Side Letter: Live PE fundraising data; PE’s inflation implications

An introduction to Private Equity International's snazzy new interactive fundraising charts. Plus: A preliminary investigation into how the increasing cost of borrowing is likely to play out in private markets; and Australia's largest pension is going big in the US. Here's today's brief, for our valued subscribers only.

Just happened

Calling all data fans!
Private Equity International is giving platinum subscribers the ability to dig deeper into our proprietary private equity fundraising data. Our new live and interactive fundraising charts enable you to filter and download the latest figures, as well as the underlying fund data upon which the graphics are based. Users can sort data by vintage year, strategy and region before exporting. Dive into our live data here.

The end of cheap money
How is the increasing cost of borrowing likely to play out in private markets? That’s a question editorial teams across PEI Media have been asking market participants across various asset classes over the past few weeks. While we’re still in the research phase, here are a few preliminary notes from our discussions:

  • Inflation and rising interest rates will mean new established pricing on entries – and this is a good thing after years of high pricing, said one consultant to institutional investors. This would create “sanity for investors” and better overall vintages.
  • Pain isn’t likely to bite as hard for high-quality managers, as the best GPs have generally not relied on financial engineering post-GFC.
  • In the secondaries market, in which layers of leverage can stack up multiple times (fund and deal-level debt times two, given that secondaries funds are buying into already-leveraged structures and funds), rising interest rates will be “impactful but indirect”, said one investor.
  • Whether you like it or not, the world as we know it has changed. “I don’t know that the skills developed over the past 10 years will equip people well for the new environment if they’re not rigorous about redoing their models, re-examining their assumptions and setting up contingency plans,” said one veteran banker.
  • Inflation will play out differently in various regional markets, with inflationary pressures high in places like South Korea and Australia, and unusually low in Japan and China, Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, told us. Still, investors are not likely to make huge changes to their portfolio allocations, Garcia-Herrero said. “There is a limit to… the share of alternatives because it’s just not liquid… There’s going to be a time where – and especially [if] there’s a liquidity crunch at some point and there’s some institutions suffering – I think the regulators will not allow for alternatives to dominate.”

Got thoughts on how higher interest rates are going to play out in the private equity industry? Get in touch.


AusSuper’s Big Apple build-out
Australia’s largest pension fund is going big in the US. The $180 billion AustralianSuper has made five significant hires across PE, private debt and infrastructure in New York, according to a statement. Among the new recruits are SwanCap alums Aaron Witte, who joins as senior PE manager, and Dominic Borrasch, who joins as PE portfolio manager. They are joined in New York by PE head Terry Charalambous, who has relocated from AusSuper’s Melbourne office. “AustralianSuper is strategically building a team to help manage our existing US portfolio and also find new opportunities to invest to deliver long-term returns for members,” he said in the statement.

AusSuper’s 15-strong New York team, which launched last year, is intended to reach 100 members within three years. The fund has $51 billion invested in the US, including $16 billion in private markets. The US expansion comes amid plans to double its PE portfolio over the next two years by deploying A$13 billion ($9 billion; €9 billion) into the asset class globally, per a May statement. Of this, A$9.5 billion will go towards the US. These efforts will take AusSuper’s PE allocation to 7 percent by 2024, from 5 percent.

MassPRIM’s markdowns
The value of Massachusetts Pension Reserves Investment Management Board’s PE holdings fell by 2.75 percent in the second quarter, our colleagues at Buyouts report (registration required). VC fell by 8 percent and growth equity was down by 4 percent, as both strategies gave up gains from the last year, MassPRIM’s PE director Michael McGirr said at a 17 August board meeting.

LPs have been bracing for second quarter valuations of PE investments from GPs, which have primary discretion over determining performance marks. Private asset repricing could help to alleviate some LP allocation pressures, spark a slowdown in exits and drive a resurgence in secondaries activity, as PEI explored last month.

Today’s letter was prepared by Alex Lynn with Adam Le.