Side Letter: PE’s ‘message management’; 17Cap’s NAV fund; Texas’s fossil fuel fondness

Private equity legal eagles say GPs are getting creative with their messaging around fundraising timelines. Plus: Preferred equity specialist 17Capital has raised billions for its debut NAV lending fund, and Texas could force its pension giants to divest from managers boycotting fossil fuels. Here's today's brief, for our valued subscribers only.

Just happened

On the minds of PE lawyers
Side Letter had the pleasure of catching up with two private funds lawyers this week, and three things stood out from the conversation about how fundraising has changed during the pandemic.

  • According to them, the “management of the message” in PE has intensified over the past two years. Firms are getting savvier at telling stories about their fundraises – stories that don’t always necessarily reflect the whole picture. A firm that claims it closed a “one-and-done” fundraise in a matter of weeks has likely been pre-marketing for the past year on the down-low, for example.
  • The lawyers say they’ve also seen a rise in “seasoned primaries” among GPs whose fundraises have been delayed by the pandemic. Such GPs have sought secondaries capital in the form of primary fund commitments to help get their fundraises over the line; for the secondaries buyers, deploying capital in this way can make sense if a fund in market already holds a portfolio of assets.
  • LPAs are getting less, not more, flexible. Said one of the lawyers: “A fund document today will cover everything from NAV facilities to liquidity provisions. Five years ago they were silent on such issues, giving GPs more free rein.”

Letters from Texas
The Texas state comptroller has written to 100 asset managers asking for details of their fossil fuel exclusion policies, warning that state entities may be forced to divest under Texas law, affiliate title Responsible Investor reports (registration required). Among the managers given notice are PE giants Blackstone and Apollo Global Management. The letters, seen by RI, ask managers to give details of “pledges to environmental standards” and company-wide policies restricting fossil fuel investment, banking or underwriting, and list all funds and ETFs that have a fossil fuel restriction in their investment policy.

A law passed last September requires the comptroller to maintain a list of financial companies that boycott the fossil fuel industry. All government investment funds must pull their investments from the companies that do boycott such investments within a year of them being added to the list. The six state investors subject to the law include the Teacher Retirement System of Texas, which at $201 billion is one of the largest public pension funds in the world, as well as the $35 billion Employees Retirement System of Texas and $36 billion Texas Municipal Retirement System.

NAV you got the funds?
Preferred equity specialist 17Capital has closed its first NAV lending fund on its hard-cap of €2.6 billion of capital, according to a statement. Affiliate title Private Debt Investor has the details (registration required). The 17Capital Credit Fund will provide NAV loans to PE managers in Europe and North America. These loans are primarily used by managers to grow their business and can also generate interim liquidity for LPs, and have become increasingly popular in recent years. Lenders have been snapping up executives with experience in this space as they clamour to join the party. Earlier this month, Thomas Doyle, a former partner at 17Capital, resurfaced at credit firm Pemberton to lead a NAV financing strategy; while Matt Hansford, Investec’s former head of origination and NAV financing, joined MassMutual to launch a NAV business in February, as our colleagues at Private Funds CFO reported (registration required).

Essentials

Pension ace Ventura’s PE directive
While much of the current talk is about the cutthroat fundraising market, there is still good news that speaks to the long-term health of PE. The $8.1 billion  Ventura County Employees Retirement Association has voted to raise its target allocation to the asset class by 2 percentage points to 18 percent, affiliate title Buyouts reports (registration required). Unlike some of its peers that are raising their target allocations to ensure the fast-growing asset class remains within their exposure limits, PE represents only $1.1 billion, or about 13.6 percent of the portfolio. In a presentation to board members, consultant Abbott Capital said the county’s PE investments earned a 35.6 percent return over the past year.

Ventura’s increased appetite means a commitment of $275 million in 2022, and an average of $357 million per year for the five years thereafter. Abbott expects to source between eight and 10 commitments this year, having already made 10 in the first quarter. “Overall, the asset class continues to benefit from a long-running favourable market, and performance remained consistently positive,” according to Ventura County chief investment officer Dan Gallagher.


Today’s letter was prepared by Alex Lynn with Adam Le and Rod James.