Side Letter: Oakley eyes multi-billion raise; NAV loan tips; Blackstone’s innovation machine

London's Oakley Capital is within spitting distance of almost doubling capital for its latest flagship. Plus: What GPs should expect when seeking NAV financing; and how Blackstone comes up with its myriad product launches. Here's today's brief, for our valued subscribers only.

Just happened

Oakley: Fund V could be almost twice the size of its predecessor (Source: Getty)

Oakley’s high Five
Oakley Capital is seeking to almost double its firepower with its fifth flagship fundraise, Side Letter can reveal. The London-headquartered mid-market firm has already raised more than the €2.5 billion target of Oakley Capital V, just four months after holding an initial close in February, according to a source familiar with the firm. Oakley raised €1.46 billion for its 2018-vintage Fund IV, PEI data shows.

The development comes a day after Oakley said it had exited its stake in cloud hosting platform Contabo, generating a 10x money multiple and a more than 100 percent IRR. The firm is using Oakley V to reinvest in Contabo, acquiring a minority stake in the company, with KKR taking majority control, according to a statement about the deal. A spokesperson for Oakley declined to comment to Side Letter about Fund V.

NAV-igating the diligence maze
Last month’s sentencing of PE executive Elliot Smerling for fraudulently obtaining subscription credit lines has also caused the NAV lending industry to think carefully about its diligence practices, our colleagues at Private Funds CFO report (registration required).

This corner of the fund finance market, which involves loans secured by a pool of assets as opposed to an LPs’ undrawn commitments, has grown apace as GPs seek to return distributions to investors and prettify IRRs before returning to market. Lender 17Capital estimates the size of the market could grow seven-fold to $700 billion by the end of the decade. Here are some things you should expect when requesting such a loan:

  • Lenders are starting to look more closely at funds’ underlying LP bases to see whether they could step in with additional capital to protect assets if needed. A substantial GP commitment is also important to ensure alignment between the sponsor, fund and LPs.
  • Some lenders are asking for detailed information on asset performance and doing site visits to meet sponsors in person – something that was not common before the fraud.
  • An existing relationship isn’t a guarantee. As one alternatives CFO who has used NAV loans told PF CFO: “It didn’t matter that we worked with them before [on other financing products]; they were more interested in drilling down on changes at the firm and making sure the people making investment decisions had the experience to be investing in the assets they were.”

They did the math

Bargains to be had?
Market uncertainty looks to be feeding through into PE and VC transaction activity. Deal value was down 7 percent year-on-year to $401.53 billion in the first five months of 2022, according to a report from S&P Global Market Intelligence. That said, by number of deals, 2022’s total of 10,017 deals announced between January and May is slightly ahead of the 9,950 deals recorded in the same period last year. Here are some other takeaways:

  • In May, PE and VC firms recorded $52.97 billion worth of deals globally, which dropped more than 30 percent from the same month last year.
  • North America deals made up about half of total deal value in May, followed by Europe at 30 percent.
  • The TMT sector was the busiest, with $17.74 billion worth of deals announced in May. That’s still down more than 40 percent from the $29.6 billion worth of deals for that sector in the previous year.

Essentials

Blackstone’s innovation machine
Ever wondered how Blackstone comes up with the nearly 60-strong range of products that have put it on track to exceed $1 trillion of assets under management in 2022? The secret, chief executive Steve Schwarzman told the Bernstein 38th Annual Strategic Decisions Conference last week, lies in the firm’s “innovation machine”, according to comments reported by our colleagues at Buyouts (registration required). “Once a year, each of our verticals in the firm have to come to a meeting with the management committee and they all have to have three new business ideas,” Schwarzman said. “And then we only allow them to do one.”

Many of these product lines – which have proliferated from 35 five years ago – are subsets of the broad categories for which the firm is known, such as PE (for example, growth equity, secondaries), hedge fund solutions (GP stakes, seeding) and credit (distressed, insurance). LPs can be open to GP expansion into new areas when a firm commits to a strategy by allocating fresh resources to it – something Schwarzman recognised in a recent earnings call, saying “our customers are constantly in our store and our shelves are full”, providing Blackstone with “a huge percentage of repeat business”.


Today’s letter was prepared by Alex Lynn with Adam LeRod James and Carmela Mendoza