Side Letter: PE’s $1.2trn squeeze; TPG’s climate watershed; Moonfare’s Singapore launch

Monday is a bank holiday in the UK and Hong Kong – Side Letter will return to your inbox on Tuesday. Here's today's brief, for our valued subscribers only.

Just happened

PE’s fundraising super cycle
News flash: private equity firms are coming back to market with larger funds, more quickly. Side Letter readers will know this already of course, but this dynamic is laid bare in Private Equity International‘s latest quarterly fundraising download, out later today. As of 20 April, the PE industry was seeking $1.16 trillion across 3,801 funds. For context, they were seeking just $690 billion across 3,114 funds at the start of April last year. Mega-funds are at least partly to blame: the top five funds in market are seeking almost as much ($114 billion) as the top 10 funds one year prior ($121 billion).

With such a staggering increase in appetites, it’s little surprise LPs have been struggling to cope with the scale and pace of fundraising in recent months – an emerging trend PEI explored in its March Deep Dive. Responses to this problem have included smaller cheque sizes or prioritising the best-performing managers over those with middling performance.

The potential impact on LP returns could be twofold: not only is a mountain of dry powder likely to increase competition and therefore entry multiples, a concentration of mega-funds in the portfolio relative to traditionally higher-performing, less-established managers, could also skew performance. “LPs expect different returns from different market segments,” Niklas Amundsson, a partner at placement firm Monument, tells Side Letter. “Allocations to mega-funds do not have the same return underwritings as emerging managers. Hence, return expectations are already somewhat adjusted, given where the capital is currently flowing.”

TPG’s watershed moment
TPG formally disclosed the final close of The Rise Climate Fund yesterday on its $7.3 billion hard-cap. Our colleagues at New Private Markets have called the raise something of a watershed moment (registration required). For TPG, it is the largest vehicle on its $14 billion Rise impact platform; for the market as a whole, it is the largest climate-focused private fund to hold a final close… for the moment, anyway. Two points of note from Wednesday’s news:

  • The firm has already “committed” $2 billion from the fund into growth stage businesses, including solar tracking company Nextracker, and  North America’s largest originator of carbon and environmental credits via the merger of Bluesource and Element Markets.
  • The fund has 28 corporates among its LPs ranging from Nike, to General Motors to Sumitomo Mitsui Banking Corporation (fuller list here). Representatives from these will meet next month “to share practical insights and progress on decarbonization strategies” at the first of what it calls the TPG Rise Climate Coalition meetings.

Investing in times of war
Think closing a PE deal is challenging in the best of times? Spare a thought for Horizon Capital, the largest PE firm in Ukraine, which yesterday disclosed its first investment since Russia’s invasion. The firm invested an undisclosed amount in digital engineering company Miratech via its 2017-vintage, $200 million Emerging Europe Growth Fund III, according to a statement. It’s unclear how much of this latest deal had been underway prior to Russia’s invasion and to what extent these events interrupted the process; that the firm was able to get this deal over the line at all, however, is no less than impressive. The firm, by the way, is seeking $250 million for Horizon Capital Growth Fund IV, according to PEI data.

Essentials

Moonfare lands in Singapore
Fundraising platform Moonfare established an outpost in Singapore this week, according to a Thursday statement. The group initially outlined its aspirations for doing so in an interview with us in 2020. Asia is a logical step for an organisation targeting high-net-worth investors, with the region posting a 12 percent rise in the number UHNW individuals last year alone. A number of private markets participants have flocked to the region in pursuit of this burgeoning demographic as a result.

ESG: Start with why
Firms weighing ESG goals should remember the most important lesson: know your own limits. That’s according to a panel of experts on an April webinar hosted by affiliate title Regulatory Compliance Watch (registration required). “You don’t have to be an expert,” Alexandria Fisher, sustainable finance manager at the Global Risk Institute in Finance in Toronto, told delegates. “Concentrate on risk in your portfolios, or your portfolio companies. This is a process. You should look for small steps, rather than big pivots.”

Fisher was joined on the webinar by Seward & Kissel partner Debbie Franzese, who noted that the US Securities and Exchange Commission is using its exams and enforcement divisions to make sure firms are keeping the promises they make. Her advice? “Start where you are,” she says. “You don’t want to over-promise. If anything, you probably want to be under-promising and over-delivering.”

When thinking about ESG policies and procedures, it’s important to show your work, Franzese added. If a fund you’re advising thinks it can help reduce carbon emissions, explain why the fund thinks that. Disclosure works in the inverse, too. If you’re offering a real estate fund, for example, but you’re not worried about flooding, explain why.


Today’s letter was prepared by Alex Lynn with Toby Mitchenall and Carmela Mendoza.