Schrödinger’s PE exec
It’s no secret that private equity’s heady fundraising has left many executives feeling like they need to be in two places at once – what may come as a surprise, however, is that some are achieving exactly that. One senior fundraiser told Side Letter over lunch this week that due to time constraints, they’ve sometimes begun scheduling calls to partially overlap with one another. “I can have one going on my computer and one on my phone,” they said. “My team keeps notes while I’m speaking on one call, and I can switch to the other when I’m needed.”
This strategy might not take off industry-wide just yet. Still, it’s indicative of the extreme time and resource pressures facing those in a fundraising capacity as a result of PE’s $1.2 trillion super cycle – as well as a creative way to get more hours out of the work day.
KKR’s fundraising potential
KKR is feeling the fundraising pinch less than most. That was one takeaway from its Q1 earnings call this week, with IR head Craig Larson noting that the firm’s strategy of raising individual pools of geography-specific capital, rather than global vehicles, enables it to “maximise [its] fundraising potential”.
“It’s worth highlighting the regional approach we’ve taken in our traditional private equity business with individual funds across the Americas, Asia and Europe, instead of having a single global fund… it allows us to diversify our carry pools, reduces our vintage risk across these funds and importantly, we’re less susceptible to the tone of the fundraising environment at a single point in time.” KKR had raised $7.1 billion for its latest European PE fund at the end of March, exceeding its 2018-vintage predecessor already. The firm raised $26 billion company-wide in the quarter.
The PE portfolio was marked down 5 percent in Q1, “which was right in line with a decline of the MSCI World”, Larson noted, adding that over the last 12 months the firm’s PE portfolios were up 19 percent – 800 basis points ahead of the MSCI World Index.
Sharing the wealth
Partners Group has joined a growing list of firms implementing employee ownership across its portfolio companies, our colleagues at New Private Markets report (registration required). All employees of German toymaker Schleich have been able to invest in the business, the firm wrote in its annual Corporate Sustainability Report. The initiative is part of the Swiss firm’s Stakeholder Benefits Program, which launched in 2020 during the height of the pandemic and has concluded its pilot phase. The programme will re-invest a portion of achieved profit growth for the benefit of its portfolio company employees and other stakeholders, and spans a range of initiatives including financial access, health and wellness and family support.
The plan, according to chairman of sustainability André Frei, is to formalise and implement the programme across the rest of the firm’s portfolio in “a multi-year effort” that would involve a tailored approach to each company.
Sharing upside with portfolio company employees is steadily gaining traction. KKR, which has done this in several of its North American companies, said it will do so for the first time across every majority-owned company in its $19 billion North America Fund XIII. Ardian has been doing this too, across its buyout and expansion portfolios. And with more than 60 GPs, pension funds and public companies having already signed up to the Ownership Works non-profit this year, expect more firms to share the love.
Gloves are off
Opinions over the US Securities and Exchange Commission’s proposed private funds shake up are beginning to roll in. One of the latest to publish a response is the Securities Industry and Financial Markets Association, an industry body representing members with more than $45 trillion in assets under management.
In a 77-page letter drafted by legal counsel Mayer Brown, SIFMA said the measures proposed would “harm investors” by increasing the cost of accessing private funds and limiting their ability to invest in strong-performing funds. The rules would also act as a barrier to entry for new sponsors, SIFMA argued, maybe even forcing consolidation among smaller managers. The letter also questions whether the SEC is overstepping its jurisdiction because it lacks the statutory authority to introduce rules such as the blanket prohibition of certain sponsor actions and needs “clear and unmistakable” permission from Congress to introduce rules retroactively.
Side Letter has spoken to a handful of major law firms whose thoughts are along the same lines as Mayer Brown’s – we suspect the SEC could have more of a fight on its hands than it anticipated.