ANNUAL REVIEW 2018 Waking up to impact A Recognized Leader
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ISSN 1474–8800 MARCH 2019 injected extra impetus into the movement, but TOBY Senior Editor, Private Equity MITCHENALL has also raised questions about definition. Who Toby Mitchenall, Tel: +44 207 566 5447 EDITOR'S [email protected] LETTER should be allowed to raise capital under the Senior Special Projects Editor “impact” label? It is currently a broad church, Graeme Kerr, Tel: +44 203 862 7491 [email protected] housing everything from philanthropically- Senior Editor, Private Equity, Americas driven capital that does not require “market” Isobel Markham, Tel: +1 646 380 6194 [email protected] returns at one end, to sleeves of existing port-
Senior Reporters folios screened for their contribution to posi- Rod James, Tel: +44 207 566 5453 [email protected] tive change at the other.
Carmela Mendoza, Tel: +852 2153 3148 One of our most read stories of 2018 broke the The definitional grey-ness is evident in the [email protected] news that KKR was joining the impact investing impact category of our annual awards. It is Reporter Alex Lynn, Tel: +44 207 566 5463 fray. Reporter Alex Lynn found reference to the won this year by Actis. It is a firm founded [email protected] firm’s first impact vehicle in an obscure regula- with impact in its DNA having spun out from Contributors Brian Bonilla, Sophie Colby, Marine Cole, tory filing and followed the thread from there. a development finance institution (see p. 41), Sheikh Jahan, Raymond Lau, Adam Le, Muhammad Obaid, Victoria Robson, It clearly struck a nerve: only two pieces of but you’d be hard pressed to find a mention of Craig Savitzky, Stephen Schultz, Chin Yuen content generated more tra c to our site in the i-word anywhere on its website. Managing Editor – Production Mike Simlett, Tel: +44 20 7566 5457 what was our busiest year yet: the Rainmaker At the largest annual gathering of impact [email protected] 50 (a list of influential individual fundraisers) folk, hosted by PEI and the Global Impact Head of Design Miriam Vysna, Tel: +44 20 7566 5433 and the results of our annual awards. Investing Network, I asked Sir Ronald Cohen, [email protected] The curiosity of our subscribers is mir- the godfather of impact investing, whether Head of Marketing Solutions Alistair Robinson rored by growing investor interest. Pioneer- another big theme or the year – the downfall Tel: +44 20 7566 5454 [email protected] ing impact managers, such as LeapFrog Invest- of the Abraaj Group (see p. 4) – would dent
Subscriptions and Reprints ments and Bridges Fund Management, have the image of impact (Abraaj squarely pitched Andre Anderson, +1 646 545 6296 [email protected] now been joined in the strategy by established itself as an impact investor). Short answer: he
Daniele Lorusso, +44 207 566 5432 private equity franchises. Partners Group, Bain said it would not. [email protected] Capital, Goldman Sachs and, probably most Perhaps ultimately the lack of definition of Sigi Fung, +852 2153 3140 [email protected] notably, TPG Capital are all either raising or impact will prove a benefit to the entire PE
For subscription information visit managing impact capital. Among the newer industry. Which of our award winners (see p. www.privateequityinternational.com. entrants into the segment TPG stands out. 34) would say their investments do not bring Director, Digital Product Development Having raised a $2 billion debut fund from a positive impact? In the modern era of ESG Amanda Janis, Tel: +44 207 566 4270 [email protected] high-profile limited partners such as the monitoring and value creation, one would hope Editorial Director Washington State Investment Board, Swedish the answer is none. Philip Borel, Tel: +44 207 566 5434 [email protected] pension fund Andra AP-fonden, Regents of the Director of Research & Analytics University of California and UBS Group and Congratulations to all our winners. Dan Gunner, [email protected] made 25 investments, it is now out raising up Head of Investor Research Nicole Douglas, [email protected] to $3.5 billion for a follow-up. It is this rapid Enjoy the review. Publishing Director progress in the institutional space that led us Paul McLean, [email protected] to select TPG’s Bill McGlashan as our Private Chief Executive Tim McLoughlin, [email protected] Equity Game Changer of the Year (See p. 37). Managing Director — Americas Like-minded investors have been banging Toby Mitchenall Colm Gilmore, [email protected] the drum for impact for around a decade. The Managing Director — Asia e: [email protected] Chris Petersen, [email protected] arrival of mainstream private equity firms has
CONTENTS
STORIES OF THE YEAR KEY THEMES 2018
4 Abraaj’s downfall 26 The best value creators 67 The year in fundraising 2018 Operational Excellence Awards Private equity fundraising slowed 6 China’s booming buyout market were among the toughest ever for in 2018, with fewer, larger funds entries, the judges said dominating the market 8 GP-leds: Going solo 28 A year in Friday’s letter 72 Secondaries: Deals surge in size 10 The retail apocalypse The highlights from our weekly Fundraising fell back last year in the column delivering insight into the secondaries market, but deal volume 12 The Pan-Asian fundraising industry’s most important issues hit new records, setting the stage for goldrush new milestones in 2019 30 Seven new PE stories in 2019 14 The great C-corp debate What’s going to make the headlines 76 North America: The deals this year? PEI turns its hand to crystal keep on turning 16 Impact reaches tipping point ball gazing US private equity activity is likely to continue apace whatever happens to 18 Tokyo rising 32 Privately spoken the economic and credit cycles The pick of our monthly feature 20 Blackstone’s $1trn man interview with some of the biggest 78 Europe: Big funds and Brexit names in private equity bargains 22 A mega year for new strategies Hefty funds coming to market and the 88 Quotables potential for cheap deals after Brexit 24 Lyceum Capital’s rebirth The best soundbites of the year are on the minds of PE practitioners
80 Asia: China shapes the region Asian private equity in 2019 will see THE PRIVATE EQUITY INTERNATIONAL AWARDS 2018 a reshaping of dealflow and strong investment activity in China and Japan
82 LP Perspectives: Seven sentiments that matter Here are the charts that tell us what LPs think of today’s major talking points
72
34 Introduction 38 Global
36 The roll of honour 42 EMEA
37 The Private Equity Game Changer 52 Americas of the Year 57 Asia-Pacific 80
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ABRAAJ GROUP Six-month death spiral
The firm’s swift fall from grace in 2018 provides their assets, according to creditor docu- a compelling reason for LPs to conduct thorough ments seen by Private Equity International. So how could emerging markets pri- scrutiny of governance practices, writes Adam Le vate equity’s biggest and best-known firm implode within such a short amount of If there is one story that continually made time, and what lessons have been taken the headlines in 2018 it is the downfall of from the episode? Market sources point Abraaj Group. to the need for increased due diligence on Once the darling of emerging markets managers – both developed and emerging private equity, the Dubai-headquartered markets alike. firm took just six months to go from the “Abraaj’s issues are not about markets, Gulf region’s largest private equity firm they’re about governance and GP structure,” with around $14 billion in assets under said Neil Brown, head of Actis’s investor management, to facing provisional liquida- development group. “Most sophisticated tion with its various regional fund platforms LPs get that.” being sold o to global buyers. Regardless of how thorough their gov- Reports emerged in February that lim- ernance scrutiny was before, further trans- ited partners in Abraaj’s $1 billion Global parency about manager overheads must be
Healthcare Fund had hired auditors to Fast fall: founder Arif Naqvi stepped aside inevitable, as we wrote in July. trace capital that was to be invested in within three weeks Of course, as Ahmed Badreldin, Abraaj’s medical projects in India, Pakistan, Kenya former head of MENA, wrote in a guest and Nigeria. Within three weeks, founder commentary for PEI in October: “You Arif Naqvi had stepped aside and the fol- can have all the processes and systems in lowing month the firm had suspended place, but in the end it’s all about the people fundraising. Abraaj’s issues implementing these and the appropriate Numerous private markets investors third-party checks to make sure what is including TPG and Cerberus Capital Man- are not about being preached is being practised.” agement then threw their hats into the ring markets, they’re The way LPs work with GPs has to for Abraaj’s fund platforms. Colony Capital, about governance and change, and while it may at times seem Brookfield Asset Management and Actis investors are not in a position to do this, were the among the firms to be eyeing GP structure Abraaj’s swift fall from grace provides a Abraaj’s regional investment teams and Neil Brown compelling reason to try.
TIMELINE
February June Reports emerge that LPs in Abraaj’s Cayman Islands court $1 billion Global Healthcare Fund have approves Abraaj’s hired auditors to trace capital; founder application for Arif Naqvi steps aside at end of month provisional liquidation
01 02 03 04 05 06 07 08 09 10 11 12 2018
March July Abraaj cancels annual Cerberus Capital Management offers less than Dubai investor week, $20 million for Abraaj’s funds businesses, less suspends fundraising than one-sixth of its initial June bid
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PEI_be_ADV.indd 1 18/02/19 16:46 STORIES OF THE YEAR
CHINA ‘Buyouts will be the next big thing’
Managers in China are transforming from minority and real estate. Warburg Pincus struck its investments to control deals, amid a generational shift first control deal in China in November, acquiring the China healthcare business of among company owners, reports Carmela Mendoza DKSH for $100 million. Warburg is also gearing up for a capital raise early next year, Doing buyouts in China has never been companies are getting old, the next genera- seeking up to $4 billion for Warburg China easier – business owners are more receptive tion of their families may not be interested Fund II. It expects to make more late-stage to control, companies are moving towards in taking up the reins, and there is no suc- control deals from the fund. operational transformation, and capital cession planning in place.” China PE’s new stage of maturity has also from state-backed sponsors and strategic Capital raised for China more than seen an influx of managers focused on mid- investors is abundant. doubled in the last year, from $7.8 billion market buyouts. Centurium Capital, founded James Donnan, managing director of in 2017 to $20.2 billion from January to by ex-Warburg Pincus head of China David Intertrust Hong Kong, said: “Buyouts will November 2018, according to PEI data. Li, which is nearing its $1.2 billion final close, be the next big thing and will overtake CITICPE closed its $2.3 billion CPE plans to allocate close to 50 percent of the venture capital in China in the next few China Fund III above target in July, target- fund to control buyouts. Dehong Capital years. The interesting thing for buyout funds ing buyout opportunities across six sec- Partners, set up by former KKR China senior is that there is a generational shift about tors: technology and internet; industrial executives, has a $1.5 billion target. to take place in the ownership of Chinese and energy; financial and business services; “The market has opened up for newer, private companies. The founders of these consumer and leisure; medical and health; smaller general partners that are experi- enced and have proven that they have deal flow execution,” said an Asia-based place- ment agent. It is a similar story for global and regional GPs with China-focused funds, which have grown their fund size and are looking to write larger cheques, he added. The lack of teams that can implement operational transformation may, however, throw a major wrench in China’s buyout revolution, CITIC Capital founder Yichen Zhang noted. “For buyout type of deals there’s still generally a lack of a deep pool Buyout boom: capital raised more than doubled in 12 months of operating talent.”
TIMELINE
June July Centurium Capital holds CITICPE holds $2.3 $925 million first close billion final close on on debut fund third China fund
01 02 03 04 05 06 07 08 09 10 11 12 2018
January November Orchid Asia Warburg Pincus collects $1.3 billion secures first control for seventh fund deal in China
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SECONDARIES Going solo The year saw a notable rise in single-asset fund Single-asset restructurings are typically restructurings, writes Alex Lynn being employed in situations where one asset in a portfolio requires extra time or capital to reach maximum value and not If one trend has dominated secondaries particularly notable for the rise of big-name all limited partners want to stick around, more than any other in 2018, it is the evo- single-asset fund restructurings. according to Johanna Lottmann, a direc- lution of general partner-led restructurings. PAI Partners completed a process on tor in Lazard’s private fund advisory group. A raft of large blue-chip processes made its fourth flagship vehicle in September, Such deals can provide “better than the headlines in 2018, including Thomas transferring the fund’s remaining asset into market” valuations and carry inherent H Lee’s potential transaction involving its a continuation vehicle. Swedish chemical pricing advantages, Rede Partners’ head of 2006-vintage buyout vehicle, which was still manufacturer Perstorp moved from the secondaries Yaron Zafir wrote in October. in process as of mid-January. €2.69 billion 2005-vintage PAI Europe IV Buyers are also not as troubled by highly Nordic Capital’s restructuring of its into a fund managed by PAI that was backed concentrated risk as they used to be. With 2008-vintage fund in March was the by Landmark Partners and other investors. GP-leds showing no sign of slowing down, largest-ever GP-led restructuring, involv- It’s not alone: Goldman Sachs Asset expect more of these deals in 2019. ing around €1.5 billion in net asset value Management and Landmark backed a sin- trading hands. gle-asset restructuring on TDR Capital’s FIRST QUARTER Although GP-leds have been emerging as 2007-vintage €2.2 billion TDR Capital II. MOST READ ONLINE a crucial part of the secondaries market for The remaining asset in Fund II is Stonegate 1. PEI Awards 2017: the winners the past two years – they accounted for 32 Pubs, a British firm that owns pub chains 2. KKR to join impact investors percent of the $74 billion of deal volume in including Slug and Lettuce and Yates’s. In 2018, according to Greenhill data – 2018 is June, HarbourVest Partners emerged as lead 3. PEI’s 2017 Fundraising Report investor in a $1.9 billion single-asset energy 4. Abraaj’s Vettivetpillai departs fund restructuring. 5. Lyceum pulls fundraising The average secondaries buyer com- 6. Abraaj pauses fundraising as pleted between three and four single-asset Naqvi steps aside deals in 2017, according to Campbell 7. Coller hires fundraising veteran Lutyens, a figure the firm’s US partner 8. Carry: who earned what in 2017? Gerald Cooper described to Secondaries 9. Nordic restructuring is shaping Investor as “pretty astonishing” given that up to be big 10. KKR gathers $85bn for long-term Intoxicating brew: a British pub owner was the historically the vast majority of secondaries investments sole asset in the €2.1 billion TDR Capital II investors only pursued diverse portfolios.
