Side Letter: Remote fund commitments, Dunkin’ Dyal, SoftBank bruised

So much for the "new normal" of remote working; LPs seem unlikely to make commitments to any new manager without sitting down and breathing the same air. Here's today's brief for our valued subscribers only.

He said it

“This is one of the great environments possibly to buy distressed debt that may have ever been in existence.”

Bruce Flatt, CEO of Brookfield Asset Management, seems happy about his firm’s acquisition of a large slice of Oaktree Capital Management last year, which according to Bloomberg (paywall) could raise as much as $15 billion for its next fund.

Just happened

New relationships: A lockdown no-no

Maybe it is the thought of lockdown easing, but some investors are adamant they’re unlikely to make a fund commitment unless they have sat in the same room as the manager. In a discussion last week, three investors all discounted the idea of a fully remote due diligence process. Alisa Mall, director of investments at the philanthropic foundation Carnegie Corporation of New York, said while her team had discussed amending its new manager policy in the current environment, it would be difficult to embrace a new fully remote process: “It’s the equivalent of getting engaged to someone you’ve only talked to on your screen. These are big commitments, and most are illiquid.” Investment professionals from investment consultant Meketa Investment Group and Oregon State Treasury both said they would be unlikely to commit to a manager they had not met.

Another interesting takeaway on covid-era fundraising: having a seeded portfolio of assets used to be an important plus for first-timers. It allowed potential investors visibility into the strategy and the GP’s ability to execute. Now it’s a hindrance: “Overnight it was, ‘I don’t want your seed portfolio, it cannot possibly be worth what it was when you purchased it, and why would I buy into a pool of existing assets?’” said Christy Gahr, a principal at Meketa.

PERE subscribers can read Kyle Campbell’s report in full here. Thanks to investment management software provider Juniper Square for hosting the webcast.

The bigger they are…

…the further they write down. Declining portfolio valuations are the norm at the moment (see listed German investor DBAG, for example), but the scale of SoftBank’s Vision Fund makes it worth a mention. The $98.6 billion vehicle posted a ¥1.87 trillion ($17.4 billion; €16.1 billion) unrealised loss for the fiscal year ending 31 March, driven by declines of $5.2 billion and $4.6 billion in its Uber and WeWork holdings respectively, according to an earnings statement today.

The firm also confirmed that Fund II would be a SoftBank money-only affair. Read Alex Lynn’s report here.


Dunkin’ Dyal. The National Basketball Association has brought in Dyal Capital Partners, the Neuberger Berman unit that dominates the GP interests market, to raise capital to take minority stakes in NBA franchises, according to a report on Bloomberg (paywall) citing people familiar with the matter. Dyal’s Michael Rees issued a statement to the news service confirming Dyal’s selection, but declining to comment on details of the arrangement.

You wait all year for a private equity player to make a surprise sideways leap into sports franchises, then suddenly two come along at once.

Performance watch. Apollo Global Management is the latest firm to feature in a special edition of PEI’s Performance Watch. Fund VIII, an $18.4 billion 2013-vintage, suffered the biggest hit to Gross MOIC – falling to 1.32x at 31 March, from 1.6x in December, by our calculations. Apollo Natural Resources Partners II, a $3.5 billion 2016-vintage, reported the largest decline in net IRR – dropping to -2 percent, from 10 percent, over the period. Also available: Carlyle and Blackstone.

They did the math

Warning signs. Even before the pandemic took hold, distributions were slowing in Europe.

What you’re reading

The most engaged with content across the PEI Media stable last week:

Also getting lots of interest on Private Equity International:

Dig deeper

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

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Today’s letter was prepared by Toby MitchenallIsobel Markham, Adam LeCarmela Mendoza and Alex Lynn.

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