Before we get to Wednesday’s news, a quick shout-out. If you haven’t already, there is still time to tell us which individuals under the age of 40 are set to play a leading role in shaping the future of private equity. We are celebrating rising stars across five categories: LPs, fundraisers, dealmakers, lawyers and operators.
PEI’s 40 under 40: Future Leaders of Private Equity list 2023 will be published online and in our Future of Private Equity special in May.
Submit your nominations here by the Thursday 9 February deadline. To be eligible for this year’s list, nominees must be under the age of 40 on 1 May 2023.
Private equity’s burgeoning love affair with tokenisation just took another leap forward. Hamilton Lane is once again leading the charge (more details on its initial foray into tokenisation here) – this time tokenising a portion of its $2.1 billion Equity Opportunities Fund V with the help of digital assets platform Securitize, per a Tuesday statement. US qualified purchasers with at least $5 million in invested assets will be able to access a tokenised feeder fund for just $20,000 at a time, down from a traditional average ticket of $5 million. Securitize and Hamilton Lane intend to launch two additional feeder funds in the months ahead, the statement said.
This isn’t Hamilton Lane’s first dalliance with Securitize, which also tokenised access to the former’s direct equities, private credit and secondaries funds in October. Side Letter readers might also recognise Securitize from its partnership with KKR in September, which saw the latter digitise a portion of its $4 billion Health Care Strategic Growth Fund II. In 2021, Singaporean digital assets platform ADDX secured an undisclosed allocation to Partners Group’s €5.5 billion Global Value SICAV Fund, providing investors outside the US access to a diversified portfolio with a minimum ticket size of $10,000.
As Private Equity International explored in September, tokenisation could have significant implications for private markets. The potential scale of this still-nascent technology is a question PEI raised with chief executive and founder, Carlos Domingo, in our latest Democratisation of PE Special Report, published this morning. “There’s no reason not to tokenise 100 percent of a fund,” he said. “The only reason [for caution] is because some of the investors that are still coming – not everybody is going to be individual, they’re going to be institutional, etc – they might not be ready for a tokenised fund from a custody perspective or technology enablement.” Read the interview in full here.
Brookfield’s secondaries bet
In 2020, Brookfield Asset Management chief executive Bruce Flatt said he expected secondaries could be a $50 billion business for the firm. He was speaking after the Canadian asset management giant had built up its real estate secondaries unit via external hires. Within a year of Flatt’s comments, Brookfield had closed RE secondaries deals and inked an almost $1 billion secondaries deal in infrastructure too. The firm is now pushing into private equity secondaries: on Tuesday, DWS, Deutsche Bank’s asset management arm, said it had closed the “transfer” (note: not acquire, buy nor partner with) of its secondaries unit to Brookfield.
Acquiring DWS’s secondaries group represents a slight departure from a traditional private equity secondaries addition: DWS’s secondaries unit focuses on what it refers to as ‘mid-life co-investments’, Mark McDonald, managing partner and head of the group, told Private Equity International in 2021. Side Letter understands that London-based McDonald and New York-based Jordan Sawkin will lead the seven-person team, comprising investment and IR execs. The unit, Brookfield Sponsor Solutions, will report to PE president Anuj Ranjan and will continue its specialisation of GP-led mid-life investments, according to a source with knowledge of the transfer.
In less than three years, Brookfield has added real estate and infrastructure secondaries capabilities, plus preferred equity/NAV lending via Oaktree Capital Management‘s acquisition of 17Capital. It now has firepower for private equity GP-led secondaries – a market that now accounts for roughly half of all secondaries trades. At a time when many asset managers are scrambling to build up secondaries offerings, Brookfield is making it look easy.
Who needs deal financing?
A competitive mid-market M&A landscape is pushing sponsors towards all-equity deals. A recent survey of dealmakers by law firm Katten Muchin Rosenman found that 55 percent had been involved in such deals, either on the buy or sell side, for a majority of transactions over the past year, our colleagues at Private Funds CFO report (registration required). What’s more, 76 percent expect all-equity deals to increase in 2023.
All-equity deals require buyers to fund the full purchase price of a company if the debt is not available by the closing date; the standard is for buyers to take on debt for their purchases after closing. Such transactions enable buyers to move more quickly when time is of the essence. “Making debt financing a condition to close can add time, complexity and risk to the closing process,” said Kimberly Smith, Katten partner and global chair of its corporate department. “By contrast, an all-equity deal means all funds are coming from the PE fund and so there is not that same delay, complexity or risk from a financing.”
It’s worth noting that these transactions aren’t without risks. “Respondents recognise that all-equity deals lean high-reward, low-risk today – but an element of risk is always involved in all-equity deals, and they stand to get riskier given recent changes in the debt markets,” the report said. As credit markets tighten and debt becomes more difficult to obtain, the financing risk assumed by the sponsor in the all-equity deal increases.
Today’s letter was prepared by Alex Lynn with Adam Le and Madeleine Farman