TIMELINE
June November HarbourVest emerges as Thomas H Lee tells its LP advisory committee it was the backer of a $1.9 billion working through a conflict waiver process regarding a single-asset energy fund restructuring proposal on its $8.1 billion 2006-vintage restructuring Thomas H Lee Equity Partners VI fund
01 02 03 04 05 06 07 08 09 10 11 12 2018
September March PAI Partners completes a Nordic Capital finalises the largest single-asset restructuring October GP-led to date, involving around €1.5 on the €2.69 billion Goldman Sachs Asset Management joins Landmark in backing a single-asset billion in net asset value 2005-vintage PAI Europe IV. restructuring on TDR Capital‘s 2007-vintage €2.2 billion TDR Capital II
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TOYS ‘R’ US The retail apocalypse
The Bain and KKR-backed toy chain closed its doors “People who bought in [did so] when in the US in 2018, writes Andrew Hedlund retail was good cashflow, it was relatively easy to grow each year and add new loca- tions,” said Al Koch, managing director at turnaround specialist AlixPartners, who has helped turn around many major retailers. “What was a pretty safe investment isn’t a safe investment anymore.” Although we’ve seen portions of this movie before – the financial crisis, for example, claimed many di erent retail victims – this time is worse. Retail sector defaults stood at 8.2 per- cent in 2017, up from 5.7 percent in 2009,
Debt ridden: the Toys ‘R’ Us acquisition was highly leveraged and 2018 is likely to be similar. Portfolio companies like Sycamore Partners-backed When Toys ‘R’ Us filed for Chapter 11 Household retail names, many owned Nine West Holdings to Apollo-backed bankruptcy in 2017 – which ultimately by private equity firms, have been casual- Claire’s Stores are among those seeking led to more than 30,000 workers out of a ties in recent years as the industry faces court protection. job – the retailer was paying $400 million an uncertain future. Consumer retail deals However, distressed debt firms are much in annual interest on $5.5 billion of debt, done from 2005-09 have a write-o rate of more adept during this retail downturn, hampering its ability to compete with inter- 11.4 percent, according to data from analyt- Gregory Plotko, a partner at law firm Rich- net giants, court papers show. ics firm CEPRES. From 2010 to present, ards Kibbe & Orbe specialising in bank- The $6.6 billion acquisition of Toys the write-o rate is only 1.5 percent. ruptcy, observed. ‘R’ Us by Bain Capital, KKR and Vornado Fickle customer tastes, the growth of “There’s a lot more players willing to get Realty Trust in 2005 was financed with Amazon and niche online retailers and over- into credits at di erent parts of the capi- only $1.3 billion of equity, according to expansion have turned out to be real chal- tal structure,” he says. “That has led to the Toys ‘R’ Us’s 2005 annual report filed with lenges, and maybe even existential threats, increased use of pre-planning restructur- the Securities and Exchange Commission. for companies once seen as solid bets. Those ing support agreements and making further Court filings indicate this to be a factor in factors don’t discriminate by balance sheet or investments through the use of rights o er- the store’s downfall. whether a company is backed by a PE firm. ings within a bankruptcy case.”
TIMELINE
June At a board meeting, the Minnesota State Board of Investment decides to pause future commitments March to KKR while it conducts further inquiries into Liquidation sales begin “concerns about the management of Toys ‘R’ Us and its employees”
01 02 03 04 05 06 07 08 09 10 11 12 2018
June November Toys ‘R’ Us closes doors KKR and Bain Capital announce the in the US creation of a $20 million severance fund for past Toys ‘R’ Us workers
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ASIA The pan-Asian fundraising goldrush Investor appetite for the region will continue to be served by large pan-Asian managers, writes Carmela Mendoza
2018 was the year of the sizeable pan-Asian fundraise. The year’s largest included Hillhouse Capital Group’s $10.6 billion Fund IV, the largest-ever private equity fund dedicated to the region, followed by The Carlyle
Group’s $6.55 billion Asia Partners V and Asian appetite: the big US pension funds are targeting the region Hong Kong-headquartered PAG’s $6.1 billion Asia III. Bain Capital in December equity tactical plan, while San Francisco PAG Asia II, a $3.6 billion 2016-vin- gathered $4 billion for its fourth buyout Employees’ Retirement System has backed tage fund generated a 28.7 percent IRR fund for the region. Baring Private Equity the TMT-focused Hillhouse Capital Group, and 1.2x money multiple, according to Asia, meanwhile, has already raised its $5.5 which amassed $10.6 billion in September December performance documents by billion target, it is understood. for the region’s largest-ever fund. the Washington State Investment Board. Capital raised by Asia-focused funds in Building on the three strong years prior Baring’s $3.99 billion Fund VI delivered a the first three quarters of 2018 reached to 2017, Asia private equity achieved its net IRR of 18 percent as of July, as reported $37.8 billion, already exceeding the $37.7 best all-around performance to date last by PEI. billion gathered in 2017, according to PEI’s year. Deal value soared to $159 billion, up Q3 2018 Fundraising Report. If successful, 41 percent on 2016, exit value at $115 Asia-focused funds in market could add at billion marked the second-best year on SECOND QUARTER MOST READ ONLINE least another $20 billion of dry powder to record and fundraising rose 6 percent to the region, PEI data show. $66 billion year-on-year, Bain & Company 1. The Rainmaker 50: The list in full Asia, a younger private equity market noted. 2. Carlyle reigns supreme at the top than North America and Europe, is proving An Asia-focused placement agent said of the PEI 300 attractive to institutional investors because GPs on the fundraising trail are marketing 3. Carlyle’s Rubenstein on rainmakers of its strong macro fundamentals, increas- on the consistency of their returns, simi- ingly wealthy and tech-savvy millennials lar to KKR and A nity Equity Partners, 4. PEI 300: The top 50 firms visualised and business owners’ growing acceptance which raised $9.3 billion and $6 billion 5. Abraaj’s Naqvi: We have been of private equity. respectively for their latest Asia-dedicated humbled, exhausted and tested The California State Teachers’ Retire- vehicles. 6. Rubenstein’s take on the future as ment System, the US’s second-largest public Bain Capital’s $2 billion Fund II deliv- Carlyle tops PEI 300 pension fund, could double or triple its less ered a net internal rate of return of 25.3 7. Secondaries firms shun Abraaj than $2 billion exposure to Asia in the next percent and a money multiple of 2.08x, stake sales three to five years, chief investment o cer while the $3 billion Fund III delivered a 8. Download: PE fundraising slumps Christopher Ailman told Private Equity Inter- 60.9 percent net IRR and a 1.29x multi- in Q1 national in May. ple as of 30 June, according to Pennsylva- 9. Coller: LP appetite for GP stakes disproportionately large Teachers’ Retirement System of the nia Public School Employees’ Retirement 10. Download: The LP of the future in State of Illinois said in August that it will System documents. Bain closed its latest 10 slides focus on Asia next year as part of its private Asia fund on $4 billion in mid-December.
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PE International Ad March 2019.indd 1 14/02/2019 17:20 STORIES OF THE YEAR
CORPORATE STRUCTURES Carlyle Group is also yet to be convinced. The great C-corp debate “Converting to a C-corp is a no-going-back kind of decision,” co-chief executive Glenn Two giant private equity houses became corporations in Youngkin said on an investor call in Febru- ary. The firm will closely examine the e ects 2018, while others remain unconvinced of the benefits, of a C-corp conversion and will “revisit this says Adam Le topic when appropriate” as the upsides and downsides of such a move become more When the federal corporate tax rate co-president and co-chief operating o cer, apparent, he added. dropped to 21 percent from 35 percent in likened the move to going from fishing in Apollo Global Management, which January 2018 as part of President Trump’s a “small pond” to a “big ocean”. The firm’s believes there is some benefit to making Tax Cuts and Jobs Act, it got private equity shares rose to the highest in four years after the switch, is wary of halting cashflows to firms thinking: is it worth switching from a it completed the move in July. the firm’s partners under the limited part- partnership structure to a corporation to Will more firms convert in 2019? Some nership structure, according to the firm’s take advantage of the lower rate? have certainly made their hesitation on the co-founder Josh Harris. There are several reasons why making topic clear. Blackstone was “impressed” with “We do think there is some positive the C-corporation switch doesn’t make KKR’s stock gain following its switch and uplift in the stock,” Harris said in October sense for private equity houses, including will be “thoughtful and deliberate” about on a Q3 earnings call. “Unfortunately that additional taxes (those at the corporate whether it decides to follow suit, president sort of uplift is going to have to stand the level and on dividend payouts, as well as and chief operating o cer Jonathan Gray test of time because as we’ve said before, various state taxes) and the notion that cor- said in July. you’re destroying cashflow permanently.” porate tax rates may not remain low forever. That didn’t stop a few large private equity firms from making the switch in 2018. In March, Ares Management became the first to become a C-corporation for tax purposes in what Fitch Ratings referred to as “the first domino to fall across the alter- native [investment management] industry”. The Los Angeles-headquartered private equity, credit and real estate investment firm abandoned its partnership status in a move designed to expand its investor base. KKR was next to follow, announc- ing its intentions in May. Scott Nuttall, Share boost: KKR’s stock price rose immediately after the announcement
TIMELINE
May March KKR announces it will Ares Management also make the switch, becomes C-corp for comparing the move to tax purposes fishing in a ‘big ocean’
01 02 03 04 05 06 07 08 09 10 11 12 2018
July KKR shares rise to highest in four years November upon completion of Ares completes legal C-corp switch switch to C-corp
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m16542.032 3i PEI Ad aw.indd 1 29/01/2019 16:31 STORIES OF THE YEAR
ESG Impact reaches tipping point
The strategy feels like it is at a critical juncture as a host of Stephen Moseley, head of private equity and big names jump on the bandwagon, writes Alex Lynn special opportunities at Alaska Permanent Fund Corporation, tells Private Equity Inter- national: “Private equity firms are long- What started last year as a trickle of pri- as chief executive of the newly formed unit term investors, but they have to sell their vate equity impact funds coming to market earlier in the year. TPG is seeking up to $3.5 portfolio companies eventually. And for could now be considered a deluge. billion for The Rise Fund II, which would that reason there could be an incentive to KKR made headlines in February with make it one of the few to have successive make the wrong choice, to sweep radioac- the launch of the KKR Global Impact Fund. funds dedicated to the strategy. tive waste under the rug, and to move on. The following month Partners Group came One trend to look out for in 2019 “Permanent vehicles should have an even to market with PG LIFE, a cross-asset fund is the emergence of permanent capital greater incentive to make the right deci- targeting private equity, real estate, debt and impact funds. Longstanding impact firms sions on ESG matters.” infrastructure, for which it will seek $1 bil- ResponsAbility Investments – which tar- November saw around 1,200 impact lion. Hamilton Lane had raised $7.5 million gets regions such as Latin America, Africa investing enthusiasts descend upon the for its debut impact fund as of 2 October. and South-East Asia – and Bridges Fund Global Impact Investing Network Investor LGT Lightstone – formerly LGT Impact Management are already in market with Forum in Paris – the largest annual gather- – snapped up Aureos founder and former evergreen vehicles for the strategy. The con- ing of its kind. Abraaj managing partner Sev Vettivetpillai cept is winning over critics. As impact-cynic Impact investing feels like it is at a critical juncture. Optimism abounds, but there is also a creeping sense of frustration that a) ambitious targets remain just that: targets, and b) the discourse around impact is nebu- lous, high-level stu . What is impact invest- ing, who should be doing it and why? There are many valid answers to these questions, but they di er depending on who you ask. There is also an unresolved question about tying compensation to impact met- rics; no one has yet hit on the magic formula that allows carried interest to reflect non- financial gains. Community finance: India is among the countries to benefit from impact investment Toby Mitchenall contributed to this report.
