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Side Letter: Montana’s exclusive survey; Probitas’s HK departure; CPP’s region heads

Investors no longer seem interested in consolidating GP relationships amid a flurry of fund launches. Plus: The only remaining senior executive has left Probitas in Hong Kong and CPP Investments has named region heads for Europe and Asia. Here's today's brief, for our valued subscribers only.

They said it

“In terms of investing in resilience, as a general rule, it is not an investment proposition that makes money and the opportunities are not really there.”

Martijn Wilder, co-founder of Pollination, an investment and advisory firm specialising in climate change, tells affiliate title Infrastructure Investor that more investors will up their focus on resilience and adaptation in the next 12-18 months (registration required).

Just happened

crowd of people in an 's' shape

PE’s a crowd

Although some investors are firm believers in the merits of consolidating manager relationships to reduce fees and bolster returns, doing so appears to be easier said than done. According to the latest annual investor survey from Montana Capital Partners, shared exclusively with Side Letter, 59 percent of LPs have added GP relationships in the past 12 months, with the majority of those expecting to make further additions in the next year.

“[The trend] is even more noteworthy given the faster re-up pace among many GPs, which forces some LPs to focus on their most important relationships,” Montana noted. Half of respondents have also increased their allocation to PE in the past 12 months, and 36 percent expect to do so in the coming year.

With fund launches coming thick and fast, as GPs seek to capitalise on insatiable appetites for PE and a steady stream of distributions needing to be put back to work, LPs are unlikely to find many opportunities to streamline their relationships in the year ahead. On the contrary, Side Letter is hearing that the number of firms that are either in market, or that are expected to come back to market, with funds next year is prompting concerns that investors will slash ticket sizes to accommodate every opportunity without breaching annual deployment limits.

Probitas takeaways

It seems to be a popular week to publish research findings, with global placement firm Probitas also releasing a survey of 71 institutional investors on Tuesday. Here are some highlights:

  • The proportion of LPs that were under target and actively committing to PE fell 10 percentage points to 18 percent over the past year.
  • Investors prioritising established relationships with fund managers soared to 51 percent, compared with 10 percent last year.
  • Some 75 percent will mostly focus on evaluating re-ups, compared with 65 percent of investors last year.
  • The US was by far the most appealing market, with investors particularly attracted to buyouts and growth equity.
  • The proportion of investors attracted to China plummeted from 65 percent to 44 percent, and appetites for Southeast Asia almost halved from 31 percent to 16 percent.
  • Pricing and competition for too few assets are the biggest concerns for investors.

While we’re on the subject…

Last month, Wanda Xu, a former vice-president at Probitas in Hong Kong and its only senior executive in the city at the time, left the firm, according to regulatory filings. Xu, who spent four years at Probitas, is understood to have joined China-focused GP Nexus Point in an investor relations capacity. Her departure follows that of Asia head Katie Chan in March and Chan’s predecessor, Edwin Chan, in 2019. Xu is the latest in a string of Asia-based placement agents to have moved in-house during the pandemic, as a tougher fundraising environment for Asian GPs seemingly lowers the opportunity cost for those involved.

Essentials

CPP’s region heads

Canada’s CPP Investments has unveiled two major regional promotions, per a statement. Maximilian Biagosch, who was formerly global head of value creation, has been appointed senior managing director, Europe regional head and head of direct PE in London. Agus Tandiono, based in Hong Kong, has been named senior MD, Asia regional head and head of fundamental equities Asia. CPP’s former APAC head Suyi Kim was named global head of PE in July, replacing Shane Feeney, who left the pension in June to become global head of secondaries at Toronto-based Northleaf Capital Partners.

SamCERA’s limits

Another day, another US pension testing the limits of its PE allocation. The $5.6 billion San Mateo County Employees’ Retirement Association has a 7.8 percent exposure the asset class, north of its 6 percent target and nearing the upper end of its 4 percent to 8 percent allocation range, according to documents from Tuesday’s quarterly meeting. Venture capital alone sits a full 2 percentage points above its 1.2 percent policy target and accounts for about 40 percent of the PE portfolio. PE has delivered a 23.49 percent net IRR since inception, 575 basis points above the same cashflow invested in the Russell 3000 Total Return Index. Though near its limits, SamCERA committed $44 million to four new funds in the first half of this year. Soaring valuations and strong distributions have driven many institutions near to or above their allocations, prompting some to offload portfolios on the secondaries market in recent months.


Today’s letter was prepared by Alex Lynn with Rod JamesCarmela Mendoza and Michael Baruch