Side Letter: Q1 fundraising, Japan’s blossoming PE, ILPA on restructurings

Fundraising for Q1 off to a strong start, Japan PE's predictable returns and ILPA aims for balancing act in upcoming guidance. Here’s today's brief, for our valued subscribers only.

Just happened

Fundraising watch

Watch out for our Q1 fundraising figures, which we’ll be releasing later this week. We’ve had a quick peek and it looks like the year’s off to a strong start – and there’s plenty still to come. With Blackstone already well on the way to raising up to $25 billion for its latest flagship fund – which will be the largest-ever buyout fund, if achieved – 2019 could be a big year on the fundraising front.

Japan special

We’re showcasing features from our Japan Special 2019, out this month. Private equity activity on the archipelago has been blossoming – and performance data give us a clue why.

Japanese private equity has not been outperforming other markets. Data from eFront show IRRs and TVPI ratios for Japan-focused funds to Q3 2017 were lower than other markets, and LBO data show Japanese funds returned 1.26x against 1.48x for developed Asia-Pacific, 1.56x for the US and 1.61x for Europe.

But strip out the top and bottom quartile and Japanese funds are the least risky for investors in the four markets. This is “the consequence of higher returns generated by underperforming funds relative to those in other regions, but also of the relatively limited upside of investing in the Japanese buyout market”, says eFront research manager Marija Djordjevic. Our takeaway: new market entrants are likely drawn to Japan’s predictable returns rather than high performance.

ILPA, give me guidance

The Institutional Limited Partners Association is set to issue guidance – as early as this week we hear – on fund restructurings. We expect it to be a four-to-five-page document outlining best practice on timelines, notification periods and who bears the cost of deal fees. How prescriptive will it be?

“It’s a balancing act,” ILPA chief executive Steven Nelson tells Secondaries Investor, adding that the industry body recognises that every deal is unique. Spoiler alert: the guidance won’t touch on the amount of carry GPs should reinvest in a continuation fund. That would be “overly prescriptive”, according to Nelson. We would agree.


Lawyer up (and out). Ted Craig, head of private funds at alternative asset management consultancy MJ Hudson, has left the firm, Secondaries Investor reported on Friday. A well-known figure in the European legal community, Craig’s clients include Montana Capital Partners, Capital Dynamics and StepStone. It isn’t clear where he will resurface but we have our ears to the ground.

Trade war beats Brexit fallout. Repercussions from the ongoing US-China trade war are more troubling than the UK’s withdrawal from the EU, France Invest chairman and Ardian veteran Dominique Gaillard tells us. “That today has more impact in our investment decisions than Brexit because companies targeted by private equity now have an international reach far beyond Europe,” he says.

French private equity is on the up: fundraising reached €18.7 billion in 2018 – its highest ever – and investment is also at its peak at €14.8 billion, per France Invest. Foreign LPs contributed nearly 50 percent of total capital raised. What’s behind this? “French GPs have now become less shy and more accustomed to go and see big LPs in South America or Asia, as well as sovereign wealth funds in China,” says Gaillard.

US takes the lead. US private equity switched places with emerging markets to become the best private market opportunity this year, according to a Commonfund survey. In 2018, threats of trade war and protectionism and uncertainty about US markets led to softer investor sentiment on US private equity. Almost half of respondents also said they expect the current bull market to come to an end within the next year.

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

Inside Tip

We hear there’s another large preferred equity deal in market, off the back of Hg’s potential £500 million process. Know anything about it? Send us an anonymous tip.

Dig deeper

Want more data? There are more than 6,700 institutions in our database, including ArdianBlackstone and Commonfund from today’s Side Letter.

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