Side Letter: Time to send a message

If there was ever a time to prove the industry's sustainability credentials, it is now. Here’s today's brief, for our valued subscribers only.

Just happened

Time to send a message

As the damage wrought by covid-19 accelerates, the message from governments and central banks has been clear: we will do whatever it takes to get the economy through this.

So what better time than now for the private equity industry to make a bold statement about its role in softening this crisis?

Kudos to French industry association France Invest, which has already come out with words to this effect. Roughly translated: “We are facing an extraordinary health crisis and an unprecedented situation. It is important that private equity actors mobilise to demonstrate their will to protect their employees and their investments, to show solidarity with the population and the country, and to act responsibly towards all stakeholders.” Will the larger industry bodies follow suit?

Private equity-owned businesses are now a significant and visible part of the global economy. Before covid-19 was recognised as a global threat, the industry was facing growing scrutiny and criticism. Firms were considering how to better balance financial outcomes with social and environmental ones. Partners Group, as we noted last week, is among the most recent.

No doubt general partners are currently expending a lot of resources on putting their portfolio companies on a sure footing. No doubt they are also considering when the time is right to start making new investments. Already we are seeing some interesting examples of individual firms providing financial support to portfolio companies – we’ll bring you more details on that shortly.

For the world to know that private owners of businesses are focusing their considerable resources on their post-CV survival would be an important message at a time when it looks like “all bets are off”. Questions would and should be raised by such a statement. In a binary decision between protecting jobs or protecting returns, does a GP have a mandate to use LPs’ money for the former? LPs would need to be onboard. I’d like to think they would be.

The point is that good businesses before the pandemic can be good businesses again once the crisis dissipates. To achieve this, they need support designed to help them pass their stress tests and to protect their ability to operate post recovery. For GPs and LPs alike, this is about more than performance numbers. It is about playing their part in overcoming the crisis. For the industry as a whole, it is ultimately an opportunity to come out with its reputation enhanced. Given the velocity of the crisis, we may well know more about how this plays out before very long.

He said it

“They’ve checked the boxes as far as going on-site and they’re negotiating terms remotely. That’s slowing down the process, but certainly not ending the process of investments.”

On sister title Infrastructure Investor Probitas Partners’ Kelly Deponte describes fundraising processes amid covid-19 disruption.


Happy Valley. A former Blackstone MD in Hong Kong has jumped ship. Brian Chi, who’d spent seven years at the world’s largest PE firm working on Greater China investments, has joined Shanghai-based Loyal Valley Capital, according to his LinkedIn profile. Chi was involved in Blackstone’s investment in Xinrong Medical and HEC Pharma, per a cached version of the firm’s website. Founded in 2015, Loyal Valley has over $2 billion of AUM and focuses on four sectors in China, including healthcare and the New Economy.

Credit line considerations. Our most-read piece of content in the last week was Alex Lynn‘s report on how GPs are thinking of paying of credit lines early in response to the current crisis. Sister title Buyouts has more on the topic of sub lines in the time of covid-19 today.

Common’s co-invesment. Also on Buyouts, New York State Common Retirement Fund has earmarked $2 billion for co-investments. The fund, NYSCRF NB Co-Investment Fund II, will “opportunistically co-invest primarily alongside CRF’s private equity managers”. New York Common will commit the money in three tranches, two of $750 million and one of $500 million.

Dig deeper

(Balti)more PE, please

Institution: Baltimore City Fire and Police Employees’ Retirement System
Headquarters: Baltimore, United States
AUM: $2.76bn
Allocation to alternatives: 26.8%
Bitesize: $10m-$50m

Baltimore City Fire and Police Employees’ Retirement System is on the lookout for private equity fund managers to award a $40 million mandate, according to the pension’s February 2020 board meeting minutes.

Successful procurement of a private equity fund manager will enable Baltimore to fulfil its 2020 private equity pacing plan.

LP meetings. On Monday, we normally bring you the LP meetings for the week. However, given current disruptions, we’re getting a handle on which meetings will still be going ahead (whether in-person or virtually) and will be bringing you updates as we have them.

We would love your feedback to help us make this newsletter more useful; click here to give us your opinion.

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

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