applicants were considered based on factors such as their reputation in the market, past investment performance and fee structures. Earnest Partners was awarded the mandate ahead of seven other managers that had been shortlisted following presentations to the Philadelphia investment committee. The $5.77 billion US public pension has a 10 percent allocation to private equity.

For more information on City of Philadelphia, as well as more than 5,900 other institutions, check out the PEI database.

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

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