TIMELINE
February KKR registers April the KKR Global LGT snaps up Aureos founder and October Impact Fund in former Abraaj managing partner Hamilton Lane collects Luxembourg Sev Vettivetpillai as chief executive $7.5 million for its debut of its new impact unit impact fund
01 02 03 04 05 06 07 08 09 10 11 12 2018
January March TPG is reported to Partners Group launches July have returned to its debut impact fund Bridges Fund Management holds a second market with The PG LIFE, for which it is close on £50 million ($63.3 million; €55.2 Rise Fund II targeting $1 billion million) for an evergreen impact vehicle
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STORIES OF THE YEAR
JAPAN Tokyo rising Investors are more positive and an underpenetrated market means more room for new players, reports Carmela Mendoza
Welcome to the golden era of Japanese pri- vate equity. While 2017 was a banner year for fundraising, with a total of about $4.7 billion raised collectively by domestic funds Sunny outlook: Japanese private equity is entering a golden era according to PEI data, 2018 saw the comple- tion of multi-billion-dollar deals and global $2 trillion of assets, set up their own PE private equity is about to begin: “The buyout firms boosting their Tokyo presence. fund management company in February. industry is building in a systematic and Apollo Global Management is reportedly Called Japan Post Investment Corpora- sustainable fashion, which hasn’t happened establishing an o ce in the country’s capital tion, the unit will have up to $1.1 billion to before. As we look back at the post-Abe by year-end; Swedish firm EQT Partners co-invest alongside domestic and overseas period, we’ll see this decade or two as a is also mulling plans of a Tokyo expansion. fund managers across buyouts and venture very attractive period of Japanese private The Carlyle Group, KKR and Blackstone capital. In addition, Japan Investment Cor- equity investment.” have been expanding and sta ng up their poration was set up by the government in Market participants, however, highlight respective deals and advisory teams in the September with a minimum of about $18 that although Japan o ers multi-billion-dol- country. Most notably, 2018 saw the com- billion, earmarked for both domestic and lar carve-out deals, the opportunity set is pletion of the largest PE-backed deal in global “society 5.0”-type of investments, still small. Nevertheless, investors are now the country – the $18 billion takeover of including artificial intelligence, cyber- more positive about Japan than in the past, Toshiba Corporation’s chipmaking unit by physical systems and big data that address the chief executive of a Tokyo-based asset a Bain Capital-led consortium. Japan’s ageing population. management firm said. “More subsidiary What’s more, the government has recog- Jun Tsusaka, managing partner and divestments by large conglomerates means nised that private equity is a vital asset class. founder of Tokyo-based mid-market firm more opportunities in the large-cap space. Japan Post Bank and Japan Post Insurance, NSSK, told Private Equity International in This is what the global funds are expecting two of the largest investors with more than April that the first golden era of Japanese and hoping.”
TIMELINE September State-backed Japan Investment December May Corporation is set up with at least Carlyle hires ex-MD of Japan Post Bank reveals that it will ramp up ¥2 trillion of capital to invest Morgan Stanley Tomofumi strategic investments, which includes private domestically and overseas Matsuyama as MD focusing equity and real estate, to up to 4 percent or on spin-outs in technology ¥8.5 trillion by FY2021 and industrials sectors
01 02 03 04 05 06 07 08 09 10 11 12 2018
February Japan Post Bank and Japan Post Insurance November establish a private equity investment company, EQT’s MD and head of IR for Asia-Pacific the ¥120 billion ($1.1 billion; €880 million) Japan Sean Ham said the firm is considering Post Investment Corporation setting up a Tokyo office
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SUCCESSION Blackstone’s $1trn man Since Jonathan Gray’s appointment as president at insurance company Athene, which it cre- the beginning of 2018 the firm has seen a fundraising ated in 2009 and retained a significant stake when Athene went public in 2016, bonanza, with predictions its AUM could hit $1trn in the Gray said. next eight years, writes Adam Le Gray has also expressed a desire to add more of a growth orientation to the firm’s It’s not everyone who is considered to Since his appointment at the helm of investments, boosting capital spending in become US Treasury Secretary, but Jona- Blackstone’s day-to-day operations, Gray areas including Asia, technology, growth than Gray has been just that. has overseen a fundraising bonanza. Black- equity and life sciences. The future looks Gray, who had been Blackstone’s global stone pulled in $124.6 billion in the year bright for Blackstone in 2019. real estate head since 2005, took over from to 30 September and has its sights set on a Tony James as the private equity giant’s new flagship fund – expected to be around THIRD QUARTER president in February last year with James $20 billion. MOST READ ONLINE becoming executive vice-chairman. The As of September assets under manage- firm, like Carlyle Group, KKR and Apollo ment stood at $457 billion and the firm 1. Five Chinese GPs to watch Global Management, set up its new genera- predicts it could hit $1 trillion in the next 2. Video: Why it has never been tion of leaders in the last couple of years. eight years, according to James. harder to raise PE funds Long-rumoured to be a successor at At a conference in NewYork in May, Gray 3. Download: PEI’s H1 Fundraising Report Blackstone, Gray helped build out the identified retail investors and the insurance 4. Performance watch: Carlyle’s largest real estate platform in the world, market as areas that o ered an enormous private equity funds which now boasts $120 billion in inves- amount of “white space” for Blackstone, and 5. Video: How developments at tor capital under management. Speaking that the firm was working to create products Abraaj will affect due diligence to sister publication PERE in 2018 about to suit their specific needs. 6. Partners Group embraces longer his appointment, Gray said the promotion “We’ve obviously got to create products holding periods had been in the works for “several years” that in some cases have di erent regula- 7. This woman knows you are going as he had devoted less time to real estate tory capital needs or more current income to spin out before you do and more to learning firm-wide lessons for retail investors,” he said. On insurance, 8. Alaska’s PE head: why we shy from James. Blackstone’s goal is to be an asset manager away from megafunds Gray, who supported Trump’s opponent, and to “not really be on the liability side of 9. Podcast: Where are hurdle rates trending? Democratic nominee Hillary Clinton, told the equation”, he added. 10. AP7’s Olofsson warns of the Politico at the time that he had “much work The firm has no plans to replicate danger of coinvestments to do at Blackstone”. what Apollo has done with fixed-annuity
TIMELINE We’ve obviously got to create products that in some cases have different May regulatory capital needs or more Gray identifies retail investors and the insurance market as areas that current income for retail investors offers ‘white space’ for the firm Jonathan Gray
01 02 03 04 05 06 07 08 09 10 11 12 2018
February Jonathan Gray appointed September as Blackstone’s president; James says Blackstone’s AUM Tony James becomes could hit $1 trillion within eight executive vice-chairman years
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LISTED FIRMS A mega year for new strategies In 2018, listed giants Apollo, Blackstone, Carlyle and KKR gave us glimpses of what’s to come, writes Isobel Markham
There were new products and strategies across the board in 2018. Apollo Global Management held a $2.2 billion first close for its Hybrid Value fund – a long-term vehicle which combines credit and equity, focusing on capital solutions, structured equity and non-control stressed and dis- tressed investments. It will target returns in the low to mid-teens. It expects to hit Fresh focus: Blackstone launched a strategy focused on the life science sector its $3 billion target by year-end. Blackstone acquired global life sciences across all strategies, including almost $20 transactions in the US over the past three investment firm Clarus and launched Black- billion for private equity. years, and committed to two more during stone Life Sciences, which will invest across KKR raised $38 billion in the 12 months Q3: the acquisition of LifePoint Health by a the life-cycle of companies and products to end-September, including capital for its Fund VIII portfolio company and the acqui- within the key life sciences sectors. latest Europe fund. sition of Aspen Insurance. KKR registered its debut impact fund Carlyle raised $26 billion in the first KKR believes the recent US market in Luxembourg, joining a growing band of three quarters, and is on track to meet its volatility will translate into buying oppor- blue chip firms targeting the strategy. $100 billion long-term fundraising target tunities. “It’s good news when things get The Carlyle Group planted a flag in the next year. Closes included its $18.5 billion cheaper,” co-president and co-chief oper- insurance market, agreeing to acquire 19.9 flagship buyout fund and its $6.55 billion ating o cer Scott Nuttall said on its Q3 percent of DSA Reinsurance from AIG and Asia buyout fund. earnings call. “We can buy assets at lower partnering with AIG to build DSA Re into Apollo is focusing on take-privates as valuations. In fact, in our 40-plus years of a standalone reinsurance provider. it searches for value-oriented investment experience, some of our best investments Meanwhile, in the 12 months to end- opportunities in a competitive market. have been made in periods of dislocation September, Blackstone raised $125 billion The firm has completed eight take-private and volatility in the public markets.”
TIMELINE
It’s good news July when things KKR converts to a C-corporation October gets cheaper Blackstone agrees to Scott Nuttall acquire Clarus, launches Life Sciences platform
01 02 03 04 05 06 07 08 09 10 11 12 2018
July August Apollo agrees to Apollo announces it has acquire LifePoint July August held a $2.2 billion first close Health in a Carlyle closes Carlyle Carlyle acquires on its debut Hybrid Value $5.6 billion deal Partners VII on $18.5 billion a stake in DSA Re Fund
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RESTRUCTURING Lyceum Capital’s rebirth Lyceum Capital Partners pulled fundraising in January. By October it was back under a new name and with money to spend, writes Rod James
Since the Brexit referendum, there has business services firms. The firm will make a secondaries process engineered by advisor been an air of uncertainty around British investments of between £10 million and Rede Partners. private equity. Though there were other, £50 million in high-growth opportunities The deal was a good example of how case-specific reasons, Britain’s decision to in the UK and Northern Europe, with a primary and secondaries private equity can leave the European Union undoubtedly particular focus on buy-and-build strate- combine to create solutions for even the played a role in the decision of Lyceum gies. Just before it was unveiled the firm most challenging situations. Capital to pull fundraising for its fourth closed Horizon 2018, a seven-year, £200 fund and switch to a deal-by-deal invest- million investment vehicle backed by Pan- FOURTH QUARTER ment model, leading in turn to the depar- theon, Idinvest Partners, Lombard Odier, MOST READ ONLINE ture of seven partners. HQ Capital and EQ Asset Management. 1. Former Abraaj partner: how to The firm’s previous fund, the 2013-vin- “Significant dry powder is available to mitigate against GP sharp practice tage £330 million ($420.6 million; €370.6 continue to support the growth plans of 2. Inventis in search of China’s million) Lyceum Capital III, counted names all portfolio companies including further largest PE firm such as AlpInvest Partners, New York State planned add-on acquisitions,” the firm 3. Future Fund: Why private equity is becoming less attractive Teachers’ Retirement System and Univer- noted in a statement. sity of California Regents Endowment Fund The rebirth was particularly innovative. 4. Hamilton Lane launches impact strategy among its investors. For a start, the new fund has a two-year 5. Why Future Funds’ senior team Few would have predicted when the investment period and five years for reali- left to set up an LP-focused shop decision was made in January to suspend sations, meaning quicker distributions for 6. Performance watch: TPG’s fundraising that by the end of the year, investors. PE funds Lyceum, or at least some of the people Second, Horizon’s backers participated 7. Podcast: Why GP-led secondaries behind it, would be back in business with in a tender o er on the 2013-vintage are the next big thing in private equity money to spend. Lyceum Capital III, buying stakes from In October, a team led by former- limited partners that wanted to exit and 8. The 10 largest fundraises of 2018 Lyceum managing partner Jeremy Hand making a stapled primary commitment to 9. TPG eyes up to $3.5 bn for Rise Fund II and partner Simon Hitchcock announced Horizon 2018. Distributions from Fund 10. Devil is in the detail on LP-GP the formation of Horizon Capital, a III will be routed into Horizon 2018 and alignment, says report firm targeting European technology and reinvested in portfolio companies as part of
TIMELINE
9 January Significant dry powder is available to Lyceum pulls fundraising and continue to support the growth plans switches to deal-by-deal model of all portfolio companies including
22 January further planned add-on acquisitions Seven partners depart the firm Company statement
01 02 03 04 05 06 07 08 09 10 11 12 2018
£330m August £200m October Size of 2013 Former IR head Andrew Size of Lyceum relaunches vintage Aylwin forms advisory firm new fund with new fund and MDW Capital Partners new name
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OPEX AWARDS 2018
OPERATIONAL EXCELLENCE AWARDS The best value creators WINNERS Judges described 2018’s awards as one of the toughest AMERICAS ever for entries Large-cap Brookfield Asset Management – Just how successful is the private equity they had undertaken, from product devel- GrafTech International industry at creating lasting value? It’s a ques- opment and acquisition activity through to tion that reaches to the heart of our annual supply chain improvement and manage- Upper mid-market Operational Excellence Awards, celebrating ment enhancement. L Catterton – Ainsworth Pet Nutrition the GPs that have done most to transform And not just details but tangible evi- their portfolio companies. dence of how these initiatives created value. Lower mid-market/Small-cap Every June, we ask managers to submit Impressive exit numbers were clearly a The Riverside Company – their best examples of how they deliver plus, but the main thing our judges were Tate’s Bake Shop operational value as owners. To be eligible looking for was some genuinely ground- for last year’s awards, an investment had breaking work. Editors’ Award Apax Partners – GlobalLogic to be either fully or partially realised after 2018’s winners were a typically diverse 1 June, 2017. Entries are invited from bunch, including everything from a pre- EMEA three regions – Americas, Asia-Pacific and mium pet food manufacturer to a struggling Europe, Middle East and Africa. We then Spanish data centre operator. Large-cap divided them into three categories, accord- In recognition that operational excel- Nordic Capital – Bambora ing to the deal’s entry price – large-cap lence can take many shapes and forms, we (greater than $500 million), upper mid- also introduced an editors’ award for each Upper mid-market Cerberus Capital Management – market ($150 million-$500 million) and region to reward those entries that shone Reydel Automotive lower mid-market/small-cap (less than in one particular area of management $150 million). expertise. The inaugural winners were Lower mid-market/Small-cap The entries then go before a judging LeapFrog Investments for the healthcare The Carlyle Group – Itconic panel comprising some of the leading impact from Mumbai-headquartered Mahi- scholars and operational experts in the ndra Insurance Brokers; EQT Partners Editors’ Award EQT Partners – Sportradar private equity industry. Competition is for its “carefully crafted” M&A programme tough, with record entry levels in many for sports data collector Sportradar; ASIA-PACIFIC of the categories. and Apax Partners for its impressive Returns form only part of the criteria. growth strategy for US tech company Large-cap GPs are also expected to provide specific GlobalLogic. KKR – Qingdao Haier details of the changes and the initiatives The multiples achieved by the win- ners and the range of growth strategies Upper mid-market Partners Group – employed are testament to the impressive Trimco International operational expertise the private equity industry has developed over the last three Lower mid-market/Small-cap decades. Mekong Capital – Traphaco Congratulations to all the winners and a sincere thanks to all the GPs who entered Editors’ Award LeapFrog Investments – in what the judges said was probably the Mahindra Insurance Brokers toughest ever for entries.
