Side Letter: Permira’s secondaries deal, mega-fund concerns, PE-backed defaults

Have mega-funds lost their allure? Here’s today's brief, for our valued subscribers only.

Just happened

Mega-concerns

 

Credit: Göran Ekeberg

Blackstone may have managed to raise $26 billion, but mega-buyout-funds may be losing their sheen. On the fringes of SuperInvestor in Amsterdam last week, several limited partners said that high valuations on entry, a dearth of acquisition targets and onerous fees have made it necessary to commit capital elsewhere. Country- and sector-specific funds, and GPs with an operational focus are among the beneficiaries. “In some parts of the market the premium for illiquidity is not there anymore, I believe,” said Daniel Winther (pictured), head of private equity and infrastructure at Sweden’s Skandia, while another LP said co-investments were the only way to generate outperformance.

Genesys exodus

Permira has become the latest blue-chip manager to run a GP-led secondaries process on one of its funds, sister title Secondaries Investor is reporting. The UK firm is working with advisor Lazard to take software provider Genesys out of its 2006-vintage €9.6 billion fund into a continuation vehicle. More details here. With expectations GP-initiated deals will overtake LP-transfers in the secondaries market as early as 2021, expect more brand-name GPs to tap secondaries buyers for replacement capital.

Bruebaker’s homegrown successor

After a year-long planning and search effort, Washington State Investment Board has appointed a replacement for long-term chief investment officer Gary Bruebaker. His direct report Allyson Tucker will assume the role on 1 January. Tucker joined the pension in 2009 and heads its risk management and allocation team. Bruebaker will remain engaged with the pension system until April 2020. “My goal for SIB is to be not necessarily the most liked but certainly the most respected investor in the LP base,” he told us last summer.

Essentials

PE’s default setting? The life cycle of private equity portfolio company: buyout, synergy realisation, acquisition blitz and… default? A report by analytics firm Credit Benchmark shows private equity-backed businesses have a 6.01 percent default probability on leveraged loans compared with the 2.36 percent probability for publicly traded below-investment-grade businesses, per this Wall Street Journal story (paywall). In another sign of the times, a Morgan Stanley report showed more than half of LBO-acquired companies have a debt-to-EBITDA load of more than 6x.

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

Dig deeper

An open view of Texas. Texas County and District Retirement System has agreed to $110 million-worth of private equity commitments, including $50 million to OpenView Venture Partners VI. Here’s a breakdown of the $32.11 billion US pension’s total investment portfolio. For more information on TCDRS, as well as more than 5,900 other institutions, check out the PEI database.

She said it

“If you take specific examples you can always find specifics where it went bad, but is that related to private equity ownership or is that related to the underlying sector?”

Eurazeo chief exec Virginie Morgon talks to Bloomberg about the demise of the US retail sector and whether Senator Elizabeth Warren’s criticism of PE is justified.


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Today’s letter was prepared by Isobel MarkhamAdam LeRod JamesCarmela Mendoza and Preeti Singh.


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