Mega-Manifest Destiny Is PE Becoming the New Wall Street? by David Snow

PRIVCAP The Monthly Magazine of Privcap.com DIGEST/ May 2013 Mega-Manifest Destiny Is PE becoming the new Wall Street? by David Snow In This Issue: Can Unions and PE Get Along?/ 06 Fundraising’s New Rules / 09 Coming Home: The Real Estate Rebound / 12 T.J. Maloney: Deal Hunter / 15 This publication is exclusively for Privcap subscribers © 2013 Privcap LLC 2 / Contents In This Issue Up Front Quotable Privcap LLC 03 A roundup of market intelligence shared on Privcap.com David Snow Snow’s Notes Co-founder and CEO Is PE the new Wall Street? By David Snow Gil Torren 04 Co-founder and President Getting Along 06 Carlyle’s Brian Bernasek on working with Content unions. By Danielle Fugazy Deal Story: South Beach Diet Matthew Malone MidOcean Partner’s Ted Virtue on its recent Editorial Director 07 acquisition Tanya Klitch Media Manager Must See 08 Privcap’s upcoming programming schedule Design Miguel Buckemeyer Features Art Director Fundraising’s New Rules Vasheena Doughty 09 Our experts explain how to adapt to the Production changing dynamics of raising money Coming Home Contributors 12 Dan Vene on the real estate rebound. By Tanya Klitch Tom Stein & Tim Devaney Danielle Fugazy ESG in the Emerging Markets 13 PE pros looking to make good on ESG would do Contacts well to observe the world’s developing economies Deal Hunter Editorial Lincolnshire Management’s T.J. Maloney on David Snow / [email protected] 15 maintaining deal flow. By Danielle Fugazy (646) 233.4558 Matthew Malone / [email protected] (646) 801.2337 From Our Sponsors Sponsorships & Sales Expert Q&A Gill Torren / [email protected] 16 Steven Menkaer of McGladrey (646) 233.4559 Interview transcripts in this issue have been edited for clarity and length. For subscriptions, please call 855-PRIVCAP or email [email protected] About Privcap Digest Privcap Digest is a monthly publication exclusively for Privcap subscribers. It offers in-depth features and edited summaries of the most recent and important thought-leadership from Privcap.com. The Privcap editorial team has extensive experi- ence reporting on the global alternative investment industry. For inquiries about the Digest, please contact Matt Malone at [email protected]. Copyright © 2013 by Privcap LLC All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechani- cal methods, without the prior written permission of the Privcap LLC. For permission requests, contact Gill Torren at [email protected]. Privcap Digest / May 2013 / 2 3 / Market Intelligence Quotable/ A roundup of market intelligence shared on Privcap.com I stay away from social media. I You see volatility in the markets, I think most people in the private would jokingly call this a reverse and from our point of view, volatil- equity community probably get Russian roulette. There’s only one ity is really what creates opportunity. If things strategically close to right. But chamber without a bullet.” the world had perfect information and the key difference is how you execute Axel Tillmann, RVC-USA, from “From Russia, asset flows were consistent, everything it, how you monitor it and how you With Capital” )Link would move in a very rational line.” bring it to fruition.” Erik Falk, KKR, from “Credit Investing in An Frank Schiff, MidOcean Partners, from Uncertain World” )Link “MidOcean’s 100 Day Plan” )Link That availability of local capital can One of the challenges in this I think it’s constantly being in really be an important detonator industry is that GP’s don’t really front of those individuals that for the development of the industry.” know how to communicate effectively have the potential to bring you an Cate Amrbose, LAVCA, from “The Colombia with LP’s. They don’t really understand opportunity is really the key to the Private Equity Opportunity” )Link the questions that we ask because it’s business.” really not their day job.” TJ Maloney, Lincolnshire Management, from Andrea Kramer, Hamilton Lane, from “How Lincolnshire Does Deal Origination” )Link “Effective IR for GPs” )Link Professionals from the following firms and organizations recently appeared on Privcap: On Camera New Mountain Capital • ConceptONE • Cambridge Associates • Independence Capital Partners • ILPA • Castle Harlan Partners Group • Argosy Private Equity • Adams Street Partners • Cogent Partners • StepStone Group • Sound Harbor Partners Zurich Alternative Asset Management Privcap Digest / May 2013 / 3 4 / Commentary Snow’s Notes Mega-Manifest Destiny It’s only a matter of time before the big firms known as ‘PE shops’ are all in the same businesses and geographies very ten years or so, the private equity A distinctive term is necessary because these industry wrings its hands over what firms are unique entities on Wall Street, even as exactly