Side Letter: Pandemic lessons in responsibility, Vista LP withdrawal, Moonfare move

Four lessons that private equity firms learned during the pandemic. Plus: An LP backs out of a Vista fund; Moonfare taps UBS and bfinance for new hires; Dyal ups its stakes; the largest firm you have never heard of; and more. Here's today's brief, for our valued subscribers only.

They said it

“Private markets are around five years behind public markets.”

Stephen Barrie, deputy director of ethics and engagement at the Church of England Pension Fund, tells Responsible Investment Forum: Europe delegates that when it comes to assessing and reporting carbon footprint, private markets managers are lagging.

Just happened

The covid-19 responsibility wash-up
One of yesterday’s Responsible Investment Forum: Europe sessions dealt with the role of private equity in the covid-19 crisis. Here are four lessons learned:

  • “Free” money: State programmes to keep businesses afloat during lockdowns – most notably the US Paycheck Protection Program – were a point of debate internally and externally. “Some saw it as free money,” said Insight Partners’ deputy general counsel and chief compliance officer Andrew Prodromos. “It was a programme designed to help companies that were hardest hit; we saw it as mom and pop, small businesses, restaurants… We viewed this as a significant regulatory risk and reputational risk. We took the perspective early on that this money was not for us and encouraged portfolio companies to not take the money.” Jordan Company partner Lisa Ondrula said her firm took the same line: “We were getting questions [from portfolio companies] constantly, because individually they thought they met the criteria. There were interesting and sometimes difficult conversations.”
  • Due diligence rethink: Business resilience and continuity were always parts of due diligence; they have become priority DD checklist items in light of the pandemic, said Prodromos. Also on DD: one talking point has always been how a company fared through the GFC. To this can now be added how it responded to the covid crisis, including “bigger picture” non-financial aspects, such as how it treated employees.
  • Internal travel rethink: James Arnell, partner at Charterhouse Capital Partners, noted “some surprise” at just how much cost was coming out of businesses as a result of not being able to travel. Cutting down non-client facing trips will be both a financial measure and also be “good for management longevity, as being in the air all the time takes its toll”, he said.
  • Don’t get comfortable yet: With news of a potentially effective vaccine, thoughts inevitably turn to the post-covid era. But there will be just as much uncertainty coming out of the pandemic as there was going in, notes Prodromos. Focus on employee wellbeing and a maintain “steady regular cadence of communication”, he advises.

Vista LP backs out
The New Mexico Educational Retirement Board has decided not to follow through with a $100 million commitment to Vista Equity Partners’ third credit fund, according to a report by Business Insider that was subsequently confirmed by sister title Buyouts. News of the decision follows Vista founder Robert Smith’s admission in October that he evaded millions of dollars in federal income taxes. Bob Jacksha, New Mexico ERB’s chief investment officer, told Business Insider “we elected not to close on the investment”, but declined to comment on the reason.

  • Read our comment on why Vista investors cannot ignore Smith’s tax troubles.

Moon landings
Germany’s Moonfare, a private equity fundraising platform that enables investors to commit as little as €50,000 to blue-chip PE funds, has made three big hires. The head of UBS Wealth Management’s private equity team Winson Ng is joining as chief investment officer, per a statement from the firm. Sweta Chattopadhyay, former head of private equity at bfinance, has joined as an investment director, and Ed Cotton, head of business development at private markets tech firm Delio, joins as partnerships manager. Moonfare now has more than €450 million in assets under management. Read more about its strategy in this deep dive into retail investors.

Dyal ups the stakes
Dyal Capital Partners has made two more investments. It’s acquired a passive minority stake in TowerBrook Capital Partners, according to a statement from TowerBrook, joining another minority investor, Wafra Strategic Investors, which has been backing the firm since 2015. It has also invested in Iconiq Capital, which has about $43 billion in assets under management, according to Bloomberg. Dyal is in market with its fifth fund, which is expected to close on around double its initial target.


Here be giants
It is not unusual to find a giant PE firm in China that you haven’t previously heard of. For Side Letter, Shenzhen’s China Merchants Capital is exactly that. According to data provided by the firm, it manages more than $41 billion worth of PE, real estate and infrastructure AUM across 43 funds and has raised $27.9 billion of PE capital since 2015 – more than Bain CapitalCinven and Apollo Global Management (per this year’s PEI 300 ranking). This sum is expected to grow as the firm expands its product offerings to a greater number of international LPs, chief executive Rizhong Zhang tells PEI. China is awash with recondite fund managers; previous estimates put the number of firms in China anywhere between several hundred to the tens of thousands. Read more about CMC here.

CalPERS’ long-term fix
A former executive at Navab Capital Partners Bob Berlin has launched a long-term fund seeded with $1.5 billion from the California Public Employees’ Retirement System, our colleagues at Buyouts are reporting. LongRange Capital Fund I will invest in the mid-market, plans to back businesses without reference to a fixed term, and is reportedly not seeking any further third-party capital. Long-term investments is part of CalPERS’ four “pillars” private equity strategy, which was approved by the pension’s investment committee in March 2019. Long-term funds are gaining in popularity as one of the methods GPs are employing to hold onto assets for longer.

Investcorp builds in the US
Investcorp has brought on Nicholas McGrane as a managing director in its North American Private Equity Group to lead its post-acquisition efforts in the region. He joins from Evolent Health, where he was executive vice-president, corporate performance and chief financial officer. Investcorp has deployed more than $22 billion in transaction value into around 70 deals in North America.

Dig deeper

Institution: Virginia Retirement System
Headquarters: Richmond, US
AUM: $85.1 billion
Allocation to alternatives: 24.2%

Virginia Retirement System approved $308 million-worth of commitments to a pair of private equity funds at its October 2020 board meeting, a contact at the pension informed Private Equity International.

The commitments comprise $255 million to GTCR XIII and €45 million to HIG Europe Capital Partners III.

GTCR XIII held a final close in November 2020 at $7.5 billion, whereas HIG’s third Europe-focused buyout fund remains in market targeting €1 billion in equity capital.

The $85.1 billion US public pension has a 13 percent target allocation to private equity, which currently stands at 13.5 percent.

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

Today’s letter was prepared by Toby Mitchenall with Isobel MarkhamRod JamesCarmela Mendoza and Alex Lynn.

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