Side Letter: Secondaries’ record fundraising; Main Street and PE; desktop due diligence

The cottage industry traditionally associated with LPs wanting to get out of "bad" funds has already raised more capital this year than any other in its history. Here's today's brief, for our valued subscribers only.

He said it

“It’s like you are in a sushi bar. When you are in an investment committee, you see the trail of food coming and never know which one you are going to pick because you don’t know what’s coming afterwards.”

Jorge Quemada, a partner at Cinven, discusses dealmaking during the pandemic and the need to take decisions now without knowing what’s going to happen in 18 months time, at the Spanish Venture Capital & Private Equity Association’s LPs and GPs conference on Tuesday.

Just happened

Secondaries’ record 2020
Pop quiz: name the private markets strategy that’s smashed all previous yearly records for fundraising already and 2020 isn’t even out. If you guessed secondaries, you’d be right. Funds focusing on the strategy that held final closes during the first three quarters of this year raised $59.7 billion, according to data from sister title Secondaries Investor’s Q1-Q3 fundraising report (subscription required), published yesterday. The average fund to close was $1.7 billion in size, the first time this figure has exceeded $1 billion, as Lexington Partners and Ardian jointly claimed the record for largest secondaries fund ever raised at $14 billion. With Coller Capital and Goldman Sachs Asset Management among those who could hold final closes before the year is out, an extra $20 billion could be added to this total.

Walking the streets
US regulators have made encouraging gestures towards retail investors hoping to access private equity. Yet the floodgates are far from flinging open: moves by the Department of Labor and Securities and Exchange Commission to widen, if only slightly, the ability for smaller investors to invest in the asset class are chock full of caveats – a reflection that neither are yet fully comfortable with this industry. It will be some time before retail investors can, or want to, back private equity funds, as we report here.

EMH doubles firepower
DACH-focused mid-market firm EMH Partners has held the final close on its second growth vehicle on its €650 million hard-cap, per a statement. Fund II is nearly double the size of its 2017-vintage and has already made two investments: brand consultancy Avantgarde and brands and marketing company Liganova.

Essentials

The downside of ‘desktop diligence’
Emerging and diverse managers are the ones bearing the brunt of this new era of ‘desktop due diligence’ (subscription required), receiving less than 3 percent of private markets capital commitments closed in the first half, our colleague Jordan Stutts at sister title Infrastructure Investor reports. As Jonathan Glick, who runs real estate-focused fund placement agent Incubation Capital Partners puts it, securing a commitment as a new manager this year is like “taking a 500-question exam that you need to get a 99 percent on just to potentially make the cut”, while for re-ups “all the manager needs to do is pass”. Data show this could be a mistake: in 2019 GCM Grosvenor found two-thirds of the 6,000 vehicles it tracked for a study of new and diverse managers outperformed industry benchmarks.

Loving life (science)
Holding onto prized assets has been a big theme over the past 18 months, as we wrote earlier this month. The latest firm to typify this trend is Blackstone, which was so fond of BioMed Realty Trust, a life science office company, that it plans to buy the asset held in one of its opportunistic funds for a whopping $14.6 billion using a separate vehicle it will create. Sister title PERE has the details (subscription required), but here are some key points:

  • Blackstone weighed an IPO and private-to-private sales before opting for the recapitalisation.
  • Existing investors and co-investors were given the option of walking away with their share of the profits or entering the new fund. Some even kicked in additional capital.
  • Blackstone says the deal will generate $6.5 billion for the fund’s investors and co-investors.
  • Morgan Stanley was hired to shop BioMed around to make sure the recapitalisation price is the best available. A better offer could still be made via what Blackstone refers to as a “go shop” process, soliciting higher bids from outside buyers.
  • While covid-19 has kept many offices quiet, BioMed’s properties have been lively with tenants working on tests, treatments and vaccines for the virus.

Dig deeper

Institution: State of Wisconsin Investment Board
Headquarters: Madison, US
AUM: $126.35 billion
Allocation to alternatives: 17%

State of Wisconsin Investment Board will increase its target allocation for private equity from 9 percent to 11 percent next year, according to board materials from its October 2020 meeting. The pension expects to hit its target by the end of 2021, the document shows. SWIB’s long-term invested return for private equity/debt sits at 10.2 percent, with its 10-year expected return at 9.9 percent.

Private equity/debt makes up 9 percent of the system’s total portfolio.

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


Today’s letter was prepared by Isobel MarkhamAdam LeCarmela MendozaRod JamesAlex Lynn and Kyle Campbell.

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