Side Letter: LPs order stakes; Apollo’s offensive; PG’s $37bn unit

ADIA asks how much Ardian is worth. Plus: Apollo Global Management is going on the offensive with $50 billion of dry powder and Partners Group has a newly formalised $37 billion business unit. Here’s today's brief, for our valued subscribers only.

Just happened

Sating LP appetites (Source: Getty)

For LPs, stakes are no longer rare
When affiliate title Secondaries Investor caught up with Ardian‘s then head of US Benoît Verbrugghe in 2016, the senior executive said (registration required) that while other firms may be a bit more “exotic”, Ardian was “boring”. He was referring to Ardian’s investment strategy of buying well-known assets of quality and clear visibility.

As investment firms go, Ardian is anything but boring. On Wednesday, Private Equity International reported that the firm had been in talks with sovereign wealth giant Abu Dhabi Investment Authority over a potential stake sale. The discussions are understood to be not currently going ahead due to a disagreement over how much Ardian is worth (figures of $4 billion and $6.5 billion have been thrown around).

If a deal does go ahead, it would be the latest example of a large institutional investor attempting to gain direct exposure to the lucrative management fees and potential carry from private markets investment firms – not to mention co-investment dealflow. Just last month, CPP Investment said it was joining Constellation Capital, the emerging manager seeding platform, which is run by Wafra.

The GP stakes business is a crowded market with a relatively finite pool of targets. As institutional investors eye more deals in this market, it will only get more crowded.

Apollo’s offensive
Apollo Global Management is in its element. That was the key message from yesterday’s Q3 earnings call. “Our business continues to be guided by three fundamental principles purchase price matters, excess return per unit of risk and aligned investing,” chief executive Marc Rowan told analysts. “As a result, we are on offence.” The firm deployed $37 billion in Q3 across its yield, hybrid and equity strategies, and $175 billion over the past 12 months. Notable deals include the $5.2 billion delisting of aviation operating services business Atlas Air alongside JF Lehman and Hill City Capital in August.

“Dry powder now exceeds $50 billion. We excel in this kind of market. We are leaning in, we are out talking with investors and we are apologising for nothing. By and large, we did what we were supposed to have done in a period of market excess, which was avoid potholes.”

The firm’s flagship private equity funds have returned 2.1 percent year-to-date, while its hybrid value strategy is up 4.1 percent. As of 30 September, its 2018-vintage Fund IX had deployed $17.3 billion of its $24.7 billion total. The firm’s progress in raising a successor have been slow going. More on that here.

Essentials

PG’s private wealth
Partners Group is probably one of the first names that spring to mind when thinking about PE’s most significant private wealth fundraisers. It makes sense, then, that the firm has this week formalised its private wealth offering with the launch of a dedicated business unit, per a statement. The division will manage $37 billion in assets – almost one-third of the firm’s total AUM of $131 billion. Co-leaders will be Robert Collins and managing director Christian Wicklein, who will cover the Americas and Europe & APAC, respectively.

Partners Group has been expanding its individual investor offering since 2001, when it launched a global private markets evergreen franchise. It is still operating at the frontier of this area, last year becoming an early adopter of nascent solutions like tokenisation.

Sub line stress
Subscription lines of credit are putting pressure on investors even as they serve an important purpose during a time of constrained liquidity, our colleagues at Buyouts report (registration required). Though market participants aren’t expecting anything as drastic as an LP not being able to fund a capital call from an expiring sub line, the situation could quickly turn ugly for those juggling commitments across multiple subscription lines with an unclear view of how much they owe.

The Institutional Limited Partners Association warned against just this sort of situation in 2020 when it called for better reporting from GPs about an LP’s exposure on sub lines. A dearth of liquidity is much on LPs’ minds these days as distributions slow to a trickle in the sluggish M&A environment. Pressure is coming from GPs calling capital for new deals, and, on top of that, LPs are paying off expiring sub lines that were tapped for deals earlier this year. This in addition to LPs continuing to commit to new funds, even as they battle overweight exposure to the asset class. Stressful times indeed.


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