Side Letter: MAC clauses and virtual meetings, Golden Gate’s secondaries play, Actis’s impact

MACs may become the order of the day depending on how the coronavirus outbreak continues. LPs and GPs are also discovering the joy of video conferencing. Plus: a Golden Gate portfolio company is tapping the secondaries market and Actis has spelled out its impact credentials. Here’s today's brief, for our valued subscribers only.

Just happened

Return of the MAC

It’s little surprise that coronavirus brought Chinese dealmaking to a halt for the foreseeable, but the impact could now extend to deals that have already been signed. Some PE funds are considering whether it’s a valid ground for triggering the material adverse change (MAC) clauses in transaction documents, meaning they could end up walking away from what they now consider a “bad deal”, according to a client alert from law firm Morrison & Foerster in late February. For dealmakers of a certain age, MAC clauses scuppering deals will bring back memories of the GFC.

Virtual reality

GPs and LPs have been successfully shifting their meetings from the physical to the virtual in light of coronavirus travel restrictions, notes Buyouts‘ Chris Witkowsky. There is evidence in some of the comments that changes born from a crisis may become more standard. “It’s not ideal, but now that I’m doing it, it’s sort of making me think twice about all the travel we do every year,” one LP said. “Videos aren’t great, but they’re so efficient.”

How to launch a credit firm, Golden Gate-style

The secondaries market is becoming an increasingly important business development tool. Angel Island Capital, a portfolio company of Golden Gate Capital, used a secondaries transaction to seed its debut third-party credit fundSecondaries Investor reports. A syndicate backed the transfer of a portfolio of mid-market credit assets from the firm’s balance sheet into a commingled fund, which closed on $440 million including follow-on capital. Campbell Lutyens advised.

The deal was designed to bring in new limited partners by giving them a ready-made portfolio to invest in, less risky than asking them to make a blindpool commitment to a debut fund. Manulife (*2), Tikehau Capital, Investcorp and Eurazeo are among those to have done similar and we knows of at least two more in the pipeline.

See our impact

Actis just became one of the first signatories to the IFC’s Operating Principles for Impact Management to publish its disclosure statement, the firm said yesterday. The statement affirms that all of its investments, policies and practices and impact management systems are in alignment with the principles. The firm’s own impact measurement methodology – Actis Impact Score – runs alongside the principles and feeds into the review programme.

She said it

“Our best estimate is that we’ll see activity starting to happen in the second half of this year because it does take time to do deals.” 

Kiki Yang, partner and regional co-head for Asia-Pacific private equity practice at Bain & Company, tells Bloomberg that PE dealmaking is unlikely to resume until H2 2020.

Essentials

ESG hire. Partners Group’s head of ESG and sustainability Adam Heltzer has taken up a new role at Ares Management (press release here). He’ll join on 1 April as managing director and head of ESG, based in New York and reporting to CEO Michael Arougheti. He’s set to lead the $144 billion firm’s global ESG initiatives and “establish a more robust framework” for assessing and reporting against KPIs across credit, private equity and real estate, as well as advise on new corporate ESG policies and “ESG-related investment products”. We understand Partners Group has no immediate plans to replace Heltzer’s exact role but intends to expand its ESG and sustainability team over the coming months.

Chris Schelling is leaving Texas Municipal Retirement System to join nascent investment firm Windmuehle Funds, reports Institutional Investor. Schelling recently guided us through Texas Muni‘s plans to back more European emerging managers.

Dig deeper

Institution: The State Pension Fund of Finland
Headquarters: Helsinki, Finland
AUM: €20.59bn
Allocation to alternatives: 10.8%
Bitesize: €10m-50m

The State Pension Fund of Finland boosted its allocation to private equity from 5.0 percent to 5.6 percent between September and December 2019, according to the pension’s 2019 annual report.

The €20.59bn Finnish public pension fund also allocates to two other alternative asset classes. Real estate makes up 3.60 percent of the pension’s portfolio with infrastructure making up a further 1.9 percent.

For more information on Finland’s state pension, as well as over 5,900 other institutions, check out the PEI database.


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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeRod JamesCarmela Mendoza and Alex Lynn.


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