Side Letter: JPI’s $7bn roadmap, pension’s greed for debt, weak LPs

DB pensions love private debt right now. Fortunately a lot of institutions, Japan Post Insurance for one, are massive PE fans too. Here’s today's brief, for our valued subscribers only.

Just happened

DB’s hunger for debt

For the defined benefit crowd, deficit reduction remains a key theme, as we found at the PLSA investment conference, a gathering of UK pension funds and service providers, in Edinburgh last week. Many DB funds are prioritising income-generating infra and debt investments over the delayed gratification of private equity. “If you have debt products that offer a steady 5-6 percent [annual yield], some institutions will take everything you’ve got,” said a VP from a multi-asset manager.

There was, however, palpable interest in how PE can be incorporated into defined contribution schemes. Rene Poisson, chairman of JPMorgan’s UK pension fund, praised Partners Group‘s offering in this space and called on others to step up. “I look forward to the day when other managers turn up offering me equivalent quality product,” he said.

Japan Post Insurance’s alts roadmap

Japan Post Insurance, one of the most sought-after LPs in Japan with more than $700 billion of assets, has shared with us how it plans to push further into alternatives by 2027. But first, the background: it set up its alternatives unit in April 2017. Less than two years later it has invested about $3 billion into alternatives (a third of its $10 billion deployment target by 2020 via gatekeepers and funds of funds). Up next: make direct fund commitments by 2021-22 and start a co-investment programme by 2027.

The art of a (weak) deal

Private equity investors are not pushing hard in negotiating terms with GPs, a survey by data provider eFront has found. More than a third of LPs (35 percent) performed poorly in negotiation and do not attempt to seek better alignment with GPs. LPs also lacked sophistication in reporting and monitoring. Although reporting guidelines are on the road to standardisation, nearly half of LPs surveyed rely entirely on, and passively accept, GP-provided calculations. This is both worrying (performance data can be presented in many creative ways) and unsurprising (many LPs do just don’t have the bandwidth to take the data back to cashflow level and recut it).

Essentials

Balance for better (returns). Just ahead of International Women’s Day on Friday, the International Finance Corporation released a report on gender balance in private equity and venture capital. Guess what? It’s not that balanced.

Three interesting stats:

  • Just 7 percent of private equity and venture capital is invested in female-led businesses;
  • Only 15 percent of senior investment teams are gender balanced and nearly 70 percent are all male;
  • Gender-balanced investment teams realised excess net IRRs of 1.7 percentage points greater than male- or female-dominated fund

To honour IWD, advocacy group Level 20 published profiles of 13 inspiring women in private equity, who are sharing their experiences of building a successful career and offering advice to those considering a career in the industry.

Eurazeo’s selling spree. French PE shop Eurazeo went on a selling spree last year to capitalise on an attractive exit environment, per its latest annual results. The firm generated €3.1 billion from total or partial divestments in 2018, including offloading its stake in AccorHotels for a 2.0x return on its initial 2008 investment and board games publisher Asmodee at almost 4.0x. Eurazeo Capital, the firm’s mid-to-large-cap business, generated 1.8x across four partial or total divestments. The total would have been 2.6x had it not sold its 10 percent stake in Spanish fashion business Desigual for 0.5x in August.

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

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including Japan Post Insurance and Eurazeo from today’s Side Letter.

He said it

“While constructive feedback is both essential and welcome, such efforts should be lauded, not singled out on the world stage for disproportionate criticism on the back of a single high-profile corporate failure.”

In an op-ed for sister title pfm, Christopher Skipper, a partner at Winston & Strawn’s Dubai office, argues the collapse of The Abraaj Group shouldn’t have an unfairly negative impact on the Dubai International Financial Centre.


We would love your feedback to help us make this newsletter more useful; click here to give us your opinion.

Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeRod JamesCarmela MendozaAlex Lynn and Brian Bonilla.