Side Letter: PE’s shared ownership shake up; GPs promise carry; Pemberton’s NAV hire

A group of private equity heavyweights have thrown their weight behind a movement promoting employee ownership. Plus: a former 17Capital partner has resurfaced and GPs are getting generous with carry on the hiring trail. Here's today's brief, for our valued subscribers only.

Just happened

KKR’s Pete Stavros: leading the charge in shared ownership (Source: KKR)

Employee ownership
Some of private equity’s biggest names, including the likes of KKRApollo Global Management, the California Public Employees’ Retirement System and Washington State Investment Board are among the first 60-plus backers of Ownership Works, a non-profit with a mission to increase prosperity by sharing ownership with all workers. “It is an invitation to every individual in an organisation to contribute in different ways to accelerate growth and maximise shared value creation,” Yup Kim, head of investments for PE at CalPERS, noted on a Tuesday LinkedIn post.

The participating PE firms have pledged to institute employee ownership at a minimum of three portfolio companies by the end of 2023, The Wall Street Journal reports. It’s the brainchild of Pete Stavros, co-head of PE for the Americas at KKR and a long-time advocate of employee ownership. Stavros was named as our 2020 PEI Game Changer of the Year for his work in this space, with KKR something of a pioneer in giving all employees an ownership stake in the company they work for.

The logic is sound: employees with an active stake in the company should be more aligned with its owners, more engaged and have a greater incentive to stay. The devil will ultimately be in the details of how the organisation’s partners incorporate equity incentive schemes into their portfolios, and the execution will likely differ from sector to sector, and business to business. Still, the move is a positive one for an asset class whose license to operate has come under additional scrutiny in recent years, and which is increasingly eager to make a demonstrable societal impact.

Catching up with a PE recruiter
Side Letter recently caught up with Gail McManus, founder of executive search firm Private Equity Recruitment, to get the latest on what’s going on in the talent market. According to McManus, who has worked with the likes of Hamilton LaneEQT and PJT Park Hill, there are two key things to note. One, GPs are enticing mid-level candidates with the promise of carry, both in the current fund and in successor funds, as a kind of “good will gesture”. And two, restrictions in contracts remain one of the two biggest hurdles to a professional being able to jump ship, particularly for senior-level hires. Read your contract, McManus says. (The other big hurdle is comp).

Doyle resurfaces
Thomas Doyle, a former partner at preferred equity specialist 17Capital and a veteran of the fund finance world, has resurfaced at credit firm Pemberton to lead a NAV financing strategy, per a Wednesday statement. Doyle’s departure from 17Capital was first reported by our colleagues at Secondaries Investor last year (registration required). NAV lending has transitioned from niche to mainstream in recent years, leaving experts like Doyle and Matt Hansford, Investec’s former head of origination and NAV financing who joined MassMutual to launch a NAV business earlier this year, in high demand.

Essentials

Commonfund’s confidence
Most LPs remain convinced that PE will outperform other asset classes over the coming year. That’s according to a survey of 150 investors from Commonfund, conducted in March. Here are some key takeaways:

  • Though 78 percent believe this year’s returns will be lower than average, 70 percent expect PE to deliver the best risk-adjusted returns over the next 12 months.
  • Concerns about inflation, the Ukraine crisis and volatility in tech stocks remain, but mature technologies that are beyond early financing rounds are expected to retain strong valuations in the coming months.
  • Some 56 percent of investors reckon they’ll meet their target returns in the next 10 years, with 23 percent indicating that they are “very bullish” about their prospects and 20 percent “feeling nervous”.
  • Nearly a third (31 percent) have tweaked their portfolio allocations in the past year to be specifically aligned with ESG considerations.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza and Helen de Beer.