Side Letter: SVB’s PE implications; PE’s best mid-market GPs; ESG backlash enters 10-Ks

Silicon Valley Bank's collapse may exacerbate PE's subscription credit line supply gap and spark buying opportunities. Plus: a look at the top mid-market performers; and GPs believe the ESG backlash has the potential to hinder fundraising. Here’s today's brief, for our valued subscribers only.

Just happened

SVB: what now?
The venture capital community likely breathed a collective sigh of relief on Sunday after the US Department of the Treasury, Federal Reserve and Federal Deposit Insurance Corporation said depositors with Silicon Valley Bank would have access to their money from today. There had been fears that thousands of VC-backed companies that bank with the institution would not have been able to pay employees or vendors in the near term, as our colleagues at Venture Capital Journal noted (registration required). This was followed by an announcement this morning that the UK government and Bank of England had facilitated the sale of Silicon Valley Bank UK to HSBC, thus ensuring customers will be able to access their deposits and banking services as normal.

Though welcome news, questions remain over how the decline of SVB – known to some as “the bank for private equity” – may affect the asset class more broadly. Here are a few notable takeaways from titles across the PEI Group stable:

  • The SVB crisis is disrupting the process GPs use to call capital from their LPs, according to Buyouts. Some GPs have instructed LPs to ignore recent call notifications in which they would have sent money through SVB while they set up new banking entities elsewhere.
  • This comes at a time when the subscription line market has experienced supply-side constraints, forcing hardships for some borrowers in the midst of dealmaking and fundraising, Private Funds CFO notes. Though many fund finance professionals say SVB has been on the sidelines of active lending for some six months or more, the crisis highlights – and potentially exacerbates – a large and growing supply gap in subscription credit lines.
  • PE and secondaries buyers will be watching for a fire sale of assets, with SVB holding LP fund stakes through a fund of funds platform called SVB Capital, as well as on its balance sheet. SVB Capital managed more than $9.5 billion as of February on behalf of third-party LPs and, on a limited basis, SVB Financial Group, per its annual report.
  • Some banks with large private wealth arms are also said to be interested in its loan book.

GPs: filing a little worried about ESG
Recent SEC filings made by US-listed GPs underscore the significance of the ongoing anti-ESG backlash. The SEC requires listed companies to file an annual Form 10-K detailing their financial performance and any major risks they have identified with regards to their businesses. As our colleagues at New Private Markets report (registration required), nearly all of PE’s listed giants made direct reference to anti-ESG sentiment in their reports, signalling its potential to derail future fundraising.

Blackstone said investors “may decide to withdraw previously committed capital (where such withdrawal is permitted) or not commit capital to future fundraises based on their assessment of how we approach and consider the ESG cost of investments and whether the return-driven objectives of our funds align with their ESG priorities”, while TPG and Ares Management both noted that “anti-ESG sentiment has gained momentum” across the US, “with several states having enacted or proposed ‘anti-ESG’ policies”. Recent examples of such policies include West Virginia’s 2022 law that pushed back against “unfair discrimination” against fossil fuels, and Florida’s resolution to bar the state’s pension from making decisions based on ESG factors.

As Side Letter reported last Monday, the anti-ESG movement was the topic du jour at PEI Group’s recent Responsible Investment Forum in New York, with every panel making reference to the issue. Now considered material enough to have reached the filings of some of PE’s biggest firms, it’s clear this movement cannot be ignored.

They did the math

Top of the mid-market
Looking for the best-performing mid-market funds? Head to North America, which is home to the top 10 such funds raised between 2009 and 2018. That’s according to the latest HEC Paris – DowJones Small-Cap Buyout Performance Ranking. The study analysed returns of 99 qualifying mid-market GPs that had raised funds of between $1 billion and $3 billion across the period. Only three European firms made it to the top 20: Norway’s Verdane and FSN Capital, and the Netherlands’ Rivean Capital. Funds ranged from those with a clear tech focus to consumer, services and industrials.

If you’d like to learn more about these firms, you can find database profiles for the 10 top performers below:


Shipping forecast
The nascent universe of tokenised PE just got a little larger. Chinese GP Yangzijiang Financial is the latest to partner with Singaporean digital securities pioneer ADDX, per a Thursday statement. ADDX will serve as an additional distribution channel for funds managed by the GP. This includes Yangzijiang Maritime Private Equity Fund #2, which has so far raised $500 million against a $600 million target. The vehicle is understood to have backed two maritime assets to date – both oil and chemical tankers. Under the agreement, ADDX will market the fund to its pool of investors and collate capital from them before minting the tokens; from the YZJF perspective, ADDX will be seen as one LP.

Though YZJF’s fund isn’t traditional PE as most of Side Letter‘s readers would know it, the partnership is further evidence of tokenisation’s growing potential for the alternative investment community more broadly. The technology, though still in its infancy, opens up a new, much more liquid channel of LP capital for GPs at a time when many are struggling to find enough fundraising capacity among their existing investors.

Dig deeper

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

13 March

14 March

15 March

16 March

17 March

Today’s letter was prepared by Alex Lynn with Carmela Mendoza, Helen de Beer and Madeleine Farman.