Side Letter: Oakley’s multi-billion raise; LPs’ negotiating power; GP NAV delays

Oakley's latest fund close is almost double the size of its predecessor. Plus: How the fundraising landscape will evolve in 2023 and private equity's valuation delays could go on for another half year. Here’s today's brief, for our valued subscribers only.

Just happened

Oakley goes against the grain
If fundraising is as challenging as market sources have been saying over the past year, someone must have forgotten to tell Oakley Capital. The pan-European growth firm has held the final close on its fifth flagship fund, collecting nearly double the amount of its predecessor vehicle, according to details shared with Side Letter. Oakley Capital V closed on its €2.85 billion hard-cap and welcomed 25 new LPs to its investor base. Oakley’s funds have delivered a gross realised money multiple of 4x and a 67 percent gross IRR since inception, according to the firm.

Speaking to Side Letter about how the firm would tackle deploying twice the amount of capital as its previous fund, partner Rebecca Gibson said it would do three things this time around: investing in a few more deals (its previous fund backed around nine-to-10); slightly increasing its ticket size on transactions; and investing in more add-ons.

While an increased cost of borrowing could impact the universe of buyers when it comes time to exit assets, Oakley’s use of leverage as a driver of returns has been traditionally low, Gibson said: leverage has contributed 2 percent of overall realised returns, while 48 percent of value creation has been generated by organic growth and 15 percent by buy-and-build activity.

“We’re often buying founder-led businesses where we want to go in cautiously at the beginning, really understand the business, and then maybe over time add leverage in,” she said, adding the firm sometimes buys a business with all equity and then brings leverage in over time. We’ll have more from our conversation with Gibson in the coming days.

Fundraising’s future
While we’re on the subject of fundraising, our colleagues at Buyouts have published a list of 10 ways fundraising could change this year. The full article is well worth a read (registration required). Here are a few key highlights:

  • Rethinking fund targets: In recent years, hefty step ups in fund size have become the norm. However, cash constraints are now causing some LPs to push back. This is making LPs push back on ticket sizes and recommending trims.
  • LPs gaining clout: One positive for LPs in a tricky fundraising environment is the potential for negotiating power to swing back in their favour. Watch for things like fee breaks, LP-friendlier key-person arrangements, tougher no-fault divorce and other end-of-fund control issues, as well as better reporting and transparency processes.
  • Climate’s resilience: The rising popularity of ESG and net-zero policies means climate and energy transition funds may remain a bright spot in fundraising. There is also a growing perception that major secular drivers are behind investing in sustainability themes.

HPS’s NAV financing push
Competition in the NAV lending space is heating up with the entrance of credit manager HPS Investments Partners to the strategy. Bloomberg reported in November that the firm had hired Goldman Sachs managing director James Lumby to work on providing liquidity to PE firms. Side Letter now understands that another Goldman exec, executive director Todd Hooper, is set to join Lumby. The pair will be added to the senior leadership group and the unit’s strategy will be GP/LP liquidity solutions, including NAV financing, according to a source familiar with the matter. NAV lending has garnered attention over the past year: in April, 17Capital raised €2.6 billion for its debut vehicle focusing on the strategy; this week Investec’s origination & head of secondaries Ian Wiese jumped to MassMutual where he joins fellow Investec alum Matt Hansford who focuses on NAV financing. Wiese tells Side Letter the insurer has a broad mandate and “many pots of capital” for various requirements.


Impact insights
Impact investment consultant Phenix Capital has published its 2023 Impact Fund Universe Report. Using data from more than 2,200 funds, 84 percent of which operate across private equity, private debt and real assets, the report offers insight into the last 12 months of impact fundraising. Here are some points to note, courtesy of our colleagues at New Private Markets (registration required):

  • The overall number of impact funds grew by 12 percent in 2022, while the number of funds in market increased by 45 percent.
  • The average amount of capital committed per fund jumped by 187 percent to €278 million, as the average target size reached €350 million (up 120 percent).
  • Renewables and energy access overtook climate mitigation as funds’ predominant focus.
  • Capital targeting food, agriculture and farming had the most pronounced growth, with €113 billion raised in 2022 compared with €28 billion the previous year.

Valuations: Stifel-ing activity?
The secondaries market appears largely optimistic that 2023 will see a rebound in deal activity (see Tuesday’s Side Letter for more on that). A January survey from Stifel Financial Corp and advisory firm Eaton Partners, however, suggests valuations may still prove an issue for transactions moving forward. As of 31 December, 93 percent of secondaries participants said it will still take a quarter or two for GP NAVs to “adequately capture the downdraft in public equity and transaction comparables”. Indeed, pricing for second-hand fund stakes reflects this scepticism: interests in funds traded at an average 19 percent discount to NAV last year, according to data from Jefferies.

Dig deeper

Institution: Kansas Public Employees Retirement System
Headquarters: Topeka, US
AUM: $24.46 billion
Allocation to alternatives: 24.68%

Kansas Public Employees Retirement System has made commitments of $80 million to two private equity funds, according to its January board meeting documents.

The Topeka-based public pension fund committed $40 million to TA XV and $40 million to JMI Equity Fund XI. The commitments align with KPERS’ FY 2023 pacing strategy, which proposed a ticket size of $25 million to $50 million per fund.

The pension allocates 11.47 percent of its total assets to private equity investments, amounting to $2.81 billion in capital.

For more information on Kansas Public Employees Retirement System, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Adam Le.