Side Letter: Inside Eurazeo’s boss loss; SoftBank’s $5bn writedown; Sequoia’s long haul

Our take on Eurazeo chief executive Virginie Morgon's departure. Plus: SoftBank's Vision Funds have posted a $5 billion quarterly loss; and Sequoia's evergreen vehicle is entering mega-fund territory. Here’s today's brief, for our valued subscribers only.

Just happened

Eurazeo chief Virginia Morgon: Leaving the firm (Credit: Andrew Wheeler)

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Virginie Mor-gone
The PE industry woke up to the news yesterday that Virginie Morgon, chief executive of Paris-listed Eurazeo and one of the most recognisable faces in European private equity, had been ousted from her post. Her sudden departure came both as a surprise and a shock to market participants Side Letter has spoken to over the past 24 hours.

It appears it also came as a shock to Morgon herself, who only learned about the board’s plans last week, according to an insider with knowledge of the matter. In a statement yesterday about the changes, Eurazeo also said Marc Frappier, head of mid-large buyouts, would leave at the end of April, and that four executives, including Christophe Bavière and William Kadouch-Chassaing, would form a new executive board.

Side Letter understands that Eurazeo’s supervisory board met on Friday for a meeting that lasted eight hours, and again on Sunday for a meeting that started at 3pm and lasted into the night. At the heart of the matter appears to be the Decaux family – which owns around 18 percent of Eurazeo – being unimpressed by Eurazeo’s flatish share price and unimpressed with fundraising progress for its flagship Capital buyout strategy. On the share price issue, data compiled by Campbell Lutyens and shared with PEI shows Eurazeo stock is up 11 percent since June 2017, when Decaux was brought in to acquire a large minority stake in the firm, and well below the MSCI World Index, for example, which is up 47 percent on the same period. In comparison, Swiss-listed Partners Group is up 57 percent and London-listed ICG is up 68 percent on the same period.

On fundraising, Eurazeo Capital appears to have registered its fifth flagship in April, with the vehicle taking longer than expected to raise, according to media reports from October last year. Side Letter understands Eurazeo Capital V was targeting between €3 billion and €3.5 billion and that Frappier is a key person on the Capital funds. It’s unclear if Frappier’s departure will trigger a key person clause.

Since her appointment as chief executive in 2018, Morgon hasn’t exactly sat back and twiddled her thumbs. She led the firm’s expansion into the US, splitting her time between New York and Paris, and oversaw the acquisitions of New York-based Rhône Group and French PE and venture firm Idinvest Partners.

Indeed, when PEI sat down with Morgon for an interview at the firm’s headquarters in 2019, she spent the first half of the discussion talking about the importance of ESG and the fact that the firm was (and remains) the only listed investment company to be integrated in five families of non-financial benchmark indices. Indeed, in her opening address at the IPEM 2020 conference in Cannes, Morgon used the platform to remind delegates that the PE industry needed to contribute its “fair share” in addressing social imbalance and climate change. Ultimately, Eurazeo’s perceived flatlining share price and delayed fundraising progress for its flagship vehicle appear to have trumped her other achievements.

SoftBank’s slump
In what is unlikely to be a surprise to many, SoftBank‘s tech-heavy Vision Funds have had another rough quarter. The Japanese conglomerate said this morning that its Vision Funds had posted a ¥653.2 billion ($4.95 billion; €4.62 billion) loss for the three months to 31 December (SoftBank’s third quarter).

“Share prices of numerous public portfolio companies declined amid the weakness in global stock markets (although share prices of several companies rose in the third quarter), and the fair value of a wide range of private portfolio companies also decreased, reflecting markdowns of weaker-performing companies and share price declines in market comparable companies,” it said. SoftBank pivoted to defence in the latter half of 2022, deploying just $600 million. By comparison, it deployed $14.6 billion in the last six months of 2021.


Deal scrutiny
Though most institutional investors are leaving their planned targeted allocations to private markets untouched despite the ongoing volatility, many are ramping up their due diligence efforts. That’s according to a survey of 480 institutional investors by State Street Corporation, which found that PE remains the most attractive asset class for LPs over the next three years. That said, respondents are going to be more focused on deal quality moving forward, with 47 percent tweaking their due diligence processes and 42 percent to narrow their investments through higher baseline standards.

This is seen as a top concern in all regions, Jesse Cole, State Street’s global head of private markets, told Side Letter in an emailed statement. In the Americas, for example, the FTX debacle validates the need for better due diligence and data transparency. “Deal quality concerns have pushed almost half of the institutions in Europe and Americas to implement changes to their internal vetting process, from requesting more detailed information than what is typically provided to get a deeper understanding of the investment opportunities, to increasing their standards in terms of business strength, covenants, etc,” Cole said, noting that those who haven’t altered their processes or standards are “at least being more selective”.

A long haul
Sequoia Capital has amassed $13.6 billion for an evergreen fund dedicated to long-holds, our colleagues at Venture Capital Journal report (registration required). February filings with the US Securities and Exchange Commission show 354 limited partners in Sequoia Capital Fund LP. In case you need a refresher, Sequoia said in 2021 that the 10-year fund cycle had become “obsolete”. Its proclamation was accompanied by plans to restructure its US and Europe business around a single, permanent structure.

Given that The Sequoia Fund is already nearing mega-fund territory, it would appear that investors are on board with its thesis. In a year when there is less certainty around both new investments and, more importantly for VC firms, exits, the ability to hold on to prized assets for an indeterminate length of time must be something of a luxury.

Today’s letter was prepared by Alex Lynn with Adam LeCarmela Mendoza, Helen de Beer and Madeleine Farman