Side Letter: Värde’s permanent capital, LPs on remote commitments, what the US election means for GP interests

The allure of permanent capital has got to alternatives firm Värde Partners; it has inked a deal to manage insurance assets. Plus: free LP webinar, PRI gets tough, LPs on the pandemic and more. Here's today's brief, for our valued subscribers only.

He said it

“There’s a lot more stuff coming our way and not a lot of excuses on why we can’t take meetings.”

Wes Bradle, senior portfolio manager at the Florida State Board of Administration, talks at the EisnerAmper Alternative Investment Summit about how LPs are finding it harder to switch off and say no to GP video calls.

Just happened

Live LP discussion

Hear from three LPs tomorrow on how they are coping with remote due diligence and how they see business operating in 2021 and beyond. At 1pm ET colleagues on sister title Buyouts will be hosting a complimentary webinar with New York City Retirement, Steward Asset Management and Arizona Public Safety Personnel Retirement SystemRegister here.

Värde’s insurance play

Anyone wondering why more alternatives firms haven’t launched setups like Apollo Global Management’s tie-up with insurer Athene, as chronicled here in this excellent Financial Times article (paywall)? Well, it looks like Minneapolis-headquartered Värde Partners is following suit. Best known for its credit strategy, the firm said it had agreed to form a strategic partnership with fixed index annuities issuer American Equity Investment Life, the first deal from a joint venture the firm formed with insurance provider Agam Capital Management last year. In the firm’s own words:

“Under the terms of the agreement in principle, Värde will establish a Bermuda reinsurance company that would reinsure $5 billion of American Equity fixed index annuity liabilities. American Equity and Värde will also jointly establish an asset management entity to provide insurance asset management services to the reinsurance company. American Equity is intended to have a significant minority interest in the new reinsurer and a 35 percent interest in the newly formed asset manager.”

Matthew Hudson, chief executive of alternatives consultancy MJ Hudson, tells us this is a “smart move” as it gives them both new management fees and permanent capital, as well as creating a new “[Warren] Buffett-like” insurance balance sheet out of thin air. “I am surprised most larger managers haven’t made the same move, following Apollo.”

No more Mr Nice PRI

The Principles for Responsible Investment has booted out five signatories for failing to meet its minimum requirements. This is the first time the organisation has taken such a measure and it follows a process that started in 2018, whereby signatories that were not making the grade (of which there were 165) were identified and engaged with. After two years this list was whittled down to the five organisations, ultimately delisted. Don’t worry, none of them were private equity firms (list here).

They did the math

LPs adapting. LPs are getting comfortable investing in managers without physical meetings, according to Eaton Partners’ latest LP Pulse Survey. Two-thirds of LP respondents said they can make a new investment without face-to-face interactions. What’s behind this? An overwhelming majority (83 percent) don’t expect physical meetings to resume until early next year. What’s more, nearly half of LPs said the pandemic’s biggest impact is still ahead of us.

Essentials

The election is coming! Take some cash off the table!

GP interest investors say GP interest deals are getting even more interesting to GPs. To be more specific, conversations that GPs are having about selling a stake to an outside investor are being fast-tracked to get the deal done before the US election. This is according to two unnamed investors in such deals.

Says sister title Buyouts (subscription required): “GP stakes funds in deal talks with private equity firms are hearing concern about the potential impact of major tax reform if the Democrats win both the White House and the Congress, two persons with knowledge of the matter said. To guard against this, some deals slated to close in 2021 will be moved up.”

Dig deeper

Institution: Connecticut Retirement Plans and Trust Funds
Headquarters: Hartford, US
AUM: $35.23 billion
Allocation to alternatives: 14.5%

Connecticut Retirement Plans and Trust Funds has invested up to $550 million to private equity funds so far in 2020, noticeably behind its 2020 pacing target, according to a September 2020 investment meeting document.

Highlights from CRPTF’s September 2020 investment committee meeting:

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


Today’s letter was prepared by Toby Mitchenall with Adam Le and Carmela Mendoza.

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