it should call itself. The repel- they increasingly are coming to define the Wall lent “corporate raiders” gave way Street of the 21st century. And while all firms to the still-ominous phrase, “lever- remain different by way of strategy, resources aged buyouts.” “Private equity” ar- and culture, they are all getting into similar busi- rived as a sanitized, hostility-free alternative, though nesses and geographies. It is as if a treasure map Market it, too, has acquired a pejorative edge. Nonetheless, it to a new kind of Wall Street powerhouse has been analysis by appears that “private equity” is here to say. unearthed, and everyone is racing to find it. Privcap CEO But the industry has a new naming problem— To see what the race looks like, I created a David Snow while “private equity” is a technically accurate back-of-the-napkin comparison of eight of the term for a certain kind of investing, it is now being biggest multi-strategy firms to see who was and applied to the entire range of investment and wasn’t in certain strategies and certain parts of the advisory activities now overseen by firms that world (page 5). I’ve given each a “diversification” started life as LBO shops. score based on the breadth of their operations. Blackstone is one of the largest real estate in- A few observations: vestment firms in the world; in fact, its property arm is larger than its private equity group. “Private • Of the largest eight firms, only Bain and TPG equity” firm Oaktree is a dominant credit investor. are not publicly traded. How long can this last? Mitt Romney’s former “private equity” firm has Perhaps the current senior partners at these five major business lines, only one of which is two firms say they have no interest in going focused on traditional private equity. public, but what about the next generation? But what else to call the collection of firms that • Every firm now manages a credit strategy, continue to diversify their businesses as they in some cases enormous platforms like Black- grow? Perhaps “private equity” will take on a stone’s GSO. Credit and buyouts seem to useful designation that is independent of its roots, marry very well, all the way down to the much as “investment banking” defines a range of middle market, where BDOs and lending activi-ties on Wall Street, most of which are divisions have proliferated. neither investing nor banking. • All eight have operations in North America, Western Europe and East Asia. It is as if a treasure map to a new kind Some of the strategy/geography “holes” are of Wall Street powerhouse has been notable, and could indicate the next big hire or acquisition. Blackstone does not offer any direct unearthed, and everyone is racing to hedge funds, though it has one of the largest hedge find it. fund-of-funds platforms. By contrast, its acquisition of the Credit Suisse secondaries division means it is now in the business of managing the fund interests of rival private equity firms, despite having its own direct private equity investment . CONTINUES ON NEXT PAGE Privcap Digest / May 2013 / 4 5 / Commentary platform. Bain is the last of the “megas” with no real estate division. Apollo, despite being a master of the capital markets, offers no advice-for-fee in this area, like Blackstone and KKR. Another hole—Carlyle is everywhere in the world but Russia. But it’s the only firm with a presence in Africa. In ten years will any of these firms (if they remain independent entities) remain holdouts for any of these strategies or geographies? Not likely. And the list of businesses lines operated by “private equity firms” may very well be twice as long. ■ L Follow David Snow on Twitter @SnowsNotes A look at the business lines and geographic operations of seven of the Mega-PE Diversity Grid largest diversified alternative investment firms. Each firm is awarded a “diversity point” per strategy and geography. Strategies TPG Blackstone KKR Goldman * Carlyle Apollo Bain Oaktree Private Equity XXXXXXXX Real Estate XXXXXX X Credit XXXXXXXX Hedge Funds X XXX XX Infrastructure/Energy XXXX X Asset Management XXXX Capital Markets XXX Listed Products XXXXX Geographies N. America XXXXXXXX L. America X XXX W. Europe XXXXXXXX EE/Russia XX X MENA XXXX Africa X India XXXXXXX Asia/Pac XXXXXXXX Diversification Points: 10 13 14 15 14 8 7 8 * For comparative purposes, the Goldman Sachs entry is a compilation of units from the firm’s merchant banking as well as asset management businesses. Privcap Digest / May 2013 / 5 6 / Takeaway By Danielle Fugazy Click to watch this video at privcap.com Unions: The “Win-Win” Way Brian Bernasek of The Carlyle Group says unions and PE can get along Yet Brian Bernasek, a managing director with the Carlyle Group, says it doesn’t need to be that way.

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