Side Letter: Private equity’s future; SEC eyes individuals; Apax’s Italy head

Monday is a public holiday in the US – Side Letter will return to your inbox on Tuesday. This morning's edition looks at how one of Europe's largest wealth managers is using tech to streamline PE processes for individual investors. Plus: The US regulator has turned its attention to the definition of accredited investors and France's Apax has named a new Italy head. Here's today's brief, for our valued subscribers only.

Just happened

BNP’s Roborel de Climens (right): Process complexity has been a ‘hurdle’ for HNW clients (Credit: Adam Le)

PE to the masses, via your smartphone
Bonjour from Paris where Side Letter has been spending time with BNP Paribas Wealth Management learning about its latest offering for private wealth clients. The wealth manager, which has around €421 billion in AUM, on Wednesday hosted a press briefing to showcase the way it has revamped its platform allowing individual investors to manage their portfolio via a digital platform. Amid coffee and croissants under the late June Parisian sunshine, BNP Paribas execs, and the fintech firms who helped develop the new portal, demonstrated how the new platform makes subscribing to private equity funds as simple as checking a few boxes submitting an e-signature, all possible on a smartphone.

“The need to digitalise the offering is all the more key, as there is a growing appetite from our clients to invest in the real economy, and in particular, post-the covid crisis,” said Claire Roborel de Climens (pictured, right), BNP’s global head of private and alternative investments. The processes involved in being an LP in a private assets fund – subscription, reporting, cashflow management – were initially designed for institutional investors who are well-equipped with resources and expertise to monitor their investments, she said. “This complexity has been clearly a hurdle for HNW clients.”

BNP’s new platform isn’t necessarily ground-breaking, but it does allow its clients – including high-net-worth individuals, families and entrepreneurs – to gain access to private equity funds in a much smoother way than before (such processes were done previously via email). It also means clients can view their entire portfolio in one place with easy access to a given fund’s quarterly reports, distributions data and undrawn commitments. With capital from HNWIs estimated to account for more than 10 percent or about $1.2 trillion of all capital raised by PE funds by 2024, according to iCapital and Boston Consulting Group, creating a more user-friendly experience for individual investors seems a no-brainer.

Speaking of wealthy individuals…
Yesterday’s Side Letter drew attention to the myriad regulatory changes from the US Securities and Exchange Commission that PE firms should be preparing for. If you thought the barrage of proposed new rules was over, think again. SEC chair Gary Gensler is pushing staff to come up with fresh proposals that would change the definition of an accredited investor, according to our colleagues at Regulatory Compliance Watch (registration required).

Ideas being discussed include raising the wealth threshold for accredited investors and pegging it to inflation, given that the number of accredited investors has grown by 550 percent since 1982, merely as a function of inflation. Another is conditioning accreditation on disclosure, so no one can become accredited until fund advisers have shared certain information about their ownership, fees and expenses, and operations.

The move is an attempt to raise the threshold for who can back a private fund, ostensibly broadening investor protections. Right now, an individual must have at least $200,000 in personal income over a two-year period or have a net worth of more than $1 million to become accredited. For firms dedicating substantial resources to the retail and private wealth channels, such as Blackstone, KKR and Apollo, this will be one more thing – and rather a big one at that – to think about.

They did the math

Cutting prices
After the heady company valuations seen last year, it’s little surprise that venture capital has been hardest hit by a repricing in the markets. More than two-thirds (68 percent) of VC funds posted a markdown in TVPI during the first quarter, according to PitchBook. Its decline relative to other asset classes is no doubt due in part to its predilection for tech – which has seen one of the sharpest drops in value – and preternaturally high exposure to public equities from companies that have listed and not been fully exited. The figure drops to 53 percent for PE funds. For those reporting a drop, the median decline in TVPI was 3.5 percent from 2021’s peak. That fall, PitchBook notes in a subsequent article, was surpassed only by that of the global financial crisis, at 7.8 percent, and the dotcom crash, at 15.7 percent.


PE’s next chapter
When it comes to this difficult investing period, there is good news and bad news. The good news is that the first phase, or chapter, of this environment is almost over; the bad news is that two more are yet to come. That’s according to TPG founding partner Jim Coulter, who knows a little something about market resets (having passed through seven or eight of them in his career). Coulter told CNBC this week that the market has now been through the multiple reset – AKA stage one – which, given where equity valuations were last year, is something investors should have seen coming.

“What was odd is not today, but last year,” he is reported as saying. “Everyone was worried whether it was ‘Alice in Wonderland’ last year.” Firms should now focus on the second chapter, in which earnings specifically are vulnerable. Coulter expects the third, which is when equity multiples finally stop drifting, some time next year. “That’s the question for all us investors.”

Apax’s Italian head Conte
French PE shop Apax Partners has appointed a new head of Italy, per a statement this morning. Marco Conte joins on the back of a 12-year stint at Trilantic Europe, most recently as principal, according to his LinkedIn. Apax established a presence in Milan in 2018, which was led by then-Italy head Francesco Revel-Sillamoni, who joined Ardian last year. It has competed at least two Italian investments to date, including IT consultancy Business Integration Partners. “We decided that if we wanted to make a big push into Italy, which is a big market for private equity and very attractive in terms of primary deals,” Revel-Sillamon told PEI at the time. According to research by the Associazione Italiana del Private Equity and PwC, the Italian PE market enjoyed a record year in 2021 with transaction values exceeding €5 billion.

Dig deeper

Name: Pennsylvania Public School Employees’ Retirement System
HQ: Harrisburg, US
AUM: $76 billion
Allocation to alternatives: 32.1%

Pennsylvania Public School Employees’ Retirement System has confirmed a $100 million commitment to Greenoaks Capital Opportunities Fund V, according to materials from the pension’s Allocation Implementation Committee. Fund V aims to make meaningful, long-term investments in businesses capable of growing free cashflow at above market rates over long periods of time.

PSERS has a target allocation of 12 percent to the asset class. Within its private equity allocation, 71.4 percent of capital is slated for investment in buyout vehicles, with a further 20.1 percent allocated to growth/venture vehicles. The remaining 8.5 percent of exposure is distributed to internal co-investment vehicles.

PSERS’ recent private equity commitments have tended to focus on North American growth equity vehicles that invest in the TMT sector.

For more information on PSERS, as well as more than 5,900 other institutions, check out the PEI database.

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