Side Letter: Women in Finance survey; PE’s exit premiums; New Mountain’s $12bn target

Key takeaways from the inaugural Women in Finance survey, courtesy of our colleagues at Responsible Investor. Plus: a look at private equity's exit premium; and US buyout shop New Mountain has joined a crowded fundraising market. Here’s today's brief, for our valued subscribers only.

Just happened

Women in Finance
Yesterday, Side Letter noted that – to nobody’s surprise – the private markets have work to do on improving diversity, equity and inclusion. To mark International Women’s Day, our colleagues at Responsible Investor have published the results of a new survey, intending to get a better understanding of why female representation in investment firms remains stubbornly low and what could be done to make the industry more inclusive.

The Women in Finance survey, which can be read in full here (registration required), received 87 responses from the investment community, including 48 asset managers and 10 asset owners. Questions included whether DE&I policies and/or training have been effective in relation to gender, and what examples of non-inclusive language or behaviours respondents had experienced in their career. Here are a few notable takeaways:

  • More than one-third (36 percent) said DE&I policies and/or training had not been effective in relation to gender, with 12 respondents describing these processes as “tick box” or “only for compliance”.
  • One respondent called for fewer training programmes and development initiatives for women, adding: “It makes it look like we need to develop skills we already often have when the issue is training the top.”
  • Family factors/work-life balance was identified as the top barrier to entry for women, followed by the “old boys’ club”.
  • Asked what could be done to make the investment industry more inclusive, male allyship/education for men, support for women and maternity leave were the top responses.
  • “Six months paid parental leave is one of the most impactful policies I have seen for changing middle management hiring practices,” one respondent noted.

New Mountain’s new fund
Another large vehicle is entering this year’s fundraising fray. US buyout giant New Mountain Capital is targeting $12 billion for New Mountain Partners VII, our colleagues at Buyouts report (registration required). Its predecessor closed on $9.6 billion in December 2020 after eight months in market with a $600 million commitment from California Public Employees’ Retirement System, $350 million from Pennsylvania Public School Employees’ Retirement System and $300 million from Washington State Investment Board, per Private Equity International data. Still in its J-curve, Fund VI was producing a 1.1x net TVPI as of 30 September, according to an investment memo for the Nebraska Investment Council.

New Mountain has steadily generated a net total value to paid-in multiple of 2x and above, the memo said. Fund VII is charging a 1.75 percent management fee on committed capital during the investment period, and then 1 percent on invested capital after. It has a 20 percent carried interest rate and an 8 percent preferred return.

The firm joins a crowded fundraising market. As of 9 March, there are 2,451 North American funds in market seeking $520 billion between them, according to PEI data.

They did the math

Exit premiums
Are PE assets overvalued? That’s the question on many investors’ minds in 2023, and was one of the topics addressed in PEI’s recent valuations Deep Dive. Now, Hamilton Lane‘s 2023 Market Overview, published this morning, appears to have evidence showing that there is no blanket over or under valuation of private assets. In fact, the median exit mark-up one quarter prior to exit was negligible (0.2 percent) between Q3 2020 and Q3 2022. What’s more, the median exit mark-up a year prior to exit was 21.5 percent, suggesting LPs are more likely to be pleasantly surprised by their returns, rather than disappointed.


Too much of a good thing?
Private markets participants have made strong inroads on the standardisation of ESG reporting. Now, however, it seems too much of a focus on standardised data can impact on the materiality of the data itself. That was the opinion of multiple ESG heads speaking to our colleagues at New Private Markets on the sidelines of PEI Group’s Responsible Investment Forum in New York last week. Fund managers are being forced to collect data that is “not necessarily material to [the firm’s] value creation strategy”, one ESG head at a mid-market PE firm told NPM (registration required). Another added: “We want to bake [ESG] into value creation… so the data we are seeking [is] very nuanced and tailored for our portfolio companies.”

In addition to being forced to collect data as part of LPs’ due diligence, industry-wide programmes like the ESG Data Convergence Initiative require GPs to collect and report on even more information that may not be relevant to their own operations. “If I cannot articulate the business case for where we need this data to my CEOs or CFOs, they probably shouldn’t be collecting the data,” the second ESG head added, noting that in some cases their LPs can’t articulate a reason for wanting this information.

Side Letter reported a few weeks ago that 90 percent of portfolio companies are unsure of how to provide their owners with the ESG data they require, per KEY ESG data. While a more standardised approach to reporting may plug some of these gaps, conference attendees’ comments suggest there is no silver bullet.

Today’s letter was prepared by Alex Lynn with Carmela Mendoza, Helen de Beer and Madeleine Farman.