Side Letter: PE’s retail naysayers; BlackRock’s Morgan Stanley hire; CLSA’s $500m China bet

Not everyone within private equity is enamoured with the idea of opening the asset class to retail investors. Plus: BlackRock has appointed an ex-Morgan Stanley boss to service Asia-based institutions and Hong Kong's CLSA has bold plans for China. Here's today's brief, for our valued subscribers only.

Just happened

crowd of people in an 's' shape

Fighting a losing battle
Some of private equity’s largest firms have made no secret of their desire to expand into the retail universe, but there are signs the industry is split over whether such a move is wise. Rajaa Mekouar, founder of family office advisory Calista Direct Investors, sits firmly in the ‘against’ camp. “I’m glad there is still regulation in place, that it’s not naturally for mom-and-pop [investors],” she told delegates at a webinar hosted by fundraising platform Moonfare on Monday. “Others may argue: ‘You can invest in penny shares even with €5 on the stock market, so why not in PE?’ I’d say because you are playing the long game, it’s not an in and out.”

Mekouar said those hoping to access the private markets at low entry thresholds could instead join business angel networks, which enable individuals to pool their capital for the purpose of evaluating and signing larger investments, and that PE is better suited to semi-professional investors that are able to remain invested across the years and through market fluctuations.

Still, the appeal of “democratisation” – for GPs at least – is clear. Individuals accounted for 64 percent of the world’s $279 trillion of potential client assets in 2020, yet less than 5 percent was thought to be in alternatives. Efforts to increase their participation have gathered steam of late, and won the support last year of the US Securities and Exchange Commission’s Asset Management Advisory Committee. While progress can be slow, those opposed to the broadening of PE to individual investors may be fighting a losing battle.

Don’t miss!
Today is your last chance to submit nominations for PEI’s Future 40 Class of 2022. Each year, we showcase the rising stars of PE across five categories: investors, fundraisers, dealmakers, lawyers and operators. Nominees must be under the age of 40 on 1 May 2022 and should not have appeared on previous PEI Future 40 lists. If you know someone who has gone above and beyond in their contribution to private markets, nominate them here before the end of today.

Keeping it in the neighbourhood
If it’s an unusual time to enter the Chinese PE market, no one appears to have told CLSA Capital Partners. The Hong Kong asset manager (perhaps best known in PE circles as the part-owner of Japan’s Sunrise Capital) last week disclosed the launch and first close of its debut CLSA China Growth Fund. CLSA, which did not reveal the fund’s current size or target, and which declined to comment beyond the initial statement, is seeking $500 million for the fund, a source with knowledge of the matter tells Side Letter.

CLSA is understood to have leaned on LPs from mainland China, Hong Kong, Singapore and elsewhere in Asia for its initial close. With regulatory uncertainty, quarantine restrictions and geopolitical tensions unlikely to be resolved in the near term, such investors may have an increasingly important role to play as backers of China PE.

Essentials

Growth by name…
Blackstone is targeting $7 billion to $8 billion for its second growth fund, affiliate title Buyouts reports (registration required). If successful, the fund could reach nearly twice the size of its $4.5 billion predecessor, which closed in March, according to PEI data. Growth equity, while long a vital part of the PE universe, has become a popular strategy especially in connection with the rise of technology investing. Last year, it hit an all-time fundraising high, with 121 North American growth funds raising more than $108 billion. Other large firms that have expanded into the strategy include Carlyle, which has collected about $1.1 billion for its debut growth fund, targeting $2 billion, and Brookfield, which closed a second growth pool last year on more than $500 million.

BlackRock’s APAC hire
BlackRock has appointed Morgan Stanley’s former head of Japan and Korea to lead its institutional business in Asia-Pacific, per a Tuesday statement. Hiroyuki Shimizu, who will join in Hong Kong in Q2 2022, will also serve as president of BlackRock Japan. He was previously global head of private credit and equity distribution at Morgan Stanley and served as a Tokyo-based director at KKR from 2013 until 2016. BlackRock plans to double its PE deployment in Asia-Pacific and won’t rule out raising a pan-regional fund in the process, PEI reported last year.

Dig deeper

Institution: Virginia Retirement System
Headquarters: Richmond, US
AUM: $107.2 billion

Virginia Retirement System has confirmed a $675 million in commitments across two private equity funds, according to its February investment advisory committee meeting.

The pension committed $350 million to HPS Strategic Investment Partners V and $325 million to Ares SSG Capital Partners VI.

VRS’s current allocation to private equity sits at 17.2 percent, above its 14 percent target allocation. The US public pension’s recent private equity commitments have concentrated on diversified sector funds focused on global or North American investments.

For more information on VRS, 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 and Helen de Beer