Side Letter: The crisis-era IR challenge, secondaries market stop, how GPs are helping

Communicating with LPs becomes even more important in a crisis ... it also becomes very difficult. Plus: some insight into the steps PE firms are taking to combat the crisis, and how the secondaries market is – for the moment – frozen. Here’s today's brief, for our valued subscribers only.

Just happened

Notes on the fightback

Find out the measures KKR, Carlyle, BlackRock and others are taking to support portfolio companies and communities hit by covid-19 in this round-up.

The challenge of crisis-era reporting

How much information do investors want and need? It was a pertinent question before the escalation of the covid-19 crisis, and is now perhaps even more so. GPs have been wrestling with how to reflect the dramatic events in their 31 December valuations and appeared to reach concensus last week, reported Private Funds CFO editor Graham Bippart.

Beyond the marks, however, there is no playbook for how GPs should be updating investors on an ad hoc basis about the shape the portfolio is in, writes Alex Lynn. Detailed reports are out of date “almost immediately,” says one LP. His advice: just pick up the phone.

It’s advice that’s being followed, according to the LPs that Chris Witkowsky on Buyouts has been talking to. Here’s Trevor Williams of Penn Mutual Asset Management: “I would say the GP communications is the best I’ve ever seen. I’ve been on call after call with managers communicating what actions they’re taking in portfolio companies [and] how their business operations are going to be altered by this.”

Secondaries stops

The global secondaries market has effectively ground to a halt amid a perfect storm of factors, reports Rod James. Travel restrictions are scuppering more concentrated deals that require onsite due diligence of companies. Volatility in public markets is making valuing assets fiendishly difficult. As one secondaries buyer tells James:

“Secondaries buyers were saying [during the global financial crisis]: ‘We don’t know what this is worth, so let’s pick a number then go lower than that. We don’t know when the exits are coming, so let’s push them out,’ which pushes out your IRR. Then we layer on top of that an even higher target return because risk/return has gone through the roof. With every assumption you are building in additional caution, which means discounts of 50-70 percent.”

For LPs used to being able to sell portfolios of their fund interests at 90 percent of their most recent net asset value or more, steep discounts are unlikely to go down well.

He said it

“The more you want to garner potential gains and don’t mind mark-to-market losses, the more you should invest here. On the other hand, the more you care about protecting against interim markdowns and are able to live with missing opportunities for profit, the less you should invest.”

Howard Marks, founder of Oaktree Capital Management, considers whether now is the right time to invest. He concludes that the fact that we may not be at “the bottom” (the day before the recovery begins) is not an argument to sit on the sidelines.


Aussies revalue illiquids. Australian superannuation funds have begun the process of downgrading the value of their unlisted assets amid the covid-19 crisis. Two of the country’s largest funds confirmed substantial revaluations this week, writes Daniel Kemp on Infrastructure InvestorAustralianSuper, the country’s largest superfund with A$172.4 billion ($103.1 billion; €95.3 billion) of assets under management as of 30 June 2019, told members on Monday that it had reduced the value of unlisted assets in its portfolio by 7.5 percent on average.

More signs of ESG momentum. A survey from Aberdeen Standard Investments shows that “ESG engagement in private equity firms is increasing”. Nothing surprising there, of course, but interesting to note that less than a third of GPs that responded to the survey were signatories of either the UN Principles for Responsible Investment or a similar code.

Inside tip

Have news or views you’d like to share with us, on the issues featured here or on anything else? We’d love to hear from you.

Dig deeper

Institution: China Life Insurance Company (Taiwan)
Headquarters: Taipei, Taiwan
AUM: NT$2.00trn
Bitesize: $10m-$50m

China Life Insurance Company (Taiwan) has agreed to commit $30 million to Crown Global Secondaries V and $40 million to KKR Asian Fund IV. The Taiwanese investor has made 10 private equity commitments to 2019- and 2020-vintage funds, which together constitute $260 million.

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Today’s letter was prepared by Toby MitchenallIsobel MarkhamAdam LeRod JamesCarmela Mendoza and Alex Lynn.

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