Just happened

Before we get into today’s news, we have a favour to ask. At a time when LP-GP relationships are being tested by capacity constraints and macro uncertainty, the opportunity to network with new and existing contacts is even more important. Private Equity International will be running a major networking event for LPs and GPs in North America in early 2024 and we would love your input. The survey takes less than 5 minutes to complete, and your insights will directly shape the format, content and overall experience of the Private Markets Investor Summit 2024.

TPG’s targets
Several years ago, it would have seemed unthinkable that a blue-chip, listed firm would express anything other than total conviction that its flagship funds would reach their targets. And yet, speaking on TPG‘s full-year 2022 results yesterday, CFO Jack Weingart told analysts: “It’s too early to tell if we will hit all of our targets, but we feel very good about the progress we are making across all of those funds.” The firm hopes to wrap up fundraisings this year for TPG Partners IX, which has so far raised $8.9 billion against a $15 billion target; Healthcare Partners II ($1.9 billion against $3.5 billion), Asia VIII ($3.4 billion against $6 billion) and Rise III ($1.55 billion against $3 billion).

“Fundraising always has kind of a natural arc to it and oftentimes after a large first close, like we’ve had in all these funds, you tend to see a bit of a backloading to the remainder of the campaign,” Weingart said. “I think that’s always true. It’s even more true in today’s fundraising environment.” He added that the firm has “a lot of untapped potential” in Europe, insurance and the high-net-worth channel.

TPG is unlikely to be alone in its thinking. Blackstone, for example, hasn’t disclosed the target for its buyout flagship, Blackstone Capital Partners IX, which our colleagues at Buyouts reported may be seeking as much as $28 billion (registration required). It has instead said the vehicle is likely to be “at least as large as the prior fund”, closed in 2019 on $26.2 billion. Apollo Global Management, meanwhile, has kept its fund open longer, citing the denominator effect.

Here are some other takeaways from TPG’s earnings call:

• The firm expects to begin fundraising for its next flagship growth fund by mid-year and launch inaugural funds in real estate credit and Rise Climate infrastructure.
• TPG raised $30 billion in 2022, up 47 percent over the prior year.
• It ended the year with $43 billion in dry powder, up 51 percent from 2021.
• Total AUM was $135 billion at year-end, up 19 percent.
• Deployment and exits totalled $16.6 billion and $15.5 billion, respectively.

KIC’s bright spot
Korea’s sovereign wealth fund saw PE as a bright spot in a disappointing year for returns. Korea Investment Corporation reported a 14.7 percent return for the asset class last year, and 7.6 percent for real assets, according to the Korea Economic Daily. This was despite posting a 14.4 percent loss for the overall portfolio, its worst since 2008. The poor performance was driven by equities (-19.3 percent) and bonds (-16.7 percent). With such figures in mind, it’s little surprise that KIC raised its alternatives exposure by 540 basis points last year, reducing traditional assets by 230-340bps.

Fossil fuel fightback
The debate over adhering to environmental and sustainability goals at the perceived expense of not fulfilling one’s fiduciary responsibility to maximise financial returns continues. Last week, Kentucky County Employees Retirement System voted to approve a letter to its state treasurer advising that the pension would not divest from any of the 11 financial institutions that the treasurer’s office has said is boycotting energy companies, our colleagues at Responsible Investor report (registration required).

It isn’t clear whether Kentucky CERS’s relationships with those financial institutions – which include BlackRock, BNP Paribas and Schroders – cover private markets. CERS is the latest US pension to push back against fossil fuel divestments: Indiana Public Retirement System has warned that requiring it to divest from certain managers over fossil fuel issues could cause a significant reduction in investment returns, while Florida State Board of Administration told our colleagues at Buyouts last year that the pension has an obligation to maximise returns “over and above political, social and ideological objectives” (registration required).

Further complicating the matter is that even complying with fossil fuel-related divestments can prove costly, as Side Letter noted here. Our take: US pensions appear to be between a rock and a hard place when it comes to fossil fuel divestments versus what they see as their fiduciary responsibilities, regardless of which side of the argument they land on.

Essentials

Safety in numbers
Secondaries buyers are tilting toward less concentrated bets in an uncertain macroeconomic environment. Multi-asset continuation funds accounted for 34 percent of GP-led secondaries volume last year, up from 31 percent the prior year, our colleagues at affiliate title Secondaries Investor report (registration required), citing data from Lazard. Single-asset transactions, on the other hand, dropped to just 40 percent last year from 52 percent the prior year.

“When there is economic uncertainty, secondary investors retreat to what they view as safety,” Holcombe Green, Lazard’s global head of private capital advisory, told SI. “And what secondary investors typically view as their own version of safety is diversification. They do more LP deals, and they prefer diversification in their GP deals where they can have more than one way to win.” Expect this trend to continue on into 2023.

Individual impact
Writing about democratisation feels like a full-time job for private markets reporters these days. This time it’s the burgeoning climate sector that has caught our eye, with VC platform Carbon Equity seeking $75 million from retail and individual investors for its second fund, Climate Tech Portfolio Fund II, our colleagues at New Private Markets report (registration required). Climate Tech II has a minimum ticket size of €100,000 and will have exposure to more than 150 underlying companies in the climate tech space.

Carbon Equity follows in the footsteps (or tentacle steps) of Octopus Investments, which in January unveiled plans to tap UK-based individuals via its Future Generations VC trust. Climate investing could be a natural fit for individual investors who, like family offices, often have a predilection for impact and sustainability. What’s more, tapping new pools of capital seems a no-brainer at a time when some LPs are finding themselves overallocated to the asset class or (as we noted yesterday) even considering pulling back.

Dig deeper

Institution: Maine Public Employees Retirement System
Headquarters: Augusta, US
AUM: $18.5 billion
Allocation to alternatives: 49.3%

Maine Public Employees Retirement System has made $95 million in commitments across two private equity vehicles, a source at the pension has confirmed.

The pension has committed €20 million to Summit Partners Europe Growth Equity Fund IV and €75 million to Ares Capital Europe VI. MainePERS has been a long-term investor in funds managed by Summit Partners, having committed to vehicles including Summit Partners Europe Growth Equity Fund III and Summit Partners Venture Capital Fund IV.

Similarly, MainePERS has invested in the Ares Capital Europe fund series, including Ares Capital Europe V in 2020 and Ares Capital Europe IV in 2018. As of March 2022, Fund IV has called almost 80 percent of MainePERS’ capital commitment and Fund IV has called 40.9 percent. In Q1 2022, the pension reported that Fund IV’s net IRR was 3.8 percent.

The $18.5 billion US public pension is overexposed to private equity: its target allocation is 12.5 percent and current exposure is 19.3 percent. As of last month, its private equity portfolio was valued at $3.6 billion. As illustrated below, the pension has predominantly targeted North American or European vehicles.

For more information on MainePERS, as well as more than 5,900 other institutions, check out the PEI database.

Today’s letter was prepared by Alex Lynn with Adam Le, Carmela Mendoza and Helen de Beer