Just happened
Up for sale?
Yesterday, Side Letter noted that Silicon Valley Bank’s collapse may, among other things, present a buying opportunity for private equity and/or other industries. Less than 24 hours later, and that opportunity looks closer to materialising. SVB Financial Group, the holding company of Silicon Valley Bank, is exploring strategic options for its various business lines, including a sale of its $9.5 billion fund of funds business that includes LP interests, our colleagues at Buyouts report (registration required).
The fund of funds platform, SVB Capital, continues to operate, the firm said on Monday. The unit’s existing portfolio, which comprises a mix of early stage, expansion and growth, boasts some notable players, including Sequoia, Kleiner Perkins, Index Ventures and Accel, per its website. It had raised $1.96 billion towards its SVB Strategic Investors Fund XI as of December, according to Private Equity International data.
SVB Capital’s prior funds appear to have performed well. The 2016-vintage Strategic Investors Fund VIII, for example, had generated a 3.17x TVPI and 37.2 percent IRR as of 30 June, according to Florida Retirement System Trust Fund data. Its 2018-vintage successor, meanwhile, had generated 1.81x and 33.2 percent as of the same date.
It is also important to note that SVB Capital is not part of Silicon Valley Bank – they are separate divisions of SVBFG. What’s happening with SVB proper is, of course, a deeply concerning development for the asset class and financial markets more broadly. SVB Capital, at least, may prove something of a silver lining to this cloud for whoever – if it is sold – ends up buying it.
Second helpings
As the scale of the secondaries market grows, it stands to reason that so too must LP commitments to the strategy. This is a dynamic our colleagues at Secondaries Investor have tracked in its inaugural Investor Report (registration required). The 10 largest known commitments to 2022-vintage secondaries vehicles totalled $4.77 billion, the report found. This hefty figure is massively inflated by Abu Dhabi Investment Authority‘s $4 billion commitment to Ardian’s latest flagship, ASF IX.
The next largest known commitments paled in comparison, with CPP Investments and New Mexico Educational Retirement Board both writing $150 million tickets to NewQuest Asia Fund V and Banner Ridge DSCO Fund II, respectively. Fubon Life Insurance was the secondaries market’s most active backer across a two-vintage-year period, making seven known commitments to 2021 and 2022 vehicles; Cathay Life Insurance was next on the list, with five.
Essentials
Much ado about ESG
As Side Letter noted last week, some industry participants are starting to feel that, when it comes to ESG data, you can have too much of a good thing. The situation, according to our colleagues at New Private Markets, now appears to be turning into something of a tug of war between LPs and GPs (registration required). The former are demanding increasingly detailed information about a fund’s underlying portfolio, while some of the latter are either unable or unwilling to provide it.
“[We feel] protective of our companies and… [want to] use their time and resources appropriately,” one head of ESG at a mid-market firm said at PEI Group’s recent Responsible Investment Forum, referring to an occasion where LPs submitted surveys asking for highly personal information, such as the number of transgender or non-binary staff in a portfolio company. “We draw a hard line on some of these [requests] that we just don’t feel like we need to be engaging in.”
A solid ESG record is important to many LPs; according to PEI’s 2023 LP Perspectives Study, 69 percent of LPs believe adopting a strong ESG policy will lead to better long-term returns. However, it’s clear that GPs are beginning to draw lines with regard to how much of the data is strictly necessary from an operational perspective. “I’ve talked to a lot of people in this room, and about half of the GPs are not now sharing portfolio company data with LPs,” said one speaker at the forum.
As the anti-ESG backlash rumbles on, the continued success and long-term growth of this important consideration may hinge on whether LPs and GPs are able to find a balance in reporting that suits all parties.
Dig deeper
Name: Teacher Retirement System of Texas
Headquarters: Austin, US
AUM: $183.5 billion
Allocation to private equity: 17.19%
The Teacher Retirement System of Texas has confirmed $504 million in commitments to new private equity vehicles.
The vast majority of the commitments were given out to energy and natural resource-focused funds. Quantum Energy Partners captured $275 million in commitments for three separate vehicles. A further $150 million was distributed to NGP Natural Resources XIII, a growth equity fund focused on investments into energy and natural resources in North America.
Furthermore, the pension fund committed $45 million to Project CS Co-Invest Fund, managed by Thoma Bravo. Greenbriar Co-investment WPS also received $24 million, and Galaxy Interactive Fund II, a venture capital fund, received $10 million.
For more information on Texas TRS, as well as more than 5,900 other institutions, check out the PEI database.
Today’s letter was prepared by Alex Lynn with Helen de Beer and Madeleine Farman.
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