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COMMENT
PEI OPINION A year in Friday Letters A look back at the highlights from Private Equity International’s 2018 Friday Letters reveals a booming industry that can’t take its success or popularity for granted
If you need a refresher on some of the big- outside the carry, then it could incentivise competition is so fierce that some buyers are gest trends in the private equity industry in greater risk-taking. And if things go wrong now pricing deals within a matter of hours, 2018, you can’t go wrong with a dig through and carry becomes a distant and unobtain- rather than days, in order to beat competitors.” our archive of Friday Letters, our weekly able goal, then the incentive to maximise is column delivering insight into the industry’s significantly diminished.” EXPOSING FLAWS IN DUE DILIGENCE most important issues. Dominating Private Equity International’s A GROUNDBREAKING DEAL THAT headlines in 2018 was the downfall of The TAKE HEED OF BAD PRESS DIVIDED INVESTORS Abraaj Group. In October, a former part- In summer 2018, we urged the industry to Investors in Nordic Capital’s 2008-vintage ner at the firm, Ahmed Badreldin, shared listen to its critics when it comes to con- fund came back from their winter holidays some practical steps LPs can take to pro- cerns about fees after Pennsylvania state in February to find they had 20 business tect themselves when investing in emerging treasurer Joe Torsella claimed the state’s two days to decide whether to sell their stakes managers and smaller GPs. public pension plans had “wasted” up to to Coller Capital and Goldman Sachs or $5.5 billion in investment expenses. roll over into a five-year continuation fund. “What comes through loud and clear from Some were not best pleased. Badreldin’s article is that, in what is still Our take: “It is not the case that private regarded as a people business, a huge part equity’s value to public pension investors is “The development of this type of process, of investment due diligence is based on trust so self-evident that it needs no explanation. of which this deal is a significant step, is and human instinct. If an investment process Fund managers must make a compelling case highlighting divisions in the LP universe. for an LP takes between six and 12 months, time and again that LPs really do get what In Nordic’s case, an overwhelming amount then ‘emotional investment potentially gets they pay for – and make that case in a way of data to examine within a short amount in the way’ of the scepticism that is a neces- that, as Torsella puts it, ‘any taxpayer can of time has ru ed the feathers of some LPs. sary part of due diligence.” understand, without having to hire their own The deal may be a success for the buyers, consultant’.” advisor and many LPs, but frustrated investors BRACING (PATIENTLY) FOR IMPACT may turn frosty next time a GP-led process Also in October, we noted gathering HURDLE: SOME LPS ARE SO OVER IT slides their way.” momentum behind impact investing was In August we looked into limited partner being jeopardised by a lack of consensus attitudes towards preferred return hur- HOT SECONDARIES over how it should be defined. dles and found that, contrary to popular Speaking of secondaries, as of 19 Decem- opinion, investors are often willing to let ber four of the 10 largest funds in market “Impact investing feels like it is at a critical them slide as their presence should not are dedicated to the sub-asset class. If you juncture. Optimism abounds, but there is also a ect overall returns. needed a signal the strategy has well and a creeping sense of frustration that a) ambi- truly moved into the mainstream, this is it. tious targets remain just that: targets, and “The hurdle is not a 100 percent perfect But how can this booming market avoid a b) the discourse around impact is nebulous, mechanism when it comes to aligning man- bust, we asked in August. high-level stu . What is impact investing, ager and investor interests. Most of the time who should be doing it and why? There are it works as intended; the LPs start seeing “The secondaries market faces pricing at many valid answers to these questions, but returns before the general partner begins an 11-year high of around a 1-2 percent they di er depending on who you ask. Defini- making significant gains. But if a fund is just discount to net asset value on average, and tive answers would be useful.”
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ICG100015_PEI Advert concepts v05.indd 1 21/02/2019 09:04:38 PREDICTIONS
THIS YEAR’S NEWS Seven new PE stories in 2019 What’s going to make the headlines this year? PEI turns its hand to crystal ball gazing
Making predictions is a dangerous business, but the team at Private Equity International do not shy away from danger. Here are seven sto- ries we think we will be analysing this year:
A BIG LP WILL TURN ASSET MANAGER “Instead of bidding against each other we firm raising double-digit billions. London’s hands-on – deal-by-deal approach. With the [LPs] are all realising it makes a lot more Cinven is understood to be seeking at least possibility of higher and more frequent car- sense to work together in a more e cient €8 billion for its seventh fund and compa- ried interest, it’s a tempting prospect for business model instead of paying Wall Street triot Apax Partners will return to market the industry’s younger executives. agent fees to use our capital,” California early this year (its 2016 flagship was €9 State Teachers’ Retirement System CIO billion). Switzerland-headquartered Part- A NEW TYPE OF SECONDARIES DEAL Chris Ailman told PEI in 2018. Canada ners Group is reportedly seeking around WILL EMERGE Pension Plan Investment Board, as part €5 billion for its fourth buyout fund and The secondaries market has evolved at of its long-term view, is helping Chinese UK-headquartered Permira is expected a rapid pace, with terms such as “GP-led asset owners and policymakers on long- to target around €10 billion for Fund VII. restructuring” and “stapled deal” going term capital allocation. Japan Post Bank from arcane to commonplace in a matter and Japan Post Insurance have the Japan MORE HYBRID FUNDS WILL EMERGE of years. In 2019 we will see another deal Post Investment Corporation. We expect a In 2018 we saw Apollo Global Management, type emerge: the “LP strip sale” will allow major asset owner to get involved managing a giant of both the private equity and the investors with substantial PE programmes to a peer’s assets. credit worlds, raise its debut hybrid debt- rebalance or de-risk their portfolios by sell- equity fund, Apollo Hybrid Value Fund, ing slices of their younger fund investments. MORE SEEDING PLATFORMS WILL BE which has a $3 billion target. The fund ESTABLISHED had already completed two deals as of the DIVERSITY DISCUSSIONS WILL TURN With more demand for private equity firm’s third-quarter earnings call at the end INTO ACTION opportunities, investors and their advisors of October. We expect to see more firms Diversity has been a point of discussion are thinking about how they can access the combining expertise on cross-asset funds within private equity for the last few next generation of top-tier managers (and to take advantage of opportunities that years, and we predict 2019 will be the perhaps get some advantageous terms). otherwise wouldn’t have a natural home. year those discussions turn into action. We expect at least one more placement ILPA has expanded its due diligence ques- agent to follow in the footsteps of Sixpoint FUNDLESS SPONSORS WILL BECOME tionnaire to include a template for GPs to Partners and establish a platform to back MORE PREVALENT measure and report the gender and ethnic fledgling managers. If the fundraising environment remains diversity of their teams by seniority and buoyant, it’s likely the steady stream of role, while Carlyle Group hired a chief ANOTHER EUROPEAN FUND WILL spinouts we’ve seen over the last couple of diversity o cer, sending a clear message BREAK THE €10BN MARK years will continue – but don’t bet on all of the value it places on addressing this CVC did it in 2017 and EQT in 2018. With of these teams raising a traditional blind- issue. Where Carlyle leads, others follow, European LPs bracing for mega-fund mania, pool fund. We expect a fair few will opt for so expect to see similar roles springing up who would bet against another European the less cumbersome – and arguably more across the industry.
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brookfield.com PRIVATELY SPEAKING
INTERVIEWS On the record PEI talks to some of the biggest names in the industry for our monthly Privately Speaking interviews. Here’s our pick from 2018
CDPQ executive vice-president and head of CalSTRS chief investment officer Carlyle co-founder David Rubenstein private equity Stephane Etroy Christopher Ailman
On improving the funds portfolio by in- On underfunding in US public pension On asset class performance: vesting directly: retirement plans: “When you see enormous amounts of “By creating a team that is able to source “We pay out half a billion dollars a month money going into private equity you have to and generate direct investments into in benefit payments, more than we bring in. conclude that generally these sophisticated companies, you become less reliant on Instead of a net buyer I am a net seller of LPs have assessed the alternatives and think co-investment from general partners, and assets and that dominates our asset alloca- that the risk-reward balance represents a therefore you are more selective on your tion discussions: what’s our cash position good opportunity.” GPs. You are not only selecting the ones and what will happen in that negative cash- that are big enough that they’ll give you flow. Where do we need to sell first?” On negative sentiment towards PE: co-investments, but you’re selecting GPs “I can’t say that throughout history people because you are looking for this GP to give On the unintended consequences of that have made a lot of money have had you something specific.” California law AB-2833 requiring pen- people throwing daisies at them, telling sion plans to disclose more about fees them how wonderful they are. So it’s not On the need to recruit operating part- and expenses: just private equity; it’s banks or industrial- ners for the direct investments team: “We now have a situation in the state of ists throughout history.” “If you don’t do that, it’s a big risk factor California where CalPERS and CalSTRS because you are going to accumulate direct have less invested in Silicon Valley than the On the rise of impact investment funds: deals and then if there is a market downturn Dutch, Asian and Middle Eastern sovereign “We would say that we do impact invest- or a recession or something happens, then wealth funds. Fundamentally, as a native ing all the time, because we’re not doing suddenly you don’t know how to manage Californian I think that’s just so wrong.” things that are destructive to the environ- the direct portfolio. It’s essential that as ment and are doing things that are, we you build up this direct portfolio you think On partnering with new sources of in- think, socially useful. But the way impact about how the companies are going to be vestor capital: investing has been pigeonholed is that you managed in case anything happens down “Having new money come in and compete can only do impact investing if it’s called the line.” means they will set the price or they will impact investing and it’s designated as such. accept the price. And I don’t want them to We haven’t designated specific funds to be just accept the price. I want them to push ‘impact investing funds’, but we are looking back on it and work together with us.” at whether that makes sense or not.”
