Side Letter: Impact special report; Texas Municipal’s PE love affair; Citi’s fund finance hire

Private Equity International's latest Impact Investing special report has landed at a time when global leaders are in crisis talks over the planet's future. Plus: A pioneer of sustainable fund finance has jumped ship and why TMRS is going big in PE. Here's today's brief, for our valued subscribers only.

They said it

“There used to be a very high probability that the second fund of a [private equity] general partner whose fund did really well the first time would do really well. But that is no longer the case. Now, it’s a crapshoot”

Eileen Appelbaum, co-director of the Center for Economic and Policy Research, tells The Daily Poster that investors like the California Public Employees’ Retirement System are no longer getting a premium for the risk they’re taking in PE.

Just happened

Cop a load of this
Finance will be key to developing a climate resilient future. That’s one message that came from the first day of COP26 yesterday as world leaders gathered in Glasgow to try to solve the climate crisis. Timely, then, that our Impact Investing special report is published this week – a 56-page report which examines, among other things, the ways impact investing and private capital can help in the fight against climate change. “There’s a huge amount of capital required now” if industries in new technologies such as electric mobility are to scale to meet carbon reduction targets by 2030, Amit Bouri, chief executive at the Global Impact Investing Network, tells us. Find all our coverage here.

Fund Fi-nance pioneer
Fi Dinh, a pioneer of sustainability-linked fund finance and former director at ING in Singapore, has jumped ship. Dinh joined Citi this month as a director of fund finance APAC, according to her LinkedIn. In her three years at ING, Dinh structured and executed the world’s first ever sustainability-linked fund finance facility for Singaporean healthcare firm Quadria Capital (more details here). Credit facilities are increasingly being linked to sustainability goals, with KKRCarlyle Group and, most recently, Baring Private Equity Asia among the notable early adopters.

Everything’s bigger in Texas
Texas Municipal Retirement System is turbo-charging its PE exposure in search of returns. The Austin-based pension, which has $2.4 billion in PE assets under management, is targeting a 10 percent allocation by 2024, affiliate title Buyouts reported (registration required). It began 2021 with an allocation of 3.97 percent.

“The goal is to enhance the trust fund’s performance, and given the returns, there is a huge opportunity set in PE,” said PE director Tom Masthay, noting that its PE portfolio has returned 27 percent since inception in December 2015, with public equities returning 13 percent over the same period.

PE outperformance has pushed some limited partners over their allocations in recent months, leading many to sell portfolios on the secondaries market, affiliate title Secondaries Investor reported (registration required). Florida State Board of AdministrationState Teachers Retirement System of Ohio  and Harvard Management Company are among those to have offloaded sizeable portfolios in the last quarter.


M&A meets single-asset secondaries
PE firms have found a novel way to set pricing on their single-asset secondaries transactions. Centerbridge Partners and Vistria Group are in market to sell a minority stake in home care services provider Sevita which will then be used to set the price for a single-asset continuation vehicle process on the asset, affiliate title Buyouts reports. The minority transaction could value Sevita in excess of $3 billion and, although it will depend on the pricing, the duo could target $800 million to $1 billion for the continuation fund.

This valuation mechanism, which has been used in several recent secondaries deals, is considered strong because it gives the asset value market validation, as opposed relying on one or more external firms to provide fair value assessments. Another recent example was Clearlake Capital’s single-asset process last year for Ivanti, which received a minority investment from TA Associates prior to a secondaries transaction.

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

3 November

4 November

5 November

Today’s letter was prepared by Alex Lynn with Adam LeRod JamesCarmela Mendoza and Michael Baruch