Side Letter: LPs on state support, capital call context, iCapital consolidation

There seems to be little doubt in LPs' minds that private equity-backed companies should have the same access to government support as any other business. Here’s today's brief, for our valued subscribers only.

He said it

“I recognise the political situation on Capitol Hill and elsewhere, but I think Congress should worry about employees and making certain that they’re okay, not whether the private equity companies own [those companies] or not.”

Carlyle Group’s David Rubenstein tells CNBC that politicians should put employees first when it comes to private equity firms accessing state aid.

Just happened

LPs to GPs: Take the lifeline

We’ve been sounding limited partners out on the subject of private equity-owned companies accessing state aid to get through the covid-19 crisis. Why? Because this is a live issue around the world, not least in the US where PE portfolio companies have thus far been shut out from the Government’s Paycheck Protection Program. Some politicians consider any relief going to PE-owned companies as “lining the pockets of private equity”. GPs wondering where their LPs stand on the topic should be reassured that their partners – as far as our initial conversations go – want them to do everything they can to protect their portfolio, including accessing public money. There are nuances to the conversation because the financial assistance varies from country to country and we are taking a deliberately global approach in our discussions. But the early themes emerging are:

  • GPs are doing their fiduciary duty by trying to keep companies and jobs alive.
  • PE owners are bound by the same restrictions (where the money comes with restrictions) as any other applicants for support.
  • PE-owned or otherwise, companies operating in sectors that have been closed down by governments will go bust and jobs will be lost without support.
  • In the US, there seems to be “a badge of honour” in not accepting state aid.

LPs with a view on this, please get in touch:

Capital call behaviour update

Earlier this week we reported exclusive numbers from PE tech provider Colmore that showed capital calls were continuing to run hotter – and distributions slower – than last year. We asked the company for some narrative around those capital calls and they said:

“We continue to see very similar themes in April related to the increased activity in capital calls. Most notably, general partners are repaying credit facilities that were used to temporarily fund investments in the past 12 months, but most notably we see a trend of paying down investments that were made in Q4 19/early Q1 20. We also continue to see precautionary calls by GPs who want to be ready to deploy capital should their portfolio company situations change, and they need to take action.”  

Fundraising platforms: iConsolidation

iCapital Network, one of the larger players in the online fundraising space, has agreed to purchase its peer Artivest, according to a statement. Once complete, the combined entity will service more than $55 billion in client assets across approximately 650 funds and 115,000 underlying accounts. Artivest is part-owned by KKR, which is expected to convert these holdings in Artivest into equity shares of iCapital, joining existing investors Carlyle Group, BlackRock and Ping An Global Voyager Fund.


3i Group results. The listed private equity investor has published its annual results to end-March 2020. Writes chairman Simon Thompson: “Within our diverse portfolio of private equity and infrastructure assets, we have seen the full range of impact of the pandemic. Some of our businesses are seeing an increase in sales of essential goods and services. Certain companies are only lightly impacted. Others are suffering significant reductions in revenue and, in selected cases, need, or are likely to need, some form of liquidity support.”

Leverage in secondaries deals. Secondaries investors have become pretty comfortable with acquisition finance, but how is this increasingly levered market reacting to the current crisis? Shrinking portfolio valuations are pushing loans to the brink of triggering their covenants, a situation expected to worsen as the full impact of the crisis filters through in Q2 NAVs. As banks tighten their lending lines, the world of 60 percent loan-to-value loans may be in the past, says Secondaries Investor’s Rod James in part two of his three-part series on leverage.

Dig deeper

Institution: Oregon Public Employees’ Retirement System
Headquarters: Tigard, US
AUM: $79.07bn
Allocation to alternatives: 43.75%
Bitesize: $50m-$100m

Oregon Public Employees’ Retirement System announced $350 million-worth of private equity commitments to four vehicles, a source at the pension informed Private Equity International. The commitments include $250 million to Francisco Partners VI, $50 million to Francisco Partners Agility Fund II, $30 million to Mayfield XVI, and $20 million to Mayfield Select II. The US public pension has a 17.5 percent target allocation to private equity that currently stands at 22.58 percent. More details here.

For more information on Oregon PERS, as well as more than 5,900 other institutions, check out the PEI database.

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Today’s letter was prepared by Toby MitchenallIsobel Markham, Adam Le, Rod James, Carmela Mendoza and Alex Lynn.

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