Side Letter: TDR’s secret to success(ion); Partners Group’s Japan head

TDR Capital's rapid fundraising progress reminds us that succession need not be disruptive. Plus: Partners Group has appointed a Japan private equity head. Here's today's brief, for our valued subscribers only.

Just happened

TDR’s secret to success(ion)
Yesterday Side Letter wrote about private equity managers dealing with succession issues. One firm that appears to have ridden the succession wave successfully is TDR Capital, which, despite its founders handing over control in January, has already collected more than 90 percent of the €4 billion it is seeking for Fund V, Private Equity International understands. The firm has raised €3.75 billion in a first close and plans to wrap up fundraising north of its target before October, sources said. TDR declined to comment to Side Letter about its fundraise.

London-headquartered TDR had planned to launch the fund in September 2021 (UK regulatory filings show the vehicle was registered that month) but delayed until March to complete a succession event, one source noted. That the firm has completed so much of the fundraise in such a quick timeframe following a major leadership transition is impressive; succession plans, as Carlyle found to its chagrin this month, can go awry. What’s more, Fund V is racing through its fundraise in an environment characterised by lengthier processes for many sponsors.

The secret to TDR’s success may lie partly in its track record. The firm’s previous vintages have performed so well that New Mexico State Investment Council was forced in June to downsize its usual ticket to TDR’s funds to stay within allocation limits. “The successful managers in our programme have a burden from a portfolio diversification perspective,” PE director at the sovereign wealth fund, David Lee, said at the time. “You have an outsized NAV for the size of your previous allocation and that ends up being an outsized portion of the portfolio.”

TDR has done “a great job” of returning capital and has been above the median in terms of distributions-to-paid-in, he added, noting that New Mexico’s investments in TDR funds III and IV had returned a combined 36 percent net IRR and 2.8x net multiple as of end-December. This latest fundraise not only reminds us that carefully handled succession events needn’t prove disruptive to fundraising, but also that the best-performing funds should continue to attract capital despite market headwinds.

Going big in Japan
Partners Group has become the latest in a long line of PE giants to focus more of their efforts on Japan. The firm has hired Tatsuya Ochi, a former principal at KKR, to lead its PE business in the country as part of its wider Asia team, per a Tuesday statement. Ochi previously spent seven years at CVC Capital Partners, most recently as an investment director. Partners Group has had a Tokyo office since 2007 and made its first direct real estate investment in Japan for five years in 2021.

Global PE firms looking to enter or scale up their operations in Japan face a tough market when it comes to attracting talent due to the small pool of professionals with the necessary skills and experience, as PEI explored in its latest Japan Special Report. LPs aren’t exempt from this talent crunch, as the head of PE at Japan’s newest mega-endowment told us earlier this year.


Pomona’s close
Secondaries firm Pomona Capital has collected $2.6 billion for its 10th flagship. Our colleagues at Secondaries investor have the details (registration required). Fund X, which was on the fundraising trail for over two years and had sought $2 billion, is 44 percent larger than its 2018-vintage predecessor. Secondaries fundraising in the first half fell 30 percent year-on-year to $31.2 billion as of end-June, per Secondaries Investor data.

Fund X comes at a critical time. As more managers enter the secondaries market – Apollo Global Management being one of the most recent examples – diversification and a focus on quality assets has become even more important, Michael Granoff, Pomona’s chief executive, told PEI in May. “Pricing discipline will make the difference between returns,” he noted. “Leverage will be a two-edged sword, especially as interest rates rise.”

Lightrock’s LP lean
Impact firm Lightrock, an offshoot of Liechtenstein’s LGT Group, appears to be tilting towards external institutional investors, our colleagues at New Private Markets report (registration required). The firm’s latest vehicle is dedicated to climate impact and has received a €75 million commitment from Thailand-listed energy corporation Gulf Energy.

Lightrock closed its debut impact fund last year on $900 million, financed by LGT Group and its private banking clients. Lightrock Growth Fund I was created to house 26 of LGT’s existing impact assets from three separate LGT impact investing strategies under one roof. “Our intention is to do more regional and sector-focused funds,” chief executive Pal Erik Sjatil told New Private Markets in May. “The first global growth fund was global because it made sense for kicking off the platform and bringing together all our stakes in all those companies. [But] a global fund can become a bit too generic for certain LPs. In future, we will look at regional and thematic funds.”

Today’s letter was prepared by Alex Lynn with Carmela Mendoza.