Side Letter: Guy Hands’ biggest worry; Norvester’s haul; SERS Ohio’s PE hike

Monday is a public holiday in the US and UK, so we'll return to your inboxes on Tuesday. In the meantime, Terra Firma's Guy Hands reveals his biggest investment concerns, and a Nordic GP is beating the fundraising blues. Here’s today's brief, for our valued subscribers only.

Just happened

Penny for the Guy’s thoughts
Guy Hands knows a thing or two about challenging deals. The founder and chairman of European buyout shop Terra Firma remains, as Private Equity International noted in a 2011 profile, inextricably linked to its doomed acquisition of music publishing giant EMI at the height of the 2007 credit bubble.

In a pre-recorded interview aired at The Australian’s Global Food Forum in Melbourne this morning, Hands was asked what he makes of the current global investment climate. His answer wasn’t particularly reassuring. “Incredibly difficult – I think it’s probably the most difficult market I’ve seen,” he said. “Where people are going to be able to make money is far less predictable; the pace of technological change is quite extraordinary. And then you’ve got, on top of that, climate change, you’ve got war in Europe, [and the] risk of wars breaking out in a lot of other countries. So a vastly, vastly more difficult market than what I grew up with.”

Terra Firma owns eight portfolio companies – seven of which were acquired via separately managed accounts, according to its website. Still listed on the website is Australian cattle giant Consolidated Pastoral Company, which was acquired by Terra Firma Capital Partners III in 2009 and sold to a consortium led by Hands himself a decade later.

“I think all credit to people out there today able to invest on an international basis and do different businesses,” Hands said in this morning’s interview. “From my point of view, I’m just concentrating on the businesses that I know and love and just keeping solidly focusing on that. So I think it’s just going to be very difficult to get it right – having said that, the people who do get it right will be incredibly successful.”

Asked what worries him most about the outlook today, Hands identified rising tensions between the US and China. “It’s the change in the world in terms of the West to some extent, versus China,” he said. “Do I think you have a direct war between America and China? Unlikely for the next 20 years. Do I think there’ll be a flashpoint and a proxy war? Quite likely. And that’s what keeps me up at night – it’s not the micro, it’s the macro.”

Scandi raise
Defying the subdued fundraising market, Nordic-focused mid-market shop Norvestor has surpassed the €1.25 billion target for its latest flagship fund, Side Letter understands. Norvestor IX launched in 2022, according to PEI data. It is unclear whether the fund has held its final close. Fund IX is already around 55 percent larger than its 2021-vintage predecessor. Asante Capital is understood to be advising on the fundraise.

The news follows the firm’s exit yesterday of Kabal, a logistics software provider for the global energy industry, to Insight Venture Management, according to a statement. The sale of the company, which was housed in the firm’s Fund VII, secured a 6.5x multiple of invested capital, according to a source familiar with the deal. Norvestor invests in companies with revenues in the range of €20 million to €300 million, per its website.

Hiking in Ohio
Another day, another US public pension hiking its PE allocation. In a recent meeting, the School Employees Retirement System of Ohio confirmed plans to increase its target allocation to 14 percent – up from 12 percent – for FY 2024, our colleagues at Buyouts report (registration required). In its annual investment plan, SERS Ohio said it expects fundraising and exit activity to remain at reduced levels in the immediate term as high interest rates, inflation and slow economic growth impede fund managers’ activities. “The intense competition for assets that has led to growth in purchase price multiples and made it very difficult for private equity firms to find and purchase companies continued in 2022,” the plan said.

SERS Ohio’s move echoes that of Employees’ Retirement Fund of the City of Dallas, which plans to up its allocation to 10 percent from 7.5 percent, and San Mateo County Employees’ Retirement Association, which will increase its own to 8 percent from 7 percent. Responses to how to deal with the denominator effect have been mixed, with some instead opting to slash their annual budgets to right-size their over a longer period.


Carrying on
Consumer specialist firm L Catterton and Just Climate are two of the latest firms rewarding employees based on the positive impact they create. Both have said they are linking carried interest in their debut impact funds to impact goals – the former at 10 percent of the GP’s carry and the latter, 100 percent, colleagues at New Private Markets reported (registration required).

“We’re a private market manager, so we have a performance fee as a profit share, as you would expect,” Just Climate senior partner Clara Barby, told delegates at the Impact Investor Global Summit last week. “And ours is 100 percent adjustable by impact, and we defined that relative – not to peer performance in a benchmark – but relative to an absolute threshold.” Impact goals include greenhouse gas avoidance and/or removal.

The number of funds tying carried interest with ESG or impact metrics is growing, although from a low base. Only 7 percent of impact investors use this structure in their funds, according to research by verification firm BlueMark.

Tough times in Tokyo?
Japan Asia Investment Co, a Japan-listed VC firm, appears to have had a tough time of it last year. JAIC saw a 24 percent decrease in PE investment profits in FY 2023, per its latest annual report. JAIC said its sum of actual and forecast three-year cumulative PE profit for the year was ¥1.7 billion ($13 million; €12 million) – just 50 percent of its original plan for the period. Though PE revenue climbed 68 percent to ¥2.1 billion, which it attributed to the sale of listed Japanese stocks and large amounts of unlisted assets, investment costs also more than quadrupled to ¥1.2 billion.

JAIC attributed these rising costs to “capital loss from sales of investee companies whose business conditions have deteriorated and which were with a lower expected investment collection”. The firm also recorded ¥229 million of investment write-offs and possible investment losses for investee companies that have experienced “delays in business progress”. The firm identified lower-than-planned gains on IPOs and exits as a challenge, noting that it will “enhance hands-on support mainly to strategic investees” accordingly.

In August, JAIC launched Succession Investment Limited Partnership II – a joint venture with Aozora Bank managed by AJ Capital to support businesses with succession needs. The fund manages ¥3.7 billion and targets small-cap companies in Japan. It has ¥33.5 billion in AUM, per PEI data.

Dig deeper

Institution: Massachusetts Pension Reserves Investment Management Board
Headquarters: Boston, US
AUM: $91.9 billion
Allocation to private equity: 17.7%

Massachusetts Pension Reserves Investment Management Board recently approved multiple commitments to private equity, according to the its board materials. The public pension fund made the following commitments:

Managed by CVC Capital Partners, CVC Capital Partners IX has a target size of €25 billion and focuses on buyout investments across Europe and North America. MassPRIM has invested in eight prior CVC funds, according to PEI data.

PSG VI will target investments in growth-oriented, lower-mid-market companies in the software and tech-enabled services industries primarily located in North America.

Managed by American Industrial Partners, the recently launched American Industrial Partners Capital Fund VIII has a target size of $5 billion and will focus on industrial businesses located in North America. MassPRIM has previously committed $75 million to its predecessor fund which closed on $3 billion of capital commitments.

The pension fund further revealed a commitment of up to $75 million to KPS Mid-Cap Fund II. MassPRIM has invested in four prior KPS funds starting in 2009, including a $40 million commitment to KPS Mid-Cap Fund.

For more information on Massachusetts Pension Reserves Investment Management Board, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza, Helen de Beer, Madeleine Farman, Katrina Lau and Daniel Kemp.