Side Letter: Moulton’s bleak prognosis, Spain pain, Bridgepoint credit gain

The monumental intervention that governments have had to make to keep business afloat amid lockdown will be a nightmare to unwind, but will also provide an opportunity to reshape economies.

They said it

“It’s certainly disturbing to look at yourself for hours and hours a day”

TPG founding partner and co-CEO Jim Coulter in a Bloomberg webcast on Wednesday reflects on the downside of 60 video calls a week

Just happened

‘Every reason to be concerned’

Jon Moulton
Moulton: be afraid

The image of Jon Moulton, pioneer of UK private equity, answering questions from a UK government select committee will be – for private capital professionals of a certain age – a throwback to 2007. Back then Moulton and other prominent buyout execs faced questions from suspicious politicians about PE, wanting to know a) what it was up to and b) whether it needed to be taxed more. Things were different at yesterday’s session; Moulton was giving his view, alongside “BRIC” economist Lord O’Neill and the director general of the British Chamber of Commerce, on the economic fallout from the coronavirus. Moulton has always had a thing for debt (remember the animated ad he took out at Piccadilly Circus?), and corporate debt was very much on the agenda yesterday. “The scale of the problem is going to be enormous,” he said about the ability of companies to repay government rescue loans. “There will be a lot of rescheduling of debt, that’s clear. There is every reason to be concerned about it.” Raising a point obvious to some, he noted that corporate bankruptcies will rise “quite sharply in the course of the next year, and may persist into the future, depending on the strength of the economy and interest rates.”

Lord O’Neill had his own thoughts on the government’s loan schemes: “I’m a huge fan of the furlough scheme, but I personally would not have approached the company support scheme through debt provision […] I would have had an approach that was more grant based and tying it very close the furloughing for a two to three month period. And for those that really needed it for a longer period, considered an equity injection rather than this very wide scatter-gun debt approach, because I can’t imagine how that many companies are going to be able to pay a lot of it back.”

  • Also on the agenda: How this crisis should spawn a new government-owned investment initiative akin to either the UK’s CDC Group or Singapore’s Temasek. Said Moulton: “I’m a fan of doing some industrial strategy. It ain’t working the way it is; productivity’s going nowhere.”
  • Earlier this week Moulton indicated by way of a Mail Online article that he would not be raising another PE fund (“I’m damn near 70”). The industry will be a little duller for it. Read our award-winning 2015 profile of him, written in the wake of the painful loss of UK parcel business City Link.

They did the math

Deal defaults ahead. Default rates among buyouts inked between 2006 and 2008 were near to 30 percent, according to PE data platform CEPRES. How will this crisis compare?

Essentials

HQ: Asia calls

Scoop: HQ Capital wil announce later today that it has raised $750 million against a $600 million target for Auda Capital VIII, its largest fund of funds vehicle. The German investor has earmarked more than half of the fund, which is already 15 percent invested, for Asia. Read more about its Asia push here.

Out of credit

“Passionate about credit” is the concluding sentiment in a video still hosted on the EQT website here. It has sat a little oddly since January this year, when the firm confirmed that EQT Credit was the subject of a strategic review. The unit is being acquired by Bridgepoint, the owner of Side Letter publisher PEI Media.

Pain in Spain

More than 80 percent of Spanish PE firms surveyed by Bain & Co between April and May expect their investment periods to extend to up to three years because of covid-19. Other findings from the study:

  • On average, firms expect declines in valuation of between 10-20 percent
  • Nearly half do not expect economic recovery to return to pre-crisis level before 2022.

Dig deeper

Institution: Pennsylvania Public School Employees’ Retirement System
Headquarters: Harrisburg, United States
AUM: $55.10 billion
Allocation to alternatives: 32.60%

Pennsylvania Public School Employees’ Retirement System has agreed to commit $200 million to Whitehorse Liquidity Partners IV and $125 million to Bridgepoint Development Capital IV, according to its June Board meeting minutes.

The $55.10 billion US public pension has a 16.0 percent target allocation to private equity which currently stands at 12.90 percent.

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


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


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