Side Letter: PE retail overhaul?; Lenders get edgy; Secondaries forecast

An SEC subcommittee is recommending an overhaul of the rules governing, and limiting, retail participation in the private markets. Plus: Why fund finance lenders are getting edgy and a secondaries forecast from Greenhill. Here's today's brief, for our valued subscribers only.

They said it

“This deal could prove to be one of those watershed moments that re-activates conversations between European football leagues and top-tier private equity houses”

Sam Boor, a consultant in Deloitte’s sports business group, tells Bloomberg that CVC Capital Partners’ acquisition of a stake in LaLiga’s media rights could have significant implications for private equity.

Just happened

Retail therapy
A US Securities and Exchange Commission subcommittee yesterday brought private equity one step closer towards greater democratisation. In a Monday report, the Asset Management Advisory Committee recommended expanding retail access to private funds, including PE, private debt and private real estate, provided these investments offer similar or better returns than their public equivalents and contingent on sufficient investor protections.

The report suggested the SEC limit retail access to funds to those investors who have certain types of third-party participation – referred to as chaperones – and scrap the rule whereby closed-end vehicles holding more than 15 percent of assets in private funds are only open to accredited investors. It also advised standardised disclosure of key information, such as fees and returns, and for the SEC to ensure that retail portfolios are sufficiently diversified.

Greater retail participation in private markets has been long awaited by PE firms hungry to expand their investor bases, and certain developments over the past year or so have been encouraging. Whether the SEC follows the committee’s advice, however, will be key, with chairman Gary Gensler exploring reforms around PE fee disclosures in recent weeks. You can read more of our coverage around the democratisation of PE here.

Sharpen those elbows
GPs need to be pushy to get what they want from their fund finance relationships as a fierce battle for talent leaves clients at risk of being forgotten, panellists warned at Private Equity International’s CFOs & COOs Fall Forum last week (registration or subscription required). “I find I just can’t rely on the bank’s timeline, and I have to just keep sending emails and reminders to the banks [asking] ‘where are we?’ in this process,” said one VC CFO. “If I don’t send reminders to the banks, it will just go silent.”

The timeline has been made lengthier still by banks’ increasing caution, partly driven by the desire to avoid a repeat of the credit line fraud allegedly perpetrated against Silicon Valley Bank last year. CFOs on the panel reported being offered shorter-tenor credit lines, which took longer to secure due to increased scrutiny from lenders.

“I was used to the bank… responding and getting my answers within a week to a week and a half,” said one PE CFO. In a recent deal, though, “it was a process of three to four weeks for their credit committee and their legal [departments], [which] are really taking their time and really scrubbing some of the sub docs”.

A penny (minus 20%) for your thoughts
The issue of how to tax carried interest has come under the spotlight in recent months. Panellists at last week’s CFOs & COOs Fall Forum noted that proposals to lengthen hold periods related to taxing carry could affect the continuation fund market. With carry under fire on this and several other fronts, we thought we’d ask GPs how such regulatory changes would affect their operations. If you have a spare couple of minutes, please take our anonymous survey here.


‘Big Bang’ theory
The UK government’s push to get pension funds into long-term, illiquid assets is not generating widespread support across retirement schemes and pension managers, according to a Financial Times survey (subscription required). Key sticking points appear to be concerns over cost, complexity and a perceived lack of transparent regulation. In an August letter, the UK prime minister and chancellor called for an “Investment Big Bang” among the country’s institutional investors to help bolster the country’s recovery from the pandemic (more from Side Letter here).

Secondaries forecast
Greenhill’s 17th mid-year Global Secondary Market Review, published this month, forecasts a record $90 billion-$100 billion of transaction volumes for the year on the back of sustained GP-led activity and a rebound in large LP portfolio sales. Here are some key takeaways from the report:

  • The average high bid in the first half across all strategies was 92 percent of net asset value, up from 82 percent in H1 2020.
  • Continuation funds accounted for 57 percent of volume in the first half.
  • North American funds accounted for 66 percent of the market, followed by Europe at 20 percent and Asia-Pacific at 7 percent.
  • Half of the volume involved funds/assets of 2012-vintage or younger.
  • Just 4 percent of volume came in the form of structured offerings, such as preferred equity and NAV-based loans.

Today’s letter was prepared by Alex Lynn with Rod JamesCarmela Mendoza and Michael Baruch