Side Letter: PE’s dry powder keg?; GA’s wealthy LPs; ILPA’s template tweaks

An insight into the amount of dry powder held by private equity's blue chips. Plus: General Atlantic taps wealthy individuals and ILPA tweaks its DE&I template. Here's today's brief, for our valued subscribers only.

They said it

“We are all in a state of collective delusion here. We will look back in 20 years from now and say, ‘What were we all thinking? How is this really feasible that a buyout can happen at 25 times EBITDA?’”

Apollo co-president Scott Kleinman says near-zero interest rates are causing valuation multiples to soar, Bloomberg reports.

Just happened

bomb fuse timer countdown

PE’s powder keg?

Is private equity sitting on a powder keg? Some believe so. Unspent capital is the biggest challenge facing the asset class, according to the respondents in Dechert’s 2022 Global Private Equity Outlook. (You can read our coverage of that report here.)

Though it is tricky to pin down an exact number for industry-wide dry powder  – estimates place it at between $1 trillion to $2 trillion – earnings reports from private equity’s listed giants paint a part of the picture. Together, the likes of Blackstone, KKR, Carlyle, Brookfield, Ares Management, Apollo Global Management and BlackRock have more than $500 billion undeployed, as Private Equity International reports this morning. Blackstone alone sits on more than $127 billion.

With this year’s frenzied dealmaking environment likely to favour those with capital on hand, some investors are wary of the long-term implications for competition and pricing. The $49 billion Arizona State Retirement System, for example, said this week it would use the secondaries market to reduce its exposure to the asset class, citing the surplus of dry powder as a key concern.

Apollo chief executive Marc Rowan said in October that, although there is no shortage of capital, there is a shortage of assets to buy. In today’s heady fundraising environment, PE firms should be mindful that they’re not biting off more than can be chewed.

GA taps private wealth

Growth equity firm General Atlantic has risen to the private wealth opportunity. The firm gathered about $1.2 billion, or 15 percent, of its latest $7.8 billion fund by making its first foray into the world of wealth managers, PEI reported Wednesday. It raised capital via feeder funds from JPMorgan, BNP Paribas and Bank of Singapore. GA is the latest in a string of big names to double down on the private wealth opportunity, with KKR, Blackstone and Ares among those touting its potential in recent weeks.

Bite-size PE

Continuing the private wealth theme, fintech platform Bite Investments is offering high-net-worth investors access to PE via a new fund. Investors able to cough up $100,000 can access eight to 10 top-tier private markets funds in one ticket, per a Wednesday statement. Bite’s investment team has advised on over $13 billion of capital raises to date, resulting in $4.2 billion of fund and direct commitments across PE, private credit and real assets. Read more about the democratisation of private markets here.


ILPA updates DDQ and DEI templates

The Institutional Limited Partners Association has updated its due diligence questionnaire and diversity metrics template. The updates are designed to “reflect changes in the marketplace” and take in comments from market participants, the organisation said. The updated documents are here. One notable change is that ILPA has adopted in full the UN PRI’s LP private equity responsible investment due diligence questionnaire as the ESG section of its template DDQ. Our colleagues at New Private Markets have the details (registration required).

Dig deeper

Institution: Texas County and District Retirement System
Headquarters: Austin, US
AUM: $40.8 billion
Allocation to alternatives: 52.6%

Texas County & District Retirement System has approved more than $450 million in commitments across six private equity vehicles, according to pension’s recent investment activity.

The allocation comprises $150 million to Ares Special Opportunities Fund II, $150 million to Summit Partners Growth Equity Fund XI, $80 million to Spark Capital Growth Fund IV, €50 million to Adelis Equity Partners Fund III, $40 million to Spark Capital VII and $20 million to Threshold Ventures Select I.

Spark Capital currently has two vehicles targeting more than $2 billion in capital commitments. After a successful year of fundraising, the fund manager has launched Spark Capital Growth Fund IV and Spark Capital VII with target sizes of $1.3 billion and $650 million, respectively. TCDRS had previously committed to each of the predecessor vehicles by the fund manager.

The $40.8 billion US pension fund has a target allocation of 25 percent to private equity, and is underallocated at 21.7 percent. Here is the pension fund’s revised investment policy for the asset class.

For more information on TCDRS, as well as more than 5,900 other institutions, check out the PEI database.

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