They said it
“We’re prisoners of our own design.”
Stephen Sexauer, chief investment officer of San Diego County Employees Retirement Association describes how public pensions chasing the private equity returns of yesteryear find themselves in a bind. Read more on Buyouts (registration or subscription required).
What will we be on the agenda for 2021?
ESG. Every year it seems there is a good reason to focus on ESG: this year will be particularly compelling. Fast-approaching regulatory changes mean that sustainability in investment will take a big leap forward. Funds managed or marketed in the European Union will need to comply with the EU’s ESG Regulatory Framework starting on 10 March as part of the Action Plan for Financing Sustainable Growth. This will impact all firms in the EU and the UK and those raising funds from European investors.
Diversity and inclusion. It was a prominent topic in 2020. Global protests sparked by the killing of George Floyd in Minneapolis prompted organisations to commit to take action (or accelerate plans already in place) to make their workplaces more inclusive. 2021 will see scrutiny ramp up as initiatives come online and measurable, self-imposed targets are either hit or missed.
Tax. With public finances across the globe reeling from anti-covid measures, “the tax is coming” says John Duncan Park, a managing director at investment bank Jefferies in London. Park reports PE firms in the UK wanting to push through deals before April 2021 for fear of any – as yet unknown – disadvantageous tax changes. In the US, meanwhile, the markets “seem to be pricing in a divided House and Senate”, notes Adams Street’s managing partner and head of investments Jeff Diehl: “If this happens, I think big, bold initiatives, including tax bracket changes, are unlikely, meaning there would be little direct impact on private equity deal activity.”
Carve outs. Deals came roaring back in the second half of 2020 and as this continues into the New Year expect carve-outs to form a major part of deal flow. “We see quite a substantial volume of carve-outs coming through next year in industrials and chemicals, software and tech, as well as large consumer products,” says Yawar Murad, a managing director with Alvarez & Marsal’s private equity performance improvement practice.
From making rain to catching pike
Jussi Saarinen, one of Europe’s most prominent fundraising professionals, is taking a step back. Saarinen has spent 13 years as head of client relations and capital raising at private markets powerhouse EQT and is now leaving the firm. He will spend some time “fishing for pike and building a summer/family house in Sweden, while contemplating the next phase in life”, he wrote in a post on LinkedIn. Saarinen was named in our 2018 list of 50 fundraising rainmakers. Last year EQT raised more than €22 billion. His departure was flagged in a November 2020 announcement by the firm, and his role as head of client relations will be taken on by Morten Hummelmose.
MJ Hudson, the legal and fund services group, continues to buy and build and has moved into fund and portfolio performance analytics through the acquisition of PERACS, the consultancy founded by Professor Oliver Gottschalg of HEC Paris. The group will operate under the name MJ Hudson Fund Performance Analytics. Website here.
2020 was the first year since 2011 in which capital calls to finance new investment outstripped distributions to investors, says Triago. But don’t fret, the advisory firm adds: “While the mean distribution dropped… quite a few managers returned record sums to investors, notable those focused on the broad sectors of healthcare and technology.” And this average drop in distributions pales in comparison with the one that followed the GFC. Read Triago’s report here.
Deals roared back
Search the annual deal data for evidence of a global pandemic and you may miss it; according to Refinitiv, total M&A value in 2020 was just 4 percent lower than the previous year. At the half-year mark total value was down by 41 percent on H1 2019, but this was nearly erased by a second-half surge. Private equity-backed deals accounted for the highest percentage of global M&A deals since 2007, the report noted.
LP meetings. It’s Monday, so here are some LP meetings to watch out for this week.