Side Letter: UTIMCO bites big, pref’s allure, two-and-20 redefined

On the lookout for the next big strategy in private equity? Preferred equity could be your best bet. Here’s today's brief, for our valued subscribers only.

Just happened

What’s your preference?

Preferred equity is going to be the next big trend in the secondaries market – that’s the biggest takeaway from our 26-minute podcast with 17Capital’s Augustin Duhamel (pictured, left). His firm – one of only a handful of preferred equity specialists out there – saw close to $10 billion in dealflow last year. GPs are also using the pref (as it’s known in the biz) as an alternative to selling minority equity stakes, and a market correction could be a boon for the strategy. Listen to the whole conversation here.

UTIMCO eyes funds the size of…

University of Texas System‘s investment arm plans to increase allocations to large funds, halve its GP list and write bigger cheques as part of a significant shift in strategy. One of the drivers: keeping pace with UTIMCO’s rapidly increasing AUM – up 170 percent over the last decade. The manager’s large buyout funds have also outperformed their small buyout peers. What’s more, the small buyout landscape is vast, and “it takes a lot of intensity to find really good ones”, says senior director for private equity Patrick Pace.

Two-and-20 redefined

More than a fifth of funds are charging management fees in excess of 2 percent during their investment period, according to research by MJ Hudson. This is almost double the proportion of funds compared with a year ago, and managers are “looking to either innovate or test the extremes of what LPs will accept, the consultant notes. With predictable and increasing capital streams coming in via management fees, it’s no wonder the GP interest strategy is the fastest growing sector of the market.


Adventurous LPs part 3. Next up in our celebration of private equity’s most adventurous LPs: the veteran investor managing an oil and gas company’s pension funds whose intelligence and focus has drawn widespread praise; and the sovereign wealth fund alternatives head who considers creativity a necessity.

Trading places. Multi-family office Gresham Partners has tapped the former co-head of private markets at Florida’s Alfred duPont Charitable Trust. Sean Warrington spent nine years at the $6.5 billion endowment, which has around a 25 percent allocation to private equity, according to its website. Warrington will serve as principal and portfolio manager at Chicago-based Gresham Partners, he said in a LinkedIn post on 29 June. The firm manages or advises on around $5.5 billion for approximately 100 US clients.

Dig deeper

Sacramento allocations. Sacramento County Employees’ Retirement System has committed $30 million to Accel-KKR Capital Partners VI. Here’s a breakdown of the $9.5 billion US pension’s alternative allocations. For more information on SCERS, as well as more than 6,700 other institutions, check out the PEI database.

He said it

“The parade of principals is in full effect. We try to prioritise our time here”

UTIMCO senior director of private equity Patrick Pace tells a June board meeting about the number of GPs on the fundraising trail approaching the endowment for a commitment. The comment was followed by laughter from the board.

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Today’s letter was prepared by Isobel MarkhamAdam LeAlex Lynn and Preeti Singh

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