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Side Letter: Rede’s Liquidity Index; Railpen’s boss loss; PE’s token talent tussle

Rede's latest liquidity index reveals the sharpest drop in investor sentiment toward private equity since the report began. Plus: Railpen's private markets head is turning GP; and the tussle for tokenisation talent appears to be heating up. Here's today's brief, for our valued subscribers only.

Just happened

Rede’s Joseph: Need for creativity around LP compensation (Source: Rede)

Rede-ing the room
It’s no secret that private equity fundraising has become more of a slog as a confluence of too many re-ups, the denominator effect and macroeconomic concerns bear down on LP capacity and appetite for the asset class. For statistical evidence of how investor attitudes toward PE have shifted from the halcyon days of 2021, look no further than the latest Rede Liquidity Index, published this morning. The headline finding from the placement agent’s H1 2022 index is that sentiment has taken a record tumble since the end of last year, with an unprecedented 17 percent planning to decrease their commitments. Here’s what you need to know from the report:

  • A record 36 percent of LPs plan to reduce ‘new money’ commitments in the coming months and 11 percent will cut their deployment to existing relationships.
  • More than half will devote at least 50 percent of their 2022 allocations to existing relationships; 14 percent will give them at least 70 percent.
  • Some 53 percent expect a decrease in the volume of distributions over the next 12 months as IPOs and M&A slow.
  • LPs are prioritising low-leverage, value creation-heavy strategies: 38 percent will increase exposure to lower mid-market buyouts and 37 percent to mid-market buyouts, while just 10 percent will put more into large-cap buyouts – the lowest of any strategy.
  • Healthcare (43 percent of LPs) has overtaken tech (33 percent) for the first time as the priority for expansion, while 28 percent are planning to raise their sustainability and impact exposure.

One area that’s often overlooked is how the competitive fundraising environment will affect resources at LPs, Gabrielle Joseph (pictured), head of due diligence and client development  at Rede, tells Side Letter. “There are LPs who simply cannot process the volume of re-ups that’s being thrown at them,” she says. Economic structures within the LP community differ and it will become increasingly competitive for LPs to recruit and retain talent. “There will be more creativity in the way that certain LP structures will need to remunerate their stars, which is a complex process to navigate when you think about the purposes and structures of some of these LPs.”

Speaking of LPs crossing the aisle…
Large swathes of the UK rail system may well have ground to a halt this week, but one executive on the move is Paul Bishop, former head of private markets at UK pension giant Railpen. Bishop, who spent 11 years with the £37 billion ($45.1 billion; €42.9 billion) institution, has changed track from LP to GP. He joins Phoenix Court Group – a European early stage VC firm that recently rebranded from LocalGlobe – as general partner, according to a LinkedIn post.

Phoenix Court said this week that it had $500 million to invest across two existing funds and two new ones. The latter two were previously internally funded and will now be transformed into third-party vehicles. It’s not uncommon for investment professionals at public institutions to cross the aisle to join the private investment management industry, though such moves have in the past caused headaches for some of those involved.

Token talent tussle?
Tokenisation’s rising (if nascent) appeal for private markets participants appears to be putting those with the technical expertise in high demand. Hamilton Lane on Wednesday appointed Victor Jung as head of digital assets, per a statement. Jung was previously head of distribution partners and liquid private markets for Asia-Pacific at Partners Group.

The fact this people move involves both Partners Group and Hamilton Lane is unsurprising – the two firms are among the first, and certainly most high-profile, private markets adopters of tokenisation technology, which shows exciting promise as a means of democratising exposure to alternatives. Hamilton Lane, for its part, has tokenised access to its Global Private Assets Fund, reducing its minimum ticket size to $10,000, versus $125,000 or more for investors who subscribe via traditional channels.

If you’re unfamiliar with how the tokenisation concept works, you can read PEI‘s guide – to which Jung contributed – here.

Essentials

Buying tickets to a private party
Traditional asset managers are increasingly keen to join the private markets party. As the FT notes (subscription required) this week, a host of these institutions are buying up alternatives managers in a bid to capitalise on rising demand for private markets – which typically generate higher fees – and remain relevant at a time when the 60:40 portfolio model appears to be falling out of fashion.

Firms such as Amundi, Schroders, abrdn and Edmond de Rothschild Asset Management are said to have identified the private markets as key areas of growth. The trend has already prompted some of their peers to take action, including Franklin Templeton, which agreed to buy credit shop Alcentra from BNY Mellon, and Fidelity, which took a stake in fundraising platform Moonfare. Aspiring buyers may encounter competition from private markets incumbents, who – as PEI noted in our PEI 300 special last month – are also turning to inorganic growth to fast-track their platform extensions.


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