Our favourite time of year is upon us again: today we reveal the winners of the PEI Awards 2022, the only industry awards voted on by the industry. You can find all the winners here across the more than 70 categories, including the new categories of Sports-Focused Private Equity Firm of the Year and GP-Stakes Firm of the Year. Some categories were won within a hair’s breadth; others saw the winners miles ahead of the runners up. A few notable firms are Evercore, Blackstone and Kirkland & Ellis, which swept the floor in multiple categories, as well as KKR, which won no fewer than 11 categories, including its much-publicised sale of Overhead Doors for Exit of the Year in North America – a deal that provided a windfall for company employees and which demonstrated private equity ownership’s ability to share the benefits of outsized returns – and be recognised by one’s peers for it.
China’s GP governance
China’s latest PE governance overhaul may be a positive development for the wider industry. On Friday, the Asset Management Association of China said it would require PE firms to have at least 10 million yuan ($1.45 million; €1.37 million) of paid-in capital to operate, several times higher than the current requirements. The new measures also increase the proportion of shares in the GP that senior management must own, and make it harder for them to control ownership, among others.
Though China was home to more than 23,000 PE GPs managing just above 145,000 funds as of December, the biggest impact of these measures will be for aspiring new firms, one China-focused partner at an international law firm told Side Letter. Even then, the rules are targeted more towards much smaller, opportunistic players rather than large, institutional-quality managers, the lawyer noted.
The efforts to tighten governance in this segment loosely echoes a similar event in Korea. In 2020, the country’s regulator launched an investigation into 233 PE firms following alleged financial frauds at several hedge funds, and subsequently identified “dubious and illegal business practices” at several GPs. While alarming, those headlines did not tell the full story. Korea’s PE market is ostensibly divided into two distinct segments: a larger market populated by well-established brand names, and a less transparent segment comprising hundreds of ‘mom-and-pop’ shops targeting the country’s retail investor base.
The bottom line with this China overhaul is none of those reading this are likely to feel a negative impact; rather, a reduction of smaller entrants may even benefit larger, more internationalised GPs from a competitive and reputational standpoint.
Carbon Equity, a digital platform that links individual investors to climate-focused venture capital funds, is back in the market with its sophomore fund of funds, per our colleagues at New Private Markets (registration required). Climate Tech II is seeking €75 million to back seven to 10 climate-focused venture funds, with additional capacity for co-investments. The minimum investment size is €100,000, which it expects to bring down to €50,000 later this year; target returns are between 2x and 2.5x.
“We’re the impact alternative to Moonfare,” Jacqueline van den Ende, chief executive of Carbon Equity told NPM, noting that she expects AUM to reach €1 billion over the next five years. The firm’s debut fund of funds vehicle held a final close on €41 million in December, exceeding its €25 million target.
Potential investors express interest in the fund through personal connections with Carbon Equity’s team or via the platform’s website. The onboarding process includes a half-hour phone call with the investor relations team to “build trust, discuss their appetite and confirm they understand the risk and illiquidity of an investment”, van den Ende said. “A minority [of commitments] are no-touch interactions, but our hope or expectation is that that will shift to more no-touch interactions” as the minimum is lowered to €50,000 and the brand gathers more trust and familiarity in the market.
Today’s letter was prepared by Alex Lynn with Adam Le and Carmela Mendoza.