É PRIVATELY SPEAKING
Atomico founder Niklas Zennstrom Cambridge Associates head of private markets CPPIB head of Asia-Pacific Suyi Kim Andrea Auerbach
On the gap in the market for a Europe- On spotting a potential spinout: On the difficulties of building an invest- an tech investor: “We pay attention to, ‘Wow, that individual ment firm in the Asia-Pacific region: “It was hard to [raise capital] from Euro- is a very strong performer in a firm where “One of the challenges of building a busi- pean VCs, because they were risk-averse it looks like succession may be di cult’ ness here is talent. You can’t build invest- and did not bet on disruptive companies or, ‘They seem to not be as compensated ment firms if you don’t have the right talent. that could become outliers. They wanted through carry or acknowledgment or pro- And to be able to cover the Asian market, to invest in copycats of something they motion as other groups that we’re paying you need to have talent that can not only had seen in the US. And the US VCs? The attention to – I bet there’s going to be a speak Chinese, Japanese, Korean, but also response from them was basically ‘you need spin-out here. In fact, I can predict it.’” have their local network to source the right to move over here’.” opportunities.” On credit lines and due diligence: On the difference between buyouts “Don’t get distracted by this headline fund On evaluating investment partners: and VC investing: IRR number, always look at more indicators “When we look at our private equity man- “Investing in tech companies is the oppo- of performance. I’m not hiring a manager agers specifically, our four evaluation crite- site to buyouts. We don’t buy something, because they’re really good at manufactur- ria include: strategy, team, track record and we get invited into founder-led companies. ing an IRR through the use of a subscription alignment of interests. We generally follow We need to create a good rapport with line. I’m hiring a manager because I believe a fund manager for multiple fundraising founders.” they’re really good at the fundamental pro- cycles.” cess of private equity investing.” On getting European pension funds in- On investment opportunities in China: vesting in homegrown venture capital: On the need to master data: “As China turns into a more traditional pri- “I would love to see European pensions ben- “There’s always new levels of transparency vate equity market with control transactions efiting from what their grand-daughters are and information entering into the dialogue. I’m excited about the opportunity to work creating. If we can get the European pen- Knowing what to do with all of it, having a with managers who can deliver the transfor- sion funds more excited about venture, then repository for it, knowing how to analyse mation of such businesses. I’m also excited that’s a way to close the loop a little bit.” it and then leverage that data, that’s the about the companies revamping, particularly constant challenge any investor in private on the technology side. Valuations, however, investments is facing.” remain a big concern for us.”
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THE STANDARD BEARERS
Welcome to the Private Equity International awards for 2018, showcasing the firms that have in the eyes of their peers set the benchmark during the year. Voted for by thousands of read- ers, they remain the only awards that are decided solely by the industry for the industry.
Deciding the winners is a painstaking process. Every Novem- ber, our global edit team starts canvassing the views of col- leagues and contacts in the market to find out which firms, funds and deals stood out from the crowd during the year. We also solicit nominations for the 71 categories.
We then draw up a four-strong shortlist and leave you to pick a winner, even including a fifth write-in box to suggest an al- ternative, in case you think we left out anyone. As ever, votes poured in from all over the world, proving yet again that these really are the most keenly contested awards in the PE industry.
There is also one very special award that is decided solely at our editorial team’s discretion. The Game Changer of the Year goes to Bill McGlashan, founder and chief executive of the Rise Fund, TPG’s impact investment vehicle. He is profiled on p. 43.
Congratulations to all the winners and the runners-up. The follow- ing pages detail their achievements and show why the private equity industry remains such a dynamic force in the world today. PEI AWARDS
PEI AWARDS 2018
GLOBAL AMERICAS
ENERGY PRIVATE EQUITY FIRM LARGE-CAP FIRM OF THE YEAR DISTRESSED DEBT INVESTOR OF THE YEAR IN NORTH AMERICA OF THE YEAR IN NORTH AMERICA I Squared Capital Blackstone Oaktree Capital Management
HEALTHCARE PRIVATE EQUITY FIRM MID-MARKET FIRM OF THE YEAR FIRM OF THE YEAR IN CANADA OF THE YEAR IN NORTH AMERICA Brookfield KKR New Mountain Capital FIRM OF THE YEAR IN LATIN AMERICA TECHNOLOGY PRIVATE EQUITY FIRM LIMITED PARTNER OF THE YEAR Advent International OF THE YEAR IN NORTH AMERICA Insight Venture Partners Alaska Permanent Fund FUND OF FUNDS MANAGER OF THE YEAR IN NORTH AMERICA CONSUMER PRIVATE EQUITY FIRM NORTH AMERICAN DEAL OF THE YEAR HarbourVest Partners OF THE YEAR Blackstone, CPPIB and GIC for L Catterton Financial & Risk US Holdings PLACEMENT AGENT OF THE YEAR (Thomson Reuters) IN NORTH AMERICA LONG-TERM PRIVATE EQUITY FIRM Evercore OF THE YEAR NORTH AMERICAN EXIT OF THE YEAR CVC Capital Partners Blackstone for Hilton LAW FIRM OF THE YEAR IN NORTH AMERICA (FUND FORMATION) FRONTIER MARKETS FIRM FUNDRAISE OF THE YEAR (AMERICAS) Kirkland & Ellis OF THE YEAR Insight Venture Partners Warburg Pincus LAW FIRM OF THE YEAR SECONDARIES FIRM OF THE YEAR IN NORTH AMERICA (TRANSACTIONS) IMPACT INVESTMENT FIRM IN THE AMERICAS Kirkland & Ellis OF THE YEAR Lexington Partners Actis LAW FIRM OF THE YEAR SECONDARIES DEAL OF THE YEAR IN NORTH AMERICA (SECONDARIES) IN NORTH AMERICA Kirkland & Ellis Ardian and Campbell Lutyens for the EMEA spin-out of Manulife/John Hancock’s LENDER OF THE YEAR infrastructure team IN NORTH AMERICA LARGE-CAP FIRM FIRM OF THE YEAR IN FRANCE GSO Capital Partners OF THE YEAR IN EUROPE Ardian SECONDARIES ADVISOR OF THE YEAR EQT IN THE AMERICAS FIRM OF THE YEAR IN GERMANY Evercore MID-MARKET FIRM Deutsche Beteiligungs OF THE YEAR IN EUROPE Equistone Partners Europe FIRM OF THE YEAR IN IBERIA ASIA-PACIFIC Black Toro Capital LIMITED PARTNER LARGE-CAP FIRM FIRM OF THE YEAR IN AUSTRALASIA OF THE YEAR IN EUROPE FIRM OF THE YEAR IN ITALY OF THE YEAR IN ASIA Quadrant Private Equity Stonehage Fleming Ambienta KKR FIRM OF THE YEAR IN CHINA DEAL OF THE YEAR IN EUROPE FIRM OF THE YEAR IN MENA MID-MARKET FIRM KKR Carlyle Group and GIC for AkzoNobel Investcorp OF THE YEAR IN ASIA (speciality chemicals arm) Navis Capital Partners FIRM OF THE YEAR IN JAPAN FIRM OF THE YEAR IN THE NORDICS NSSK EXIT OF THE YEAR IN EUROPE EQT LIMITED PARTNER 3i for Scandlines OF THE YEAR IN ASIA FIRM OF THE YEAR IN KOREA FIRM OF THE YEAR IN SWITZERLAND Canada Pension Plan Affinity Equity Partners FUNDRAISE OF THE YEAR (EMEA) Partners Group Investment Board EQT FIRM OF THE YEAR IN INDIA FIRM OF THE YEAR IN THE UK DEAL OF THE YEAR IN ASIA ChrysCapital Partners SECONDARIES DEAL Hg Bain Capital-led consortium OF THE YEAR IN EUROPE for Toshiba Memory Corporation FIRM OF THE YEAR Coller Capital, Goldman Sachs and FUND OF FUNDS MANAGER IN SOUTH-EAST ASIA Campbell Lutyens for €2.5bn Nordic OF THE YEAR IN EUROPE EXIT OF THE YEAR IN ASIA KKR Capital GP-led HarbourVest Baring Private Equity Asia for Halla Cement FUND OF FUNDS MANAGER SECONDARIES FIRM PLACEMENT AGENT OF THE YEAR IN ASIA OF THE YEAR IN EUROPE OF THE YEAR IN EUROPE FUNDRAISE OF THE YEAR LGT Capital Partners Glendower Capital Campbell Lutyens (ASIA-PACIFIC) PAG PLACEMENT AGENT SECONDARIES ADVISOR LAW FIRM OF THE YEAR IN EUROPE OF THE YEAR IN ASIA OF THE YEAR IN EUROPE (FUND FORMATION) SECONDARIES FIRM Eaton Partners Campbell Lutyens Proskauer Rose OF THE YEAR IN ASIA GIC LAW FIRM OF THE YEAR IN ASIA FIRM OF THE YEAR IN AFRICA LAW FIRM OF THE YEAR IN EUROPE (FUND FORMATION) Ethos (TRANSACTIONS) SECONDARIES DEAL Simpson Thacher & Bartlett Clifford Chance OF THE YEAR IN ASIA FIRM OF THE YEAR IN BENELUX ICG Strategic Equity and Credit Suisse LAW FIRM OF THE YEAR IN ASIA IK Investment Partners LAW FIRM OF THE YEAR IN EUROPE Private Fund Group for the spin-out (TRANSACTIONS) (SECONDARIES) of Standard Chartered Clifford Chance FIRM OF THE YEAR IN CEE Kirkland & Ellis Mid Europa Partners SECONDARIES ADVISOR LAW FIRM OF THE YEAR IN ASIA LENDER OF THE YEAR IN EUROPE OF THE YEAR IN ASIA (SECONDARIES) Ares Management Eaton Partners Kirkland & Ellis
É¿ PEI AWARDS
GAME CHANGER PRIVATE EQUITY GAME CHANGER OF THE YEAR 2018 Bill McGlashan, founder and chief executive, the Rise Fund
Impact investing has fully bloomed over the But McGlashan and TPG don’t want to past couple of years, with more than $30 just make a dent in the world of impact billion invested in 2017, nearly $40 billion with the Rise Fund. They want to bring expected to have been invested in 2018 and innovation around impact to the broader a slew of high-profile private equity firms world of investing. They have done just that raising new funds dedicated to the space. recently with their measuring and report- With its $2 billion Rise Fund, TPG ing methodology for impact at Davos in Growth was an early mover in impact and January, TPG announced it would spin out it has clearly emerged as a leader. “This was its impact measurement arm into Y Ana- the first scale impact e ort and impor- lytics. tantly, it wasn’t just the size, but the fact “What we knew was necessary is that we that we did it with institutions,” says Bill created a platform that allowed a common McGlashan joined TPG in 2004 and founded TPG Growth to focus on growth McGlashan, founder and chief executive of agreed-upon framework for measurement investing and the mid-market three years the Rise Fund. and reporting of impact,” McGlashan says. later. Also a managing director at TPG McGlashan and the Rise Fund have been “It’s a commitment we made. It’s a little Growth, he founded the Rise Fund out of that entity and the two often invest able to achieve some important victories contrarian for a private equity firm to together. Previously, he served as CEO of that are now taking impact to the tipping make our IP available to the world, but it the Vectis Group, a venture corporation point. Innovation initially began with the speaks to our broader goal of supporting he co-founded to invest in and build companies in emerging markets clear message that impact shouldn’t and the industry, scaling the industry and ideally alongside US tech companies. wouldn’t compromise financial returns and attracting a lot of competitors.” that measurement will be paramount to the When asked about the growth of the e orts, hence allowing them to successfully impact space, he thinks that the general attract institutional investors. shift on the institutional side to embrace These investors have included high-pro- impact has happened faster than he initially file limited partners such as the Washington expected. But he also cites the $2.6 trillion a State Investment Board, Swedish pension year funding gap between the money needed fund Andra AP-fonden, Regents of the Uni- to meet the UN Sustainable Development versity of California and UBS Group. Goals and what’s currently being invested. Through the 25 investments from the “I think we are at a tipping point where Rise Fund, which represents $1.8 billion there’s a lot of interest,” he says. “You’re invested and reserved, they have also proven seeing it with competitors of ours coming that their model works. “Ultimately, we into the space in a very substantial way. That’s were telling everybody we were commit- something we very much hoped [for].” ted to doing it, but now we can say we’ve Ultimately, McGlashan explains that if We made these actually done it,” he says. “We made these he, TPG and the rest of the industry do their investments in investments in great growth companies that job right, there should no longer be such a are creating very significant social and envi- thing as impact investing in a few years. At great growth ronmental impact.” least, that’s the goal. companies that are TPG is continuing its journey on the “There’s just investing where the degree creating very significant impact road, currently raising up to $3.5 of impact, positive and negative, is reported billion for its follow-up fund, according to in every investment that is made,” he says. social and environmental reports. McGlashan declined to comment “Clearly every investment has an impact. The impact on the fundraising for regulatory reasons. question is what is the degree of impact.”
