Side Letter: Warren’s war, CVC long-term raise, Florida’s PE flip

US senator Elizabeth Warren's bill would make it almost impossible for PE to invest in struggling businesses, says an industry lobby. Are they right? Here’s today's brief, for our valued subscribers only.

Just happened

Our take on Elizabeth Warren

The private equity industry is on alert after the release of the Stop Wall Street Looting Act of 2019 co-written by Senator Elizabeth Warren (pictured) of Massachusetts, which would completely overhaul the private equity industry. This story from our Buyouts colleague Chris Witkowsky unpacks the bill.

It’s highly unlikely the bill in its current form will become law, but it’s a pretty clear signal of what Warren – one of the frontrunners in the Democratic primary race – will be looking to make a reality if she becomes President next year.

People in the industry are concerned. As one source we spoke with pointed out, this goes well beyond the usual digs at the so-called “carried interest loophole” candidates make on the campaign trail; this is detailed and comprehensive, touching on many key aspects of how the industry operates.

The increased liabilities on private equity firms proposed in the bill would make it “next to impossible” for firms to invest in “struggling businesses that need capital”, the American Investment Council said in a note on Friday.

A few things beyond the headlines that stood out to us:

  • Monitoring and transaction fees would be off the table
  • So would preferential terms for certain limited partners, such as early-bird fee discounts or size-based fee discounts
  • Among the significantly enhanced fees and returns disclosure obligations is the requirement to publicly disclose the identities of LPs in the fund – something certain investors are surely unlikely to take kindly to

What’s the most concerning part of this bill for you? Let us know.

A closer look at Strat Opps II

CVC Capital Partners’ long-dated strategy has around $10 billion committed and invested, following the €4.6 billion final close for its sophomore vehicle last week. Here’s what Strat Opps co-head Lorne Somerville said about the fund: the team is targeting up to 12 investments this time, more than the seven completed in Fund I; its LPs want more co-investments and the firm is set to invest at least €1 billion for this offering; when it comes to selecting low-risk investments, the team looks at duration, structure and leverage.

Florida SBA’s small and specialist manager strategy

It took Florida State Board of Administration almost five years to restructure its PE portfolio to focus on smaller and specialist managers. Consider this: today, 70 percent of the pension system’s buyout commitments are to specialist funds and the portfolio is flipped on its head – seven large and 17 small buyout funds, compared with 16 large and seven small in 2011. The pension is also not keen on managers that change their strategy as their fund size increases. “We wish them well and don’t re-up,” senior investment officer for private equity John Bradley tells us.

Essentials

CIC’s Korea play. China Investment Corporation has South Korea in its crosshairs. The $940 SWF is understood to have partnered with South Korean banking group Hana Financial to launch a dedicated investment vehicle for companies looking to expand from one market to the other, according to Korean Investors. The pair are expected to raise at least 1 trillion won ($850 million; €757 million) from themselves and other institutional LPs. CIC has made similar plays in the past, partnering with Goldman Sachs for its $2.5 billion China-US Industrial Cooperation Partnership in 2017 and launching a fund with Japan’s Nomura last year.

Blackstone’s PE lull. Private equity was Blackstone’s worst performing asset class in Q2 2019. Corporate private equity returned 0.7 percent, down from 9.5 percent year-on-year, according to its latest earnings. CFO Michael Chae attributed the decline to decreases in the public portfolios and some energy positions, but suggested returns would bounce back in Q3 due to a two-quarter lag in reporting. Private equity raised almost $15.7 billion during the quarter, driven primarily by Strategic Partners and infrastructure, which closed on $11.1 billion and $14 billion respectively.

Fundraising scoop. Lower mid-market Italian firm Wise Equity SGR has held a first and final close on its latest fund on its €260 million hard-cap, after less than two months in the market.

LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.

Inside tip

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

Dig deeper

In the market for a manager. Public Officials Benefit Association has issued a request for proposal for overseas blind-pool fund managers. It aims to commit a total of $150 million to three asset classes including private equity, secondaries and private debt. Check out the details of what the $10.4 billion South Korean pension fund is looking for here. For more information on POBA, as well as more than 6,700 other institutions, check out the PEI database.

He said it

“The people who don’t invest in this are going to fall behind.”

Neuberger Berman global head of alternatives Tony Tutrone tells Bloomberg private equity is “going to go quant just like everyone else”.


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


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