Side Letter: PE’s exit drought; ADIA’s Americas boss; China’s success stories

Private equity's realisation drought may prove more of a headache for LPs than their GPs. Plus: ADIA appoints a new Americas PE head; and why China's fundraising outlook seems a little brighter. Here's today's brief, for our valued subscribers only.

Just happened

Proceed to the nearest exit
As if investors didn’t already have enough on their plate in this frenetic fundraising environment, exits – a key source of liquidity for new commitments – look to be drying up. Blackstone, for example, posted just $1.35 billion of realisations for corporate private equity in Q2 2022, according to its earnings last week. By comparison, its realisations exceeded $4 billion in each of the four preceding quarters. “Looking forward, volatile markets do mean realisations will likely be muted for some time,” president and chief operating officer Jon Gray noted on its Thursday earnings call.

Partners Group this month reported $6.4 billion of portfolio realisations in the first half of 2022, of which portfolio assets and credit distributions accounted for 72 percent and direct equity distributions the remainder. This compares with $10.5 billion in the equivalent period last year. Partners Group brought forward a portion of its exit pipeline for 2022 into 2021, contributing to the lower figure. It also “elected to postpone the realisation of more mature businesses and assets” in view of increased market volatility and uncertainty in H1 this year.

The value of buyout-backed exits globally fell 37 percent year-on-year to $338 billion in the first half, according to Bain & Co. This doesn’t include exits in growth equity and venture capital, both of which have been hit by a decline in tech valuations. The outlook for H2 is similarly bleak. “Due to the bulk of sponsor returns coming from multiple expansion, the rising interest rate environment could see exit activity reduce further as multiples flatten and as sponsors hold assets longer until return targets are met,” Bain wrote.

Slowing realisations will be felt most keenly by overallocated LPs, whose problems could be exacerbated by an extended period of investing much more than they receive back in distributions. GPs, on the other hand, are unlikely to be losing much sleep. PE is, after all, a long-term game, and most will have time left in their funds to wait for a more opportune moment to sell. Those without that luxury can instead turn to the increasingly sophisticated secondaries market, or sell assets to existing vehicles to buy themselves more time, as the Financial Times reports CVC Capital Partners has just done (subscription required). And since longer holding periods are associated with higher returns, an asset staying in the portfolio a little longer than planned might not be such a bad thing.

ADIA’s addition
One story trending on PEI right now is senior reporter Carmela Mendoza’s scoop on Abu Dhabi Investment Authority‘s new Americas private equity head. Andrew Claerhout, former partner and co-head of infrastructure at Searchlight Capital Partners, started in the role in July. The appointment comes as the SWF giant overhauls its structure, including a near 10 percent reduction in headcount and a shift to data-driven investing, Bloomberg reported last week (subscription required).

Side Letter has heard about multiple people moves either from or to institutional investors since the start of this year. A constant stream of new funds, combined with the strains of a complicated macroeconomic environment, have led to LP fatigue, as our colleagues at Buyouts noted this month (registration required). Expect to see more movement – both appointments and departures – at LPs in the months to come.


Investors say ‘Hello’ to BAI
Chinese PE fundraising may be down, but it’s certainly not out. Case in point: BAI Capital, the China-focused VC formerly known as Bertelsmann Asia Investments, has collected $700 million for its debut fund as an independent entity, per a Monday statement. The firm was formed in 2008 as a captive unit of German media giant Bertelsmann and completed more than 200 investments before spinning out last year. It will target businesses with the potential for global expansion across the consumer retail and services, fintech, media and content innovation sectors, among others.

China-headquartered firms raised just $4.3 billion in the first quarter (according to PEI data), as ongoing travel disruption, geopolitical tensions and regulatory uncertainty dented international appetites. BAI’s close and the $9 billion that Sequoia China has reportedly raised in recent weeks will comfort the likes of CS Capital, which is seeking $1 billion for its debut USD fund.

Iberian influx
Spanish PE and VC investments hit €5.16 billion in the first six months of this year, a 170 percent increase by number from the same period last year, according to data from industry body SpainCap (formerly Ascri). Mid-market deals broke records, both in terms of value – €1.33 billion – and number of transactions – 56 –, as did VC, at €850 million and 298 respectively. International GPs accounted for more than 88 percent of capital invested.

Dig deeper

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

25 July

27 July

28 July

29 July

Today’s letter was prepared by Alex Lynn with Adam Le and Carmela Mendoza.