Side Letter: On CalPERS’s CIO resignation, Carlyle performance visualised, a new GP stakes investor

Shock news from California this morning: the world's eighth largest investor in private equity is once again without a CIO. Plus: a new player in the GP stakes market, Ares fundraising update and Carlyle's fund performance visualised. Here's today's brief, for our valued subscribers only. 

He said it

“Fast down and slow up: to me that’s no V. I prefer to think of it as a checkmark”

Howard Marks, director and co-chairman of Oaktree Capital Management, takes issue in his latest memo with the notion that the recovery from the current crisis could ever be considered as ‘V-shaped’, as is often posited. The contraction was fast and there are too many things slowing the pace of the recovery for it ever to come back at the same rate.

Just happened

Surprise departure

Well we didn’t see that one coming. Ben Meng (pictured), CIO of California Public Employees’ Retirement System, has resigned, per a statement from the pension issued late last night Pacific time. Alex Lynn’s report is here. In short:

  • Meng was with the pension (which is the eighth largest PE investor in the world, according to our GI 100 ranking) for less than two years. What’s most surprising is that he was gaining traction for a long-term plan to introduce more leverage into the pension’s investment strategy (details here).
  • This was not without controversy; just this week Pasadena’s city manager wrote to the pension to accuse it of “glossing over the increased risk to the plan” and marketing this change in a way that is irresponsible and “not transparent to the average member who does not have the time to watch board meetings” (subscribers to sister title Buyouts can read more here).
  • There is no specific reason given for Meng’s resignation, save for a desire to: “focus on my health and on my family and move on to the next chapter in my life.”
  • The search is on for a successor and the question for private markets folk is whether the chosen one continues in the same path: to use leverage to allocate more to buy “better assets and more assets”, as Meng put it. One note on that front is that this was not a Meng-originated plan: it was first discussed in a 2017 off-site meeting.

Earnings watch: Ares

Ares Management raised $5 billion across its private equity funds in the second quarter, comprising the final close on its latest special opportunities fund and a first close on its sixth flagship corporate PE vehicle, the firm said on an earnings call yesterday (press release). Ares’s goal is to raise $10 billion between these two funds in what it calls an “attractive environment” for stressed and distressed investing, chief executive Michael Arougheti said.

Raising the stakes

There’s a new entrant to the GP stakes market: RidgeLake Partners. A partnership between PA Capital and Ottawa Avenue Private Capital, RidgeLake is starting off with $500 million from the two firms’ parent/affiliate organisations (New York Life Insurance Company and RDV Corporation, respectively) and is understood to be raising third-party capital on top. The strategy targets firms in the mid-market with up to $10 billion in AUM. PitchBook data suggest this is a good call – more than 400 GPs have raised between $2 billion and $8 billion in the past decade without any backing, and there are only a few GP stakes funds that specifically target this part of the market.

We did the math

Performance watch. Today, we examine Carlyle Group’s private equity funds in the return of a special series of Private Equity International‘s Performance Watch, which compares the firm’s Q2 2020 figures with those from the prior two quarters. As will likely be a recurring theme in this series, Carlyle’s corporate private equity appreciated 13 percent in the second quarter as public markets rebounded and credit spreads tightened. The effect was especially pronounced in the performance of its 2014-vintage Carlyle Partners VI and Carlyle Europe Technology Partners III. See the interactive version.

Correction

In Tuesday’s Side Letter, we included an erroneous chart relating to Florida Retirement System Trust Fund’s asset allocation. Please click here for the correct chart.


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

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