Side Letter: PEI’s Future 40, KKR’s $200bn, Cloverlay’s cap raise

Who are the future movers and shakers of the PE industry? We've done the crystal-ball gazing with our Future 40 Leaders of private equity. Here’s today's brief, for our valued subscribers only.

Just happened

PE’s future leaders revealed

Who is the next Henry Kravis? A young Jeremy Coller in the making? Tomorrow’s Steve Schwarzman? We’ve looked into the future and compiled our definitive list. Introducing: The PEI Future 40 Leaders of Private Equity — our inaugural list of 40 professionals under 40 years old nominated by industry peers as individuals to watch.

They’re grouped into fundraisers, dealmakers, investors, operations and lawyers. The sooner you get to know them the better.

Earnings watch

KKR’s AUM is just a hair’s breadth from $200 billion as of 31 March thanks to $6.3 billion raised across PE, real estate and leveraged credit. The firm is reaping the benefits of its C-Corp conversion, citing a “meaningful transition” in its ownership base toward mutual and index funds and away from hedge funds and broker/dealers. Gross returns for PE over the last 12 months were 10 percent.

Essentials

Fundraising scoop! Cloverlay, a mid-market shop that invests in “adjacent private markets”, is gearing up to raise Fund II with a $400 million cap, according to market sources. The firm was founded in 2015 to invest in “small, inefficient transactions outside the scope of traditional private equity”, according to its website, through co-invests, platforms, joint ventures, fund restructurings and secondaries. The partners are all former execs from Morgan Stanley Alternative Investment Partners.

Hard hurdle. Ex-Summit Partners execs’ Equality Asset Management is offering LPs a 5 percent hard hurdle rate for its debut fund, sister publication Buyouts is reporting. A “hard hurdle” means the GP will only collect carry on returns above the hurdle – good news for LPs. The $500 million fund will also have a lower management fee than the traditional 2 percent. While a 5 percent hard hurdle is quite a departure from the conventional 8-percent-plus-catch-up most funds use, it’s not unheard of in energy and infrastructure funds and is usually seen in funds with concentrated investor bases.

Diligence due? The SEC’s $40,000 fine of Charter Capital Management and its founder Steven Bruce for breaching fiduciary duty points to a much bigger issue for PE firms: what exactly constitutes adequate due diligence? In Bruce’s case, 30 phone calls and “some Google searches” related to a $4 million investment was not enough. PE managers take note: fulfilling fiduciary duty requires more than just disclosure.

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including CloverlayKKR and Summit Partners from today’s Side Letter.

We did the math

Off a cliff. Secondaries fundraising plummeted 73 percent year on year in Q1 to a four-year low. Why isn’t this a problem? There’s a tidal wave of fund closes to come.

He said it

“I always feel that whether they like us or not, we are guaranteed to be the asset management industry’s biggest customer.”

Hiromichi Mizuno of the Government Pension Investment Fund of Japan tells PEI why he believes GPs will want to align with the pension.


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