Side Letter: PE’s first-timers; Listed PE performers; Secondaries law survey

First-time fundraising isn't likely to get much easier in the near-term, but there are silver linings for those willing to put in the work. Plus: A new index seeks to chart the performance of private equity's listed players; and Secondaries Investor's latest law survey shows a strategy in rude health. Here's today's brief, for our valued subscribers only.

Just happened

LPs: Nurturing emerging managers with dedicated buckets (Source: Getty)

First timers
As if launching a first-time fund wasn’t daunting enough, the pandemic’s disruption to business, travel and face-to-face meetings made starting a firm more challenging than ever. LPs also became more willing to stick with their long-time relationships rather than form new ones, and established managers took full advantage, raising larger funds and creating new parallel products to absorb more LP allocation. Indeed, fewer investors this year are set to back first-time funds – our latest LP Perspectives Study found that 42 percent are “just as likely” or “more likely” to commit to these funds, down from 51 percent in 2021.

In their latest cover story, our colleagues at Buyouts have taken a deep dive into the fundraising strategies that were fortunate enough to get over the line (registration required). San Francisco-based Knox Lane was one such firm, having launched its debut fund in 2020 and pushed through lockdown turmoil to raise $610 million against a $500 million target. The secret to its success lay in part with its decision to raise a little capital early and go hard into deploying it right away, enabling potential LPs to buy into a more-funded portfolio. GHK Capital Partners did something similar: starting out as a deal-by-deal shop focusing on investments in industrials to build a track record, the firm closed its inaugural fund on $410 million in March this year.

Though much of the Western world has returned to normality, fundraising isn’t getting easier, with many LPs running up against their allocation limits thanks both to the numerator effect and a slew of re-up opportunities. One silver lining from the latter is that, intent on not missing the upside usually associated with less-established firms, more LPs – such as New Jersey’s $95 billion pension system – are specifically earmarking capital targeting emerging managers. The bottom line is that, as Knox Lane and GHK show, there is capital available for those with the chops to back up their strategies and the courage to take the shot. Finding that capital, however, may just take a little longer and require firms to be more targeted in their approaches.

Lawyering up
If you want to get a sense of just how busy the secondaries market was last year, take a look at the lawyers. Sixteen firms participated in the Law Firm Survey 2022 from our colleagues at Secondaries Investor; the survey, which examines the period from 1 November 2020 to 31 October 2021, was published this week (registration required). Here are some key takeaways:

  • Respondents self-reported more than $570 billion of transaction volume over the period under review, compared with $275 billion in the 2021 survey when 13 firms participated.
  • One of the biggest year-on-year risers was Davis Polk & Wardwell, which advised on $12.08 billion of secondaries deals, compared with $2.5 billion in full-year 2021.
  • Just three firms advised primarily on LP portfolio deals in this year’s survey, versus six last year.
  • Seven firms worked on preferred equity or NAV-backed financing deals in the period under review, with Kirkland the most active in that space.
  • Kirkland, Ropes & Gray and Proskauer were the most active by deal value advised on.

They did the math

Public information
Listed PE, whether in the form of investment trusts or managers holding an IPO, can be an acquired taste. Some investors, such as Swedish insurance giant Skandia, are not so hot on the idea; others, like North-East Family Office, have become more understanding.

Whatever the opinion, a new listed PE barometer is seeking to give investors the information they need to make an informed decision. The LPX Private Equity Barometer from research house LPX (find it here) assesses the allocation, performance attribution, valuation, vintages and ESG of this growing market, ranging from listed balance sheet investors to listed LPs and fund managers. Below is an excerpt from its inaugural report.

Essentials

New GP alert
UK investment firm Omni Partners is building a lower mid-market PE business, according to a statement. The firm, which launched in 2004 as a hedge fund manager and which has since pivoted towards private investments, has appointed Charles Gallagher-Powell, a former founding partner at mid-market merchant bank Umbra Capital, to oversee the build-out. Omni already owns five UK businesses, including property developer BRiCS and law firm Child & Child.


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