Side Letter: Goldman’s carry, China VC, CalPERS’s ‘pillars’

Another big name is nudging up the carry. Here’s today's brief, for our valued subscribers only.

Just happened

Goldman cranks up the carry

Goldman Sachs Asset Management has increased the carried interest charged on its latest secondaries fund, Secondaries Investor is reporting. Vintage VIII, which is targeting $7 billion, is charging 12.5 percent carry versus 10 percent for its 2016-vintage predecessor. It is also upping its management fee by half a percentage point, to an average of 0.75 percent per year over the life of Fund VIII.

Typically we’d expect to see carry of 10 percent on a secondaries fund. Across the whole PE fund universe, around 15 percent of vehicles offered carried interest rates of below 20 percent in 2018, according to a July survey by law firm MJ Hudson. Carlyle tweaked terms to its latest European tech fund to add ratcheted carry, as we reported earlier this month.

CalPERS’s plans: clearer but not transparent 

More information is emerging about CalPERS’s proposed “innovation” and “horizon” vehicles it is building in its private equity portfolio. CalPERS will benefit from increased transparency from its partners, but the general public will receive the same level of transparency it receives currently from the traditional model. Additionally, CalPERS had no definite answers on partner selection for the new vehicles yet, chief investment officer Yu Ben Meng said; the staff has adopted a “trial and learn” approach with no outcome and no specific timeline in mind. Go deeper here.

China VC: a work in progress
Chinese venture capital may have surpassed North America in terms of dollars invested (accounting for nearly half of VC funding as of Q2 2018, according to a report from Crunchbase), but analysis by eFront shows government regulation, the tightly controlled IPO market and “higher uncertainties” in assessing local companies have affected performance. Measured by the distributed divided by the total value, China VC sits at only 40 percent, while global funds exceed 50 percent, and US funds exceed 60 percent.


Some like it hot. European mid-market valuations have reached a record high. The Argos Mid-Market Index hit 10.1x EBITDA for majority stakes acquired by a private equity fund over the past six months as of Q4 2018, according to figures from Argos Wityu and Epsilon Research.

Growth is being driven in part by strategic buyers who paid 10.7x EBITDA in the fourth quarter. Private equity funds were more frugal, paying 9.8x EBITDA. Those seeking value can look to the public markets: mid-market quoted company multiples fell 11 percent to 8.0x EBITDA.

SoftBank’s Muba-dollars. SoftBank Group is reportedly putting up half the money for Abu Dhabi state investment company Mubadala’s new $400 million fund for European start-ups, per the Financial Times (paywall). Mubadala is an investor in SoftBank’s Vision Fund. TechCrunch posits several reasons why the pair may have sought an even closer alliance through this most recent tie-up.

Succession impossible? PE pros are increasingly concerned about whether their firm is prepared for a succession event. Thirty-one percent anticipate a succession-led key man event at their firm in the next five years, but 42 percent don’t feel they have adequate succession plans in place – a 6 percentage point increase from last year, according to Investec’s GP Trends 2018-19, which surveyed 289 professionals.

These fears aren’t simply because respondents haven’t been kept in the loop about succession plans: 28 percent of managing partners or equivalent levels have the same concern.

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including Baring VostokGoldman SachsColler CapitalMorgan Stanley and CalPERS from today’s Side Letter.

He said it

“I think this arrest has made everyone, including myself, question what they’re doing in Russia.”

Roland Nash, a partner with Verno Capital and long-term investor in Russia, puts the arrest of senior members of Baring Vostok’s team into context.


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