Side Letter: Russian ‘reiderstvo’, babbling Brookfield, tech bet

"Reiderstvo" comes to Russian private equity. Here’s today's brief, for our valued subscribers only.

Just happened

Reiderstvo and Russian PE

We start today with Russia. Baring Vostok Capital Partners’ founder Michael Calvey (pictured) and three colleagues were detained on Friday on fraud charges. The FT’s Moscow correspondent has a number of details here (paywall), including of the allegations relating to the ownership of Vostochny Bank. Calvey will return to court on Saturday for a bail hearing, the paper writes.

Worth noting the obvious here: Calvey and Baring Vostok have been operating in Russia since the 1990s and those in the industry (certainly the people we speak to) have only good words to say about them. The firm’s investors include University of Texas Investment Management Co, European Bank for Reconstruction & Development and the MacArthur Foundation.

The case has been instigated by the FSB and the charges bear the hallmarks of “reiderstvo”, Bill Browder, co-founder of Hermitage Capital Management whose battles with the Russian government led to his successful lobbying for the introduction of the Magnitsky Act, tells us. “Reiderstvo” sees criminal charges used as a way to pressure owners to hand over assets desired by the authorities. What makes Calvey’s case precarious is that he is not an oligarch – he is a steward of assets for pension funds, endowments and others, many in the US – so not in a position to be extorted.

Brookfield’s flood of fundraising

Brookfield Asset Management recorded its most “successful fundraising year yet” in 2018 with $26 billion of capital raised across its funds, said managing partner Leo van den Thillart on the firm’s Q4 2018 earnings call on Thursday. That’s over $7 billion raised for its fifth private equity flagship fund launched last March (which had over 80 percent of investors re-upping commitments); a $1 billion December first close for its open-ended infrastructure fund; $15 billion amassed for its largest real estate fund (the second largest real estate fund ever raised); as well as fresh capital for its newer, long-life fund strategies. What’s more, the Toronto-based manager is nearing a first close on its fourth infrastructure fund, which has a $17 billion target and a dedicated renewable power sleeve.

Other fundraising notes:

  • Brookfield over the last three years has grown its investor base by 75 percent, now totalling over 600 LPs.
  • Almost $2 billion, or 10 percent, of capital raised last year was from private investors, of which about 60 percent came from North America.

Tech stars’ rise and fall

“Private equity funds have made a calculated bet on overweighting technology, which has paid off,” said Nicolas Schellenberg, head of EMEA PE & VC Research at Cambridge Associates.

US private equity returned 20.4 percent for the year ending 30 June 2018, beating the Russell 2000 (17.6 percent), according to Cambridge’s latest data. Tech investments – which delivered the highest returns of all sectors at 20.6 percent – have driven the strong performance in PE in H1 2018.

Champagne should be kept on ice. Because of the PE time lag, this stellar report does not take into account the recent dip in technology valuations.


GP interesting. Aberdeen Standard Investments is the latest to jump on the GP interest bandwagon and has raised around one quarter of the $1 billion target for its debut fund, Bonaccord Capital Partners I, that focuses on the strategy, according to SEC filings. Acquiring minority interests in private equity GPs isn’t a strategy for everyone. If recent examples are anything to go by the UK’s largest asset manager faces an uphill battle, as recent attempts by AlpInvest Partners and Hycroft Advisors have shown.

LP watch. It’s Monday, so here are 10 limited partner meetings to look out for this week:

Inside tip

We’re hearing that some of the “old guard” in Chinese private equity are not enjoying rapid fundraising success. At least two big names are restructuring their businesses in some way and by the end of the year they could look materially different, a source tells us. We’ll bring you some more specifics soon, but in the meantime, would love to hear your thoughts.

He said it

“[The reforms are] a good answer to the fact that financial people are not just greedy people not taking care of the other stakeholders of the French economy.”

France Invest chairman Dominique Gaillard, who is also a senior advisor to Paris-headquartered Ardian, on why new French legislation shows PE isn’t at odds with the gilets jaunes.



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