ÉÊ PEI AWARDS
GLOBAL
ENERGY PRIVATE EQUITY FIRM OF THE YEAR
1. I Squared Capital 2. Actis 3. Ares Management
The race for the top spot was tight. I Squared Capital inched past Actis to claim it. In August, the infra-focused firm with o ces in Hong Kong, Houston, London, New Delhi, New York and Singapore closed its second flagship vehicle, ISQ Global Infra- structure Fund II, on its $7 billion hard-cap. The GP collected capital from more than 100 institutional investors, including 80 KKR: providing high quality healthcare in China percent re-ups, and overshot its initial $5 billion target. the US. The deal was reportedly valued at initial public o erings last year, including of Investments from this fund already close to $10 billion. e-signature business DocuSign at $4.4 bil- include the acquisition of Inkia Energy’s Flexing its global reach, in September, lion. With a 36 percent stake, the firm was Latin American businesses, one of the the firm shifted focus to China launching also a lead investor in customer experience largest independent power producers in hospital management platform SinoCare tracking data software business Qualtrics the region, as well as its Caribbean divi- Group with the goal of providing high qual- that was sold to German software group sion, and a partnership with Blackstone in ity healthcare services to patients in China. SAP for $8 billion. BCP Raptor Holdco, the parent company With KKR’s backing, the company got o On the investment side, early in 2018 of EagleClaw Midstream. to a swift start, acquiring a majority stake the firm acquired a majority stake in Ten- in HeTian Hospital Management Company nessee-based property management software HEALTHCARE PRIVATE around the same time. company Property Brands. In the summer it EQUITY FIRM nabbed a stake in EveryAction, a Washington OF THE YEAR TECHNOLOGY PRIVATE DC-based fundraising CRM software pro- EQUITY FIRM vider to non-profit organisations. 1. KKR OF THE YEAR 2. Palamon Capital Partners 3. Frazier Healthcare Partners 1. Insight Venture Partners 2. Apax Partners A year on from closing its debut health- 3. Hg care growth vehicle, the $1.45 billion KKR Health Care Strategic Growth Fund that A veteran of technology investing, Insight clinched its win in this category, the indus- Venture Partners closed its 10th tech- try giant sits in pole position once more. focused fund last year on $6.3 billion, making Among headline grabbing transactions the it the firm’s largest vehicle to date and a step firm completed in this space in 2018 was up from Fund IX, a $5 billion vehicle. its take-private of formerly New York-listed With more than $23 billion of assets Envision Healthcare Corporation, which under management, the high-growth tech- provides physician-led services, post-acute nology and software backer was an investor Insight Venture Partners: big backer of software care and ambulatory surgery services across in some of the largest (by value) VC-owned and technology
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Campbell Lutyens is delighted to have been recognised as a leading secondaries advisor globally. In 2018, Campbell Lutyens advised on some of the largest and most innovative secondary transactions. Thank you to our clients and business partners for your continued support.
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GLOBAL
CONSUMER PRIVATE EQUITY FIRM OF THE YEAR
1. L Catterton 2. Sycamore Partners 3. Eurazeo
Consumer is a competitive space. And so was the battle for the top ranking in this category. Consumer specialist L Catterton scooped the award for the second year run- ning trailed by Sycamore Partners, which notched up a spot this year to second place. In 2018 Catterton was firing on all cyl- inders. The firm completed 11 exits and recapitalisations, including the sale of natu- ral pet food brand Ainsworth Pet Nutrition for $1.9 billion, which won a PEI Opera- tional Excellence Award, and children’s Warburg Pincus: seeded the largest industrial and logistics real estate developer in Vietnam cough syrup brand Zarbee’s Naturals to Johnson & Johnson. It undertook 16 new the Honest Company founded by actor Jes- to close later on this year. CVC has form. investments and co-investments, including sica Alba. And it collected capital for four Since the launch in 2014 of this strategy acquiring a $200 million strategic minority funds, including Asia and European vehicles that focuses on lower risk private equity stake in natural baby and beauty business and a new joint venture consumer technol- deals in Europe and North America with ogy fund. Rounding o a busy year, the firm hold periods of six to 15 years and ticket made 68 hires across 17 o ces globally. sizes from €1 billion to €5 billion plus, the firm has committed €2.8 billion of equity LONG-TERM PRIVATE to six transactions. EQUITY FIRM OF THE YEAR FRONTIER MARKETS FIRM OF THE YEAR 1. CVC Capital Partners 2. KKR 1. Warburg Pincus 3. Partners Group 2. Morgan Stanley Private Equity Asia The names competing for this award that 3. Mekong Capital recognises the best managers of longer- dated vehicles are big. Last year, CVC By definition, investing in frontier markets Capital Partners lost out to Blackstone. This requires boldness. Warburg Pincus showed year, CVC pipped KKR to the post, having just that when it made history last year by been the first of the mega-firms to launch sealing the largest-ever private equity-backed its second long-life vehicle, CVC Capital deal in Vietnam with its $370 million invest- Partners Strategic Opportunities II. To date, ment in Vietnam Technological and Com- the firm has raised €4 billion for its new mercial Joint Stock Bank (Techcombank).
L Catterton: won a PEI Operational Excellence vehicle – already bigger than its €3.9 billion Confirming the firm’s commitment to Award for its Ainsworth Pet Nutrition exit Strategic Opportunities I – that it expects the nascent Asian market, in partnership
¹ PEI AWARDS
GLOBAL
with Becamex IDC Corp, also last year achievements in 2018, the firm’s portfolio Warburg Pincus seeded BW Industrial companies supported more than 116,000 Development Joint Stock Company, the jobs and livelihoods, as well as provided largest industrial and logistics real estate healthcare services to 3.2 million people developer in Vietnam. And demonstrating in the first quarter alone, supplied electric- its confidence in the local capital market, ity to more than 1 million people in Cam- in October, Warburg listed close to 22 eroon, and generated more than 40 million percent of its shopping mall operator consumer credit reports to facilitate access Vincom Retail on the Ho Chi Minh City to financial services in Africa. While these Stock Exchange. numbers are impressive, in response to the lack of an industry standard for measuring IMPACT INVESTMENT impact, the firm also worked on devising FIRM OF THE YEAR an impact scoring methodology, the Actis Impact Multiple. 1. Actis Reflecting Actis’ track record and com- 2. LeapFrog mitment, the International Finance Corpo- 3. Ambienta ration invited the firm to sit on its Sound- ing Board for its Operating Principles for
Delivering impact in emerging markets Managing Impact initiative that launched Actis: supplies electricity to more than 1 million is embedded in Actis’ DNA. Among its in October. people in Cameroon
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EMEA
LARGE-CAP FIRM chemical group Azelis), the firm also got LIMITED PARTNER OF THE YEAR IN EUROPE into public equities via its EQT Public OF THE YEAR IN EUROPE Value business. 1. EQT 1. Stonehage Fleming 2. Nordic Capital MID-MARKET FIRM 2. Finnish Local Government 3. Partners Group OF THE YEAR IN EUROPE Pensions Institution (Keva) 3. Ilmarinen What are the defining characteristics of a 1. Equistone Partners Europe modern-day private equity heavyweight? 2. Triton Partners In a world in which family o ce money is Arguably they are fundraising success 3. Oakley Capital becoming hard for GPs to ignore, Stonehage driven by investment performance; diverse Fleming is an increasingly important player. o erings across asset classes and strategies; What do you get when you provide access EMEA’s largest manager of wealthy families’ a wholehearted embrace of technology and to lower mid-market private equity invest- money continued to evolve in 2018 forming a willingness to keep evolving. EQT can ments in a fund size that can accommo- partnerships with Philadelphia-based Glen- boast them all. date big investor cheques? Answer: a lot of mede, which advises on $40 billion for more The firm – which capped o the year capital. Equistone Partners Europe closed than 2,000 families, and Luxembourg-head- by e ecting a succession plan that saw its sixth flagship fund in March 2018 on quartered Lombard International Assurance Thomas von Koch hand over the reigns €2.8 billion, scaling back €1 billion of to allow its clients to access Lombard’s – started it with massive fund close: the demand. The firm, which invests in France, insurance plans. A deal to sell part of itself €10.75 billion EQT VIII. Germany, Switzerland and the UK, made to Caledonia Investments, a £2 billion ($2.6 Besides the business as usual (some eight investments in 2018 and generated billion; €2.3 billion) investment trust with a jumbo investments and exits including €1.8 billion in exit proceeds. It bolstered strong family o ce heritage itself, is hoped selling its stake in Sportradar (EV of its ranks with hires from Goldman Sachs to propel its global ambitions further. It’s PE €2.1 billion) and buying Belgium-based and MML Capital. business, led by head of private capital ››
Jumbo exits: EQT sold Sportradar with an enterprise value of €2.1 billion Richard Clarke-Jervoise: head of Stonehage Fleming’s growing PE unit
¹ We’re privileged to have been recognised by our investors, partners and industry peers
THANK YOU Firm of the year in Italy
CONSECUTIVE YEARS •
With over €1.2bn in assets under management, Ambienta SGR SpA is the largest European sustainability-focused manager, dedicated to acquiring rapidly expanding SMEs capturing long- term environmental trends. With 30 transactions completed to date, the firm has a proven strategy of unlocking such SMEs across Europe.
Ambienta is unique among Private Equity players in MILAN, LONDON, DÜSSELDORF delivering top decile financial performance paired www.ambientasgr.com with measured, substantial environmental impact. PEI AWARDS
EMEA
giant GIC, mounted a huge due diligence e ort across its global platform and won the deal. Capital for the transaction came from the $18.5 billion Carlyle Partners VII, the €3.75 billion Carlyle Europe Partners IV, GIC and some other unnamed co-investors.
EXIT OF THE YEAR IN EUROPE
1. 3i Group for Scandlines 2. HIG Capital for FNZ 3. Partners Group for VAT Group
London-listed 3i generated 7x its money on the sale of ferry operator Scandlines. Diverse deal: AkzoNobel makes products for everything from face cream to feed additives Acquired by First State Investments and Hermes Investment Management, two long-term infrastructure investors, for an enterprise value of €2.5 billion, the com- pany was transformed during 3i’s own- ership from a state-owned business to a best-in-class operator. The exit marked the culmination of an operational over- haul, including streamlining the business by selling the non-core routes and assets and focusing the business on two routes linking Germany and Denmark. Initial capi- tal came from 3i’s fifth buyout fund, its last PE vehicle raised from outside investors.
FUNDRAISE OF THE Sea change: 3i transformed Scandlines to a best-in-class operator YEAR (EMEA)
›› Richard Clarke-Jervoise, continues to In 2018 Carlyle wrote its largest-ever 1. EQT g row. equity cheque to acquire AkzoNobel’s spe- 2. Hg cialty chemicals business for €10.1 billion. 3. Equistone Partners Europe DEAL OF THE YEAR Like many buyout firms, Carlyle loves carve- IN EUROPE outs and knows the specialty chemicals 2018 was a quiet year for fundraising com- carve-out routine better than most. This pared with the previous 12 months: EQT 1. Carlyle Group and GIC business – now renamed Nouryon – clearly did not get the memo. The for AkzoNobel (speciality makes a vast array of products for firm kicked o marketing chemicals arm) everything from face cream to for Fund VIII – led by IR 2. CVC Capital Partners, Public feed additives and had been chief Jussi Saarinen – in Sector Pension Investment Board on Carlyle’s radar since 2013. September 2017. A few and StepStone for Recordati The firm teamed up with Sin- months in they “were 3. Partners Group for Techem gaporean sovereign wealth having their arm bitten
PEI AWARDS
EMEA o ” by hungry investors and within six Capital’s 2008-vintage fund which saw €2.5 direct stakes from Bridgepoint and a $530 months had closed on its hard of €10.75 billion of net asset value moved into a con- million GP-led deal involving US deal-by- billion. Management fee breaks were avail- tinuation vehicle. Backed by Coller Capital deal investor Argonne Capital Group. able for those committing ahead of the first and Goldman Sachs, and run by Campbell “Glendower has gone through an intense close and for those writing bigger cheques, Lutyens, the deal gave the GP more time and exciting journey in its first 18 months which clearly aided momentum. Seventy to work on its assets and o ered liquidity of its life as an independent firm. We are percent of the LPs were existing EQT to LPs that wanted it. “The Nordic transac- very pleased and thankful for the continu- investors and 23 percent were based in tion was all about taking good assets and ing strong support of our existing and new the Nordics. putting them into the right home, securing partners since we launched Glendower,” additional time to maximise value creation,” says Carlo Pirzio-Biroli, managing partner SECONDARIES DEAL OF Rune Munk, a London-based partner at and CEO. THE YEAR IN EUROPE Coller, said at the time. SECONDARIES ADVISOR 1. Coller Capital, Goldman Sachs SECONDARIES FIRM OF OF THE YEAR IN EUROPE and Campbell Lutyens for THE YEAR IN EUROPE €2.5bn Nordic Capital GP-led 1. Campbell Lutyens 2. Rede Partners, Pantheon, 1. Glendower Capital 2. Rede Partners Idinvest Partners, Lombard 2. Coller Capital 3. Lazard Odier, HQ Capital and eQ Asset 3. Goldman Sachs Management for re-launch of It is apt that the advisor of the year in Lyceum as Horizon Glendower Capital only spun out in 2017 Europe also worked on the deal of the year. 3. Canada Pension Plan Investment but has already established itself as a force. Campbell Lutyens followed up its work on Board for Hermes GPE fund of The former secondaries arm of Deutsche the ground-breaking BC Partners trans- funds restructuring Asset Management has raised $2 billion for action with a €2.5 billion GP-led process its first independent fund, on its way to a on Nordic Capital’s 2008-vintage fund, The GP-led secondaries market was worth hard-cap of $2.5 billion. It has also been on the largest deal of its type. It also advised $24 billion last year. Last year saw the the end of several interesting deals, including Eurazeo on a deal that saw it move around largest such deal yet, a process on Nordic the acquisition of a €100 million portfolio of €600 million of assets o its balance sheet into a new vehicle. In the past 12 months, Campbell Lutyens’ secondaries team has advised on an aggregate $9 billion of trans- action volume.
