Side Letter: LPs’ biggest concerns; growing family offices; Bain’s VC vindication

LPs like the look of VC and private credit in an environment dominated by macroeconomic concerns. Plus: Family offices become more prolific backers of PE funds; and Bain Capital's venture unit has more than doubled its previous fund size. Here’s today's brief, for our valued subscribers only.

Just happened

LPs: putting less weight on ESG in this environment (Source: Getty)

On the minds of LPs

In a challenging fundraising environment, the question of what’s top of LPs’ minds carries more significance than when capital raising is a breeze. It is timely, then, that Adams Street Partners this week published its latest Global Investor Survey.

One of the key takeaways was that inflation and rising rates are the top concerns for investors. If, like Adams Street’s respondents, you share those fears, the silver lining to this investment environment is that there may be bargains to be had. Speaking on a webinar about the survey, head of investments Jeff Diehl said that buyout firms likely need to pay 15 percent less on new deals than they would have a year ago to model out the same level of returns. “There’s no question that I think modelled returns relative to recent history will be more challenged, therefore purchase prices probably have to come down upon entry,” he noted.

Here are some other notable findings:

  • Tech and healthcare remain the most attractive sectors for investments. Private credit and VC became more appealing, while PE take-privates lost some ground.
  • Small and mid-market buyouts will be the biggest recipient of additional allocations over the next five years, followed by VC and growth equity.
  • North America is again the favoured region for investment opportunities, followed by Europe and China.
  • The lion’s share of LPs believe that private markets will continue to outperform their public peers.
  • There was a significant drop in investors that say ESG considerations are a determining factor in their investment strategy, falling to 56 percent this year, from 67 percent in 2022.

Keeping it in the family
Family offices are becoming more prolific backers of private equity funds, particularly in North America – this is according to Michael Miller, managing partner of placement agent Monument Group, speaking at a media roundtable on Thursday.

In the US, the opaque family office space is one of the fastest-growing pools of capital with an interest in the private equity market. Families and individuals that have sold businesses are increasingly realising it is more efficient to have a formal office, Miller explained, and tend to hire teams from other institutional investors who have networks to access the fund market.

“There’s no directory where you can say, ‘Here’s every family office in the US’,” Miller said. “We might meet a new family office – new to us – that’s been around for 10 years that invests between $25 million and $75 million per fund.”

Those offices are often looking for differentiation in their portfolios. While Monument is actively seeking out these family offices, the firm also sees outreach from firms that are looking to establish new fund-investing programmes, or to hire someone who already has relationships within the asset class.

Those offices will look at everything from funds and co-investment to secondaries, Miller said. “Anything that can generate good returns for the family, that’s [often differentiated] from where the family made their money.”

L Catterton’s capital collection
Private equity consumer specialist L Catterton appears to have defied the fundraising headwinds dogging many of its peers last year. The firm raised $6.4 billion during the period, according to its 2022 Year in Review, published this morning. That’s compared with $5.6 billion in 2021 and just $3.5 billion in 2020. Last year’s total is understood to have been spread across six funds, including a $360 million secondaries transaction involving assets from its 2019-vintage L Catterton Asia III. The firm has five active fundraises, including its 10th flagship, according to PEI data.

A few other highlights:

  • The firm deployed $2.9 billion of equity, inclusive of co-investments, and completed 19 new investments.
  • It made 14 exits and generated $1.7 billion of gross realisations.
  • These generated a 3.2x gross MOIC and 2.4x net MOIC.


Speaking of fundraises…
Growth equity firm PSG expects to hold a final close on its sixth flagship vehicle at the end of the month, according to documents prepared for Pennsylvania State Employees’ Retirement System. The firm has a $6.5 billion target for Fund VI, $2.5 billion more than it sought for the 2021-vintage Fund V. It is unclear how much PSG has raised thus far. The firm targets software companies, and investments are typically between $10 million and $150 million. PSG declined to comment to Side Letter on fundraising.

Bain’s VC vindication
Bain Capital Ventures, the VC division of Bain Capital, this week raised a total of $1.9 billion for its two latest venture funds, our colleagues at Venture Capital Journal report (registration required). BCV New Fund X and BCV Select IV Fund were previously known as the singular Bain Capital Venture Fund 2022, the predecessor of which closed on $934.5 million in 2020.

BCV did not disclose the exact amount raised for each of the funds, which will continue BCV’s focus on supporting technology start-ups from seed to growth, nor did it name LPs in the fund. Bain Capital Venture Fund 2021, however, received commitments from Maine Public Employees Retirement System and the Boston Foundation, according to PEI data.

In a statement on the close, BCV partner Kevin Zhang pointed to a “difficult market where [LPs’] commitment to venture overall may be shrinking”. Explaining possible reasons for the successful close, he added: “In many ways, we believe the broader venture market is recognising and trending towards what we have always sought to offer BCV-backed founders.”

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