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Side Letter: PE’s ‘third leg’; KKR’s BlackRock hire; CalPERS’ job hunt

Private equity firms are embracing bolt-ons in a bid to blend down their entry valuations. Plus: KKR has appointed a former BlackRock managing director in Asia and CalPERS is seeking a co-investment whiz. Here's today's brief, for our valued subscribers only.

They said it

“More and more in the last few months, I’ve seen opportunities come to us that suggest, ‘Has the GP heard of a co-investment? Or why is this a continuation fund rather than a co-investment?’ Because sometimes it just looks like a co-investment with economics attached and secondary players being involved”

Karin Hyland, senior investment director at abrdn, discusses the blurring of the lines between co-investments and continuation funds at PEI Media’s Women in Private Markets Summit on Wednesday.

Just happened

Levers of growth
For all the rhetoric around private equity’s laser focus on digitisation during the pandemic, finding the necessary portfolio company staff to implement such processes can be easier said than done. That was one takeaway from the keynote panel yesterday for PEI Media’s Value Creation Forum: Asia, which saw experts from TPGCVC Capital Partners and Pantheon sit down (virtually) to discuss some of the top-line issues in today’s market. Though the full debrief is well worth a read, here are some highlights:

  • Retaining tech talent at the portfolio company level is even more important than the hiring process – young staff who do not feel engaged with interesting projects are more likely to leave.
  • Inorganic M&A has become operating partners’ ‘third leg’ in a bid to blend down today’s lofty valuations.
  • Human capital experts are placing greater emphasis on C-suite candidates with expertise in cashflow management and workforce optimisation.

KKR’s BlackRock hire
KKR has recruited a former managing director at BlackRock Private Equity Partners in Asia, Side Letter has learned. Min Su Sung joined the firm’s customised portfolio solutions team, which focuses on strategic partnerships and other private market solutions for institutional clients globally, as a managing director in Hong Kong last month, a KKR spokesperson confirmed.

Sung mentioned his new employer in a 2020 interview with his alma mater Ecole hôtelière de Lausanne. “[A] trend is coming with perpetual programmes that allow for policy liquidity, as well as evergreen structures that you can stay in and recycle capital throughout its life,” he said at the time. “But the challenge is that not every fund has a full-fledged investment team… So private equity firms like KKR and CVC are creating innovative solutions to allow institutional investors such as sovereign wealth funds access to these assets and enjoy the dividends… over a long time.”

The news coincides with KKR’s appointment of Mukul Chawla to the newly created role of head of growth equity in Asia-Pacific, per a statement this morning. Chawla joins from Temasek, where he was managing director; joint head of global telecom, media and technology; and joint head of North America.

CalPERS on the hunt
Are you a co-investment whiz? California Public Employees’ Retirement System wants to hear from you. The $486 billion institution is seeking applications for an investment director to lead its co-investment team and further develop the recently restarted programme, according to a job listing. The pension is offering a salary of between $20,062.50 and $33,437.50 per month. In a LinkedIn post this year, head of PE investments Yup Kim shared some long-term plans for the portfolio, which included increased co-investments. “[These] offer meaningful flexibility to our long-term partnerships,” Kim wrote, noting that the fund had deployed “significant capital” into them since relaunching its programme in fiscal year 2020.

Essentials

SWIB ups the ante
The State of Wisconsin Investment Board is the latest institutional investor to want a larger slice of the PE pie. SWIB is seeking to increase its private equity target allocation to 12 percent, up from its current 11 percent target, affiliate title Buyouts reports (registration or subscription required). The board of trustees will vote on the recommended asset allocation at its next meeting on 21 December. The 2022 target allocation recommendations were presented at a meeting held on 23 November, where Chris Levell, partner at NEPC – a consultant to the SWIB, noted the portfolio’s strong PE performance. “Private equity has seen strong, positive absolute returns in the one-year, five-year, 10-year benchmarks as well as year-to-date,” he said.

SWIB’s peers have also been piling into the asset class of late. Institutions including Texas Municipal Retirement SystemAbu Dhabi Investment Authority and Los Angeles City Employees’ Retirement System are among those increasing their exposure. The California Public Employees’ Retirement System, the US’s largest public pension plan, last month adopted an asset allocation mix that will hike its target PE exposure from 8 percent to 13 percent.


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