Side Letter: PE prices in a crisis; KKR’s $4bn addendum; SPACs under attack

Key developments in how Russia's invasion of Ukraine is impacting the alternatives industry. Plus: KKR is seeking an additional $4 billion for its latest long-hold fund and why insurers are taking a dim view of SPACs. Here's today's brief, for our valued subscribers only.

They said it

“This is not about personal beliefs, it’s about what is in the best interest of all parties”

Susanna Gibbons, managing director at the Minnesota State Board of Investment‘s investment advisory council, makes the economic case for diversity, equity and inclusion at last week’s quarterly meeting

Just happened

How the PE industry is reacting to the Ukraine crisis
Institutional investors and fund sponsors are assessing the impact of Russia’s invasion of Ukraine on their portfolios. Here are some of the latest developments:

  • In the US, House Republican Leader Jim Durkin said he plans to file legislation that would require Illinois to divest in all Russian businesses. New Jersey also plans to introduce a similar bill, The Wall Street Journal reported, while Colorado’s Public Employees’ Retirement Association said on Friday it work to terminate contracts with any state-owned Russian companies “directly or as sub-contractors”.
  • Australia’s Future Fund will wind down its remaining exposure to Russia. Around 0.1 percent of the SWF’s or around A$200 million ($144 million; €129 million) is held in companies listed on the Russian stock exchange. It is not invested in any Russian GPs, according to its website.
  • GPs PEI has spoken to since Thursday say that when it comes to their portfolios, they’re most worried about valuations of underlying companies taking a hit from geopolitical uncertainty. Some direct consequences to the portfolio could also come in the form of higher energy prices, potential supply chain disruptions and capital market developments, a spokesperson from Partners Group told Side Letter.
  • The secondaries market could have a role to play in providing liquidity to investors seeking to reduce exposure to Russian on Ukrainian assets, though pricing and finding buyers will be tricky, our colleagues at Secondaries Investor report. GP-led fund restructurings in the region have happened before: Ukraine-based Horizon Capital is understood to have run a multi-asset GP-led restructuring last year backed by capital from ICG.
  • There may be a pause in lending activity in the private debt market. Risk may be being priced differently and managers will be making inevitable comparisons between public and private markets. There may even be another flurry of fundraising for the dislocation funds of the type that popped up in the wake of the coronavirus pandemic, affiliate title Private Debt Investor reports.

A few billion more
KKR is aiming to raise a further $4 billion for its second long-term fund to bring the offering’s total haul to $16 billion, affiliate title Buyouts reports (registration required). If KKR reaches $16 billion, it will have raised the market’s single largest long-life vehicle. Its predecessor, the $8.5 billion 2017-vintage KKR Core Platform I, had generated a 1.6x net multiple and 28.4 percent net IRR as of September.

Core funds are rising in popularity as firms and their investors seek exposure to attractive assets for longer periods of time. Such vehicles have raised nearly $50 billion since 2016, with Blackstone, Carlyle GroupCVC Capital Partners and KKR among those who have raised funds dedicated to the strategy, as PEI noted last year. Brookfield Asset Management said in November it was also gearing up to enter this strategy.

Making an IMM-pact
Korean alternatives shop IMM has gathered almost $500 million for a growth equity fund targeting global businesses with a connection to the development of electric vehicle batteries, PEI reports this morning. Korea Battery & ESG Fund held a first close late last year with capital from domestic investors and is anchored by Korea’s LG Chem. IMM will consider raising up to $600 million if LP appetite permits.

Private investment into the electric vehicle sector appears to be on the up: European tech investor Verdane made its first deal in this sector this month and EQT signed an agreement this week to acquire EV charging operator InstaVolt through its infrastructure platform, according to affiliate title New Private Markets (registration required). The strategy’s growing appeal is unsurprising given that it sits at the confluence of some of the industry’s hottest trends: tech and climate investing. The latter has grown apace in recent years, with Apollo Global Management launching a sustainable investing platform last week to invest $100 billion in energy transition assets over the next decade.

They did the math

SPACs under attack
Special Purpose Acquisition Companies continue to lose their lustre. A fourfold increase in US shareholder class action lawsuits relating to these vehicles is causing some insurers to restrict coverage, according to law firm RPC. The number of class actions relating to SPACs rose to 33 in 2021-22, up from just eight in 2020-21.

This rise has been attributed in part to shareholders feeling misled when companies underperform after going public, with pressure on directors to close deals in some cases resulting in projections being exaggerated and shares to be artificially inflated. Such vehicles, which exploded in popularity over the past two years and won fans in the PE community, had already lost some momentum towards the end of last year amid greater regulatory scrutiny and mixed results. More here.


Ham Lane highlights
Hamilton Lane last week published its 2022 market overview. Here are some notable findings based on analysis of the firm’s database of 45,000 funds:

  • PE continued to outperform the public market in 2021, generating an extra 83 cents per dollar invested since 2017
  • The “15/15 club” – a group of 15 buyout managers targeting $15 billion or more this year – could alone raise in excess of $300 billion
  • A 1 percent increase in high-net-worth allocations would increase the size of private markets by 10 percent

Dig deeper

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

28 February

2 March

3 March

4 March

Today’s letter was prepared by Alex Lynn with Adam LeRod James and Michael Baruch