FIRM OF THE YEAR IN AFRICA
1. Ethos 2. AfricInvest 3. Development Partners International
Ethos enjoyed something of a fundraising bonanza in 2018. The firm collected 2.5 billion rand ($180 million; €160 million) for its debut mid-market fund, which is already close to 60 percent invested, and Glendower Capital: partners have been through ‘intense and exciting’ times held a first close on Ethos Fund VII en ››
¹Ë PEI AWARDS
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local companies to grow. Given the suc- cess IK has seen with its investments in the Benelux over the years, we look forward to further building on our track record and supporting the local business community,” says partner Remko Hilhorst.
FIRM OF THE YEAR IN CEE
1. Mid Europa Partners 2. Abris Capital Partners 3. Enterprise Investors
Mid Europa Partners came out on top again in Central and Eastern Europe, having
African AI: Ethos invests in digital infrastructure claimed top spot in 2017 and 2016. The pioneers of private investment in ›› route to its 8 billion rand the region, led by co-managing target. Ethos also blazed a partners Robert Knorr and trail with the launch of Matthew Strassberg (pic- a dedicated AI fund to tured), made four acquisi- co-invest in portfolio tions in 2018, including pick- companies that would ing up Serbia’s leading private benefit from investment in healthcare provider MediGroup digital infrastructure. The fund and leading Polish consumer goods attracted 600 million rand in a first company Hortex. In October it success- close and is seeking 1 billion rand in total. fully exited PKL, Poland’s largest cable car, ski lift and ski slope service provider. FIRM OF THE YEAR IN BENELUX FIRM OF THE YEAR IN FRANCE 1. IK Investment Partners 2. Gilde Equity Management 1. Ardian 3. Main Capital Partners 2. Equistone Partners Europe 3. Eurazeo IK Investment Partners has a successful history in Benelux, acquiring high-quality Raise the topic of French private equity brands such as Dutch-based Signature with any market source and the conver- Foods, and it’s been another busy year. The sation will soon turn towards Ardian. The mid-market specialist, which closed its Paris-headquartered global giant completed second small cap fund on €550 million in six deals in its home country through a February, has made three investments in combination of buyouts, growth invest- the Netherlands over the past 12 months, ments and co-investments last year and also including specialised cables and connectors completed several fundraises, growing its
IK Investment Partners: portfolio includes business 2Connect and data security outfit AuM to a whopping $72 billion. Ardian’s Dutch-based Signature Foods Infradata. “Since 1995, IK has helped 16 French heritage is an important part of ››
¹¿ Leading buyout investor focused on the growth markets of Central and Eastern Europe
Five new investments and one exit in 2018
Fund IV Fund IV Fund IV A A A
F F H S F P
P S P A
Fund III Fund IV Fund V E S A
T S C E T P S
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›› its DNA and the country remains one of from Spanish development fund Instituto 3.5x and more than 50 percent IRR. “The its most important markets, says Philippe de Credito Oficial brings it to 42 percent award is a testament to our unique o ering Poletti, chief executive of Ardian France of its €350 million target. It was also busy at Ambienta, investing in businesses with a and head of buyout, who adds that even on the deal front, including mastermind- sustainability edge, which has generated sig- in a di cult macro environment, France ing the merger between portfolio company nificant returns for our investors as well as o ers excellent investment opportunities. Carbures and Inypsa to create aerospace benefitting the environment,” says Ambienta company Airtificial. CEO Nino Tronchetti Provera. FIRM OF THE YEAR IN GERMANY FIRM OF THE YEAR FIRM OF THE YEAR IN ITALY IN MENA 1. Deutsche Beteiligungs 2. Equistone Partners Europe 1. Ambienta 1. Investcorp 3. IK Investment Partners and 2. The Carlyle Group 2. SEAF Oakley Capital 3. Investindustrial 3. Gulf Capital
It was a tight race among firm of the year Ambienta, which focuses on industrial Investcorp raised $7.3 billion across all contenders in Germany, but mid-market- growth investing in companies driven by strategies, including more than $1 billion focused DBAG retained its crown. The environmental trends, held its first and of deal-by-deal capital in the Gulf in 2018. firm has been on a roll in 2018 final close for its Ambienta III Since its inception in 1982 the firm has in an environment that has fund after only three months made over 185 private equity deals in the not been easy due to uncer- of active marketing. The US, Europe, Middle East, the North Africa tainty in the macro economy. fund surpassed its origi- region and Asia. “It is an honour to have DBAG completed six deals, nal €500 million target been awarded Firm of the Year in MENA, three in its core market seg- and hit its €635 million especially as that recognition has been ment of between €50 million hard cap. Ambienta signed bestowed upon us by our industry peers,” and €250 million, and three three new investments in says Hazem Ben-Gacem, who is co-CEO smaller deals, some of which are 2018 and announced its second and leads the firm’s private equity activities platform acquisitions. “Germany is a nice exit from Fund II, which generated a in Europe, Middle East and Asia. place to be and we have all the time tried to improve the firm especially in this market segment. We are focused on finding attrac- tive opportunities in a more complicated macro environment,” says Torsten Grede (pictured), a spokesman for the firm.
FIRM OF THE YEAR IN IBERIA
1. Black Toro Capital 2. Portobello Capital 3. Magnum Capital
Black Toro Capital returns once more as the leader in the Iberian market. The special situations manager held a dry close on its third fund at €99 million in June, which together with a €50 million commitment Taking flight: Black Toro masterminded a merger to create aerospace company Airtificial
¹ PEI AWARDS
EMEA
of private equity firms to expand into the large-cap buyout space with its £1.5 bil- lion Saturn Fund 1. “As well as being an exceptionally busy year for transactions, Hg invested further in its investment team, operational bench and firm infrastructure,” says managing director Matthew Brockman. “This will continue in 2019 as we seek to fur- ther enhance our position as the number one technology and services investor in Europe.”
FUND OF FUNDS MANAGER OF THE YEAR IN EUROPE
Scandinavian success: EQT made six investments in the Nordics in 2018 1. HarbourVest 2. Pantheon FIRM OF THE YEAR investments the firm acquired Megadyne 3. Adams Street Partners IN THE NORDICS Group a leading manufacturer of power transmission belts, from private equity HarbourVest makes it three wins in a row 1. EQT firm Astorg and purchased Ammeraal in the European funds of funds category. In 2. Nordic Capital Beltech a global leader in light-weight March the firm hit a $1.7 billion final close 3. Triton Partners process and conveyor belting, from Advent on latest vehicle HIPEP VIII Partnership. International. The two transactions had a Over the year it made $540 million in pri- What is there left to say about the larg- combined enterprise value of €2 billion. mary fund investments, $700 million in co- est private equity firm to emerge from Partners also joined Caisse de dépôt et investments and $141 million of secondaries Scandinavia? EQT is resolutely global but placement du Québec and Ontario Teach- trades. “HarbourVest has invested more than still spends enough time and capital in its ers’ Pension Plan to acquire Techem, Ger- $25 billion in Europe, Asia Pacific, and other home territory to be voted Firm of the Year many’s biggest water sub-metering ser- emerging markets over the last 30 years,” in the Nordics. Between its private equity vices. In January 2018, Partners Group says managing director Peter Wilson. “These funds, its credit vehicles and its real estate sold its remaining stake in valve manu- long-term relationships allow us to provide business, the firm made six investments in facturer VAT Group, realising a reported clients with access to local and specialised the Nordics in 2018 and sealed two exits, gross return of 6x and a gross IRR of 74 insights in an evolving global private equity including the sale of industrial automation percent on the original investment. market.” company Piab to Patricia Industries. FIRM OF THE YEAR PLACEMENT AGENT OF FIRM OF THE YEAR IN THE UK THE YEAR IN EUROPE IN SWITZERLAND 1. Hg 1. Campbell Lutyens 1. Partners Group 2. Oakley Capital 2. Rede Partners 2. Montana Capital Partners 3. Epiris 3. Asante Capital 3. Capvis Equity Partners Hg had an extremely active 2018 on both Naming the number one placement agent In addition to a slew of deals, around 17 sides of the deal, returning £1.6 billion across in Europe is always a close call. This year percent of Partners Group’s €83 billion 15 liquidity events and investing £1.2 billion Campbell Lutyens nabbed the top spot. The in assets under management comes from in eight new deals. The small- and mid-cap firm had a stellar year. clients based in Switzerland. Among other specialist also became one of only a handful Among European highlights for the ››
¹Ì PEI AWARDS
EMEA
›› firm that worked for 42 clients globally it advised Apiary Capital on its debut fund- LAW FIRM OF THE YEAR in 2018 transacting $32.5 billion across raising that drew investor interest globally IN EUROPE fund placement and secondaries advisory, to close on its £200 million hard-cap, and (SECONDARIES) was its work for Epiris. Under Campbell Nordic-focused buyout vehicle Litorina V Lutyens’ exclusive guidance, Epiris Fund that closed on Skr 3 billion ($325 million; 1. Kirkland & Ellis II, the manager’s first institutional pri- €287 million). 2. Debevoise & Plimpton vate equity vehicle, reached final close in 3. O’Melveny & Myers October on £821 million ($1 billion; €934 LAW FIRM OF THE YEAR million). Targeting a global investor base IN EUROPE Kirkland & Ellis remains the dominate sec- of pension funds, endowments, founda- (TRANSACTIONS) ondaries law firm in Europe in terms of tions, asset managers and private investors, the volume and variety of deals it did last the fundraising was one of the largest for 1. Clifford Chance year. It advised on $6.85 billion of transac- a first-time vehicle in Europe since the 2. Debevoise & Plimpton tions in the region, including seven GP-led financial crisis. 3. MJ Hudson deals worth a combined $5.1 billion. These included our Deal of the Year, the process on LAW FIRM OF THE YEAR Cli ord Chance stood ahead of the pack Nordic Capital’s 2008-vintage fund. It also IN EUROPE last year. From its 17 European o ces the worked on a number of preferred equity (FUND FORMATION) firm acted for 43 private equity firms on deals for a combined value of more than more than 60 European mandates with a $750 million. 1. Proskauer Rose combined value of more than £30 billion 2. Simpson Thacher & Bartlett ($39 billion; €34 billion). Its European LENDER OF THE YEAR 3. MJ Hudson clients include European heavyweights 3i, IN EUROPE Actis, Cinven, CVC Capital Partners, EQT Edging into first place is Proskauer Rose. Partners, and Permira. 1. Ares Management With more than 150 lawyers dedicated Among notable transactions the firm 2. Hayfin Capital Management to the private funds market, the firm has advised on in 2018 was Partners Group’s 3. Tikehau Capital muscle. In 2018, it advised on more than simultaneous acquisitions of belting tech- 60 fund formation mandates globally rep- nology companies UK-based Ammeraal Led by co-heads of European Credit Blair resenting more than €32 billion of com- Beltech (through an auction) and Italy’s Jacobson and Michael Dennis, Ares Manage- mitted capital. In Europe, where the firm Megadyne Group. The parallel acquisitions ment has taken the prize for top lender. The operates from o ces in London and Paris, threw up complex diligence, transactional firm’s €6.5 billion fundraise for Ares Capital Proskauer really shone. It advised Hg on and regulatory issues, including anti-trust Europe IV caused its European assets under its software buyout vehicle Hg Saturn that clearance and required input from the firm’s management to nearly double in the space closed in October on £1.5 billion ($1.9 London, Milan, Amsterdam, Luxembourg of a year, hitting $21 billion in September billion; €1.7 billion). Earlier on in the year, and US o ces. 2018. The Ares European Direct Lending team had deployed approximately €5.9 billion across 30 separate new transactions in the 12 months leading up to the end of the third quarter, making it a real force to be reckoned with. “Having completed over 180 investments over the past 12 years, we have fostered a wealth of knowledge. This not only facilitates e cient diligence, strong conviction around investments and deliv- erability, but it also makes us a value-add Clifford Chance: advised on complex deals partner to our borrowers,” says Jacobson.
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LARGE-CAP FIRM Adam Weinstein, and is gearing up to launch It was a busy year for Alaska Permanent OF THE YEAR a minority strategy this year. Fund, which posted a 30.2 percent net IN NORTH AMERICA IRR for its private equity portfolio in LIMITED PARTNER 2018. The fund, managed by APFC, set 1. Blackstone OF THE YEAR IN up a $700 million joint venture, Constel- 2. Vista Equity Partners NORTH AMERICA lation Capital, with Public Institution for 3. Advent International Social Security of Kuwait, Wafra and UK 1. Alaska Permanent Fund pension fund RPMI Railpen to provide Even by mega-firm standards, 2018 was a 2. Teacher Retirement System of cornerstone fund commitments and scal- big year for Blackstone. The firm – which Texas ing advice for emerging managers in 2018. elevated real estate head Jonathan Gray to 3. Princeton University Investment It also sold a $1.4 billion portfolio of stakes president in February – raised more than Company to Ardian. $100 billion across its platforms, including $27 billion for private equity. At its investor day in October, the firm laid out its future growth plans, and it’s making excellent head- way already, acquiring global life sciences investment firm Clarus to launch Blackstone Life Sciences, and poaching growth guru Jon Korngold from General Atlantic to launch a dedicated growth equity platform. That’s not to mention pulling o 2018’s most high- profile deal and the most high-profile exit this side of the Atlantic (see below).
MID-MARKET FIRM OF THE YEAR IN NORTH AMERICA
Alaska beckons: the LP posted a 30.2 percent net IRR for its PE portfolio in 2018 1. New Mountain Capital 2. TA Associates 3. The Riverside Company
Growth-focused New Mountain Capital had a busy 2018. The firm made several transac- tions, including acquiring Remedy Partners, a provider of financial software for health insurers and healthcare providers, and MAG Aerospace, a turnkey provider of intelligence, surveillance and reconnaissance solutions, and ooading Medical Specialties Distribu- tors at an enterprise value of $800 million. It also sold a 9 percent stake in itself to Black- stone’s Strategic Capital Holdings Fund, with plans to “further invest in our business and increase alignment with investors”, accord- ing to a statement from managing director Med tech: New Mountain Capital’s acquisitions include a software provider for healthcare firms
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NORTH AMERICAN DEAL NORTH AMERICAN EXIT FUNDRAISE OF THE OF THE YEAR OF THE YEAR YEAR (AMERICAS)
1. Blackstone, CPPIB and GIC for 1. Blackstone for Hilton Hotels 1. Insight Venture Partners Financial & Risk US Holdings 2. L Catterton for Ainsworth Pet 2. Hellman & Friedman (Thomson Reuters) Nutrition 3. The Carlyle Group 2. KKR for BMC Software 3. Advent International for Cotiviti 3. Veritas Capital, Elliott It was a milestone year for growth capital Management for Athenahealth Blackstone’s investment in Hilton Hotels investing and particularly for Insight Ven- will go down in private equity history. It was ture Partners, a New York-based private As one of the biggest firms in the industry, it the quintessential pre-crisis transaction: a equity and venture capital firm focused on should come as no surprise that Blackstone $26 billion take-private with a 20 percent software companies. In 2018, the late-stage was behind one of the biggest deals in 2018. equity cheque, split between the firm’s pri- investor raised its largest fund since incep- The firm led a consortium together vate equity and real estate funds. After a tion in 1995 and one of the largest-ever with CPPIB and GIC to acquire a majority tough period for the hotels sector during venture capital funds in the industry. Insight stake of the financial & risk unit of Thom- the downturn, Blackstone wrote down the announced the final closing of its $6.3 bil- son Reuters in a $20 billion investment, invested additional capital, lion Fund X, which counted the firm’s GPs acquisition which global increased the number of rooms, and amongst its largest investors. “While the head of private equity Joe restructured the debt, shaving size of Fund X is noteworthy, we’re most Baratta (pictured) called $4 billion o the total. In 2013 excited about the potential it provides both “a landmark transac- Blackstone took the hotel chain our investments and our investors,” says tion” for the firm. The public again. When it completed Deven Parekh (pictured), managing direc- company – rebranded its final exit in 2018, realised tor at Insight Venture Partners. Refinitiv – serves 40,000 profit stood at $14 billion, com- The new fund came only institutions in more than 190 fortably making it one of the most three years after the countries. profitable private equity deals ever. firm, which now has more than $20 bil- lion in assets under management, closed on about $5 billion for Fund IX.
SECONDARIES FIRM OF THE YEAR IN THE AMERICAS
1. Lexington Partners 2. Ardian 3. Whitehorse Liquidity Partners
The secondaries market continues to grow and Lexington Partners is vital to this expansion. The New York-headquar- tered firm made headway with its ninth secondaries fund, which is seeking the biggest amount ever sought for the strat- Historic deal: Hilton Hotels was one of the most profitable PE deals ever egy, and closed or committed to 44 ››
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AMERICAS
SECONDARIES ADVISOR OF THE YEAR IN THE AMERICAS
1. Evercore 2. Lazard 3. Park Hill
Evercore has been expanding its pri- vate capital advisory business including the acquisition last year of competitor Greenhill’s real estate fund- raising team. PCA, led by global head Nigel Dawn (pictured), executed some eye-catch- ing deals last year, including the restructur- Making headway: New York-based Lexington Partners is seeking to raise the biggest-ever ing of energy-focused private equity firm secondaries fund Lime Rock Partners’ 2006-vintage fund and mid-market firm Vestar Capital Partners’ ›› secondaries transactions totalling $6.4 The secondar- 2005-vintage vehicle. The team also advised billion. 2018 was a year of change for ies market has on some huge LP portfolio sales from Mary- the firm as well with the completion been spread- land State Retirement and Pension System of a leadership succession that saw Wil ing beyond just and Florida State Board of Administration. Warren become president of the firm. private equity With 64 professionals around the world, The firm’s reach is truly global – its deal in recent years Evercore’s PCA team looks set for another log last year included a GP-led process on with asset classes exciting year. TPG’s Asia funds and a directs deal with such as infrastructure France’s Eurazeo. Chances are the second- “only going to get larger”, according to DISTRESSED DEBT aries market will continue to hear much Campbell Lutyens partner Gerald Cooper INVESTOR OF THE YEAR more of Lexington in 2019. (pictured). Indeed, infra accounted for IN NORTH AMERICA around 17 percent of GP-led secondaries SECONDARIES DEAL deal volume last year. 1. Oaktree Capital Management OF THE YEAR In June Ardian worked with Canadian 2. TPG Sixth Street Partners IN THE AMERICAS insurer Manulife Financial to carry out the 3. SVP Global largest stapled secondaries deals in North 1. Ardian and Campbell Lutyens America for 2018. Public market volatility in the fourth quar- for the spin-out of Manulife/ Of the six alternative asset classes in ter of last year did not deter Los Angeles- John Hancock’s infrastructure which Manulife invests, as of spring 2017 headquartered Oaktree Capital Manage- team infrastructure was the only one that had not ment from investing capital. The credit 2. Goldman Sachs, Hamilton Lane been opened to outside investors. The deal, and special situations investor deployed and Lazard for the NEA spinout advised on by Campbell Lutyens, resulted $4 billion from closed end funds during and directs deal in the creation of a $2 billion fund and the quarter and ended the 12 months with 3. CPPIB, HarbourVest, StepStone, marked the entry of Manulife’s infrastruc- $19 billion of dry powder. On the fundrais- Park Hill for Providence’s GP-led ture investment team into the world of ing front, the firm raised $13 billion across process on Fund VII third-party asset management. the full year and made headway with its
˹ PEI AWARDS
AMERICAS second flagship special sits fund, seeking partner at Advent International committed to 33 funds in North $1.75 billion. in their São Paulo o ce. “In America. “This award reinforces “We had a relatively good year relative to our last three largest deals, our client-centric approach to our competition in our very important dis- we acquired 80 percent of private markets solutions, pro- tressed debt strategy,” co-chairman Howard Walmart Brazil; completed viding one of the best ways for Marks said on a fourth quarter earnings our first investment in Chile LPs of all sizes, especially those call, adding that the strategy returned 10 – hotel and casino operator new to the private markets, to percent for the year. Enjoy; and increased our own- access a cost-e ective and diversi- ership in Estácio Participações, our fied portfolio,” says John Toomey, managing FIRM OF THE YEAR third education investment in Brazil,” he director of HarbourVest. IN CANADA says. As a part of the firm’s re-engagement in Argentina, Advent also worked in 2018 to PLACEMENT AGENT 1. Brookfield close the acquisition of a 51 percent stake in OF THE YEAR 2. Onex Prisma, an Argentinian payments company. IN NORTH AMERICA 3. Whitehorse Liquidity Partners FUND OF FUNDS 1. Evercore Brookfield’s private equity business had MANAGER OF THE YEAR 2. Credit Suisse an active 2018, acquiring a number of IN NORTH AMERICA 3. Eaton Partners businesses including Westinghouse and European plastic packaging manufacturer 1. HarbourVest Partners Evercore held final closes for three North Schoeller Allibert. Brookfield also won a 2. Hamilton Lane American buyout funds in 2018 that were PEI Operational Excellence Award for what 3. Adams Street Partners all oversubscribed at their hard-caps for judges termed a “stunning improvement” in a total closed amount of $5.25 billion. GrafTech International, a maker of graphite In 2018 HarbourVest raised nearly $4 The average fundraise timeline was less electrodes used in steelmaking. GrafTech billion for multi-strategy funds of funds, than seven months across the three, and listed on the New York Stock Exchange in grew its credit team and was selected by capital was raised from a global, diverse April after racking up EBITDA of more the Canadian government to participate group of institutional investors. A major than $1.2 billion in 2018. One of its flag- in the country’s Venture Capital Catalyst highlight was K4 Private Investors, which ship funds – Brookfield Capital Partners Initiative. The firm also has $1.6 billion closed on its $2 billion hard cap. This ›› V – which is its largest-ever global private equity fund, had a first close, which as of press time totalled $6.5 billion in the fourth quarter last year. This is already more than the $4 billion that its 2015-vintage pre- decessor fund raised against a $3.5 billion target.
FIRM OF THE YEAR IN LATIN AMERICA
1. Advent International 2. Actis 3. DXA Investments
In 2018 Advent had a record year in terms of capital deployed across Latin America, Hot streak: Brookfield won an Operational Excellence Award for GrafTech, whose electrodes are says Patrice Etlin (pictured), a managing used in steelmaking
ËË PEI AWARDS
AMERICAS
›› represented a 144 percent increase in The numbers speak for themselves. Kirk- takes to transactional work,” says Michael fund size from its predecessor fund K3 Pri- land & Ellis worked on 167 global pri- Belsley (pictured), global head of Kirkland’s vate Investors, among the largest fund size vate equity deals in the first half of 2018 secondaries market practice. increases in North America mid-market in alone, totalling $70.4 billion, according recent years. Other highlights included LS to Bloomberg’s H1 2018 Global M&A Power Equity Partners IV and Symphony Market Review. Throughout the year and Technology Group V, which closed on its of the transactions that were publicly $1 billion hard-cap in less than five months. announced, the law firm was involved in 10 deals for Blackstone, 16 deals for Bain LAW FIRM OF THE YEAR Capital and 22 for Vista Equity Partners IN NORTH AMERICA among others. Kirkland serves more than (FUND FORMATION) 450 private equity firms. While it has many of the large-cap multi-asset managers as 1. Kirkland & Ellis clients – it represents eight of the top 10 2. Paul, Weiss, Rifkind, Wharton & firms in the PEI 300 list of the world’s larg- Garrison est private equity firms by capital raised in
3. Debevoise & Plimpton the last five years – it also regularly works Credit opportunities: GSO closed its latest with mid-market fund sponsors. distressed debt fund on $7 billion in April With attorneys in 14 o ces in major finan- cial centres, Kirkland & Ellis’s investment LAW FIRM OF THE YEAR LENDER OF THE YEAR funds group has helped dozens of firms IN NORTH AMERICA IN NORTH AMERICA raise and close funds in 2018, working (SECONDARIES) with first-time funds and making its marks 1. GSO Capital Partners in the secondaries fundraising market as 1. Kirkland & Ellis 2. Golub Capital Partners well. Clients included Landmark Partners, 2. Proskauer 3. TPG Sixth Street Partners which closed its 16th private equity sec- 3. Gibson, Dunn & Crutcher ondaries fund on $5.4 billion, above its Credit represents one of the largest strate- $4 billion target. With the fund’s Kirkland & Ellis advised on about gies at Blackstone and GSO Capital Part- a liate co-investment vehicles, $18 billion in North American ners is the biggest contributor to it. In the aggregate commitments secondaries transactions in 2018, GSO launched a new internal direct totalled $7 billion. The firm 2018 across 51 di erent lending business after parting ways with FS also represented LightBay deals, including an impressive Investment Funds e ective in April 2018. It Capital in its oversubscribed number of GP-led transac- closed on $1.8 billion for its direct lending inaugural fund, which closed tions as that part of the sec