Side Letter recently sat down with HarbourVest Partners co-chief executives Pete Wilson and John Toomey. As LPs continue to digest the implications of the denominator effects on their portfolios and managers face a tough exit environment for their portfolio companies, here are some key takeaways from our discussion looking ahead to 2023:
- Expect the secondaries market to grow dramatically. Secondaries are “the most effective mechanism by which you can actually create investment capacity on your balance sheet to continue to stay invested”, Toomey said.
- Investors will ration their managers, Toomey added. “You will start to see a separation. There will still be the managers that will attract lots of capital and do it efficiently and quickly, while for others, that will not be the case. As a result, we will begin to see an elongation of the fundraising market for many managers.”
- If there is an inability or unwillingness from LPs to either tap the secondaries market or ration managers, a third option for investors is to increase their allocations – something a number of US institutions have taken, Toomey said. “If you have a target of 15 [percent] and you’re now at 15 or 16, increase it to 18 or 19. This will allow managers to continue to be invested. Candidly, when you look at all asset classes, private markets have been where you’re likely to see excess returns, making it a positive choice during uncertain times.”
Moonfare expands senior team
Digital fundraising platform Moonfare has hired Sanjay Gupta, previously head of private equity investing at Swiss wealth manager Union Bancaire Privée, as head of co-investments; and Russell Lane, who joins from asset management firm Bridgewater Associates, as head of GP solutions, per a statement. Side Letter understands the latter effort refers to distributions and business development. Both roles are new as Moonfare continues to ramp up its investment team and follows a busy year of Asia-Pacific and Middle East build-outs. Moonfare passed the €2 billion assets under management mark as of end-September, an increase of almost 90 percent from the prior period. Read more about how the Berlin-headquartered outfit is thinking of designing products for individual investors here.
New firm alert
When Apollo Global Management co-founder Josh Harris set up his shop 26North Partners in September, the press release noted that it was partnering with Braven Management, a firm led by William Abecassis, the former head of Blackrock’s venture group Innovation Capital. Details have been scarce, until now. Our colleagues at Venture Capital Journal have details here (registration required) about the VC firm, in which 26North has made an equity investment for an undisclosed amount.
PE’s sporting chance. The universe of potential sports investments just got a little bigger for direct investors. The US National Basketball Association will now allow sovereign wealth funds, pensions and university endowments to own passive stakes in NBA teams, Sportico reports. The move expands upon a decision in 2020 to allow PE funds such as Dyal Homecourt Partners to acquire minority stakes in NBA teams. This was intended to provide much-needed liquidity for existing owners during the pandemic. You can read more details about Dyal’s NBA strategy, which was the first of its kind in PE, here.
Hedging headaches. Fund managers turning to FX hedging as interest rates rise are finding the process a little complicated. That’s according to our colleagues at Private Funds CFO (registration required), citing a recent MillTechFX survey, which found that trade execution is the biggest operating challenge for GPs hoping to hedge. The survey of 250 senior finance decision-makers at fund managers said “getting comparative quotes” for pricing and “manual processes” were the next most problematic parts of the hedging process. While FX is a growing and important part of sponsors’ work, a majority of respondents (about 57 percent), gave average or underwhelming replies when asked about own operations. Specifically, the survey showed that 24 percent felt their FX setups were “fit for purpose,” 26 percent said they were “below average” and around 7 percent called theirs “worst in class”.
Sudden changes in currency value can of course be disruptive to PE dealmaking and sponsors’ appetite for FX swaps has grown in response to heightened volatility, as Private Equity International noted in our Currency Chaos mini-series this year.
Institution: New Mexico State Investment Council
Headquarters: Santa Fe, US
AUM: $38.8 billion
Allocation to private equity: 9.47%
New Mexico State Investment Council has committed $210 million to four private equity funds, according to meeting materials.
The largest commitment is of $100 million to Frontier Fund I, the flagship fund of America’s Frontier Fund that targets the energy, healthcare, TMT and manufacturing sectors. It made a $75 million commitment to Arlington Capital Partners VI, a buyout fund that launched in March with a $3.5 billion target.
The investor also committed $35 million to two Crosslink Capital funds, the Crosslink Ventures X and Crosslink Endeavor II. NMSIC has committed capital to previous Crosslink Ventures funds, VIII and IX.
For more information on NIMSIC, as well as more than 5,900 other institutions, check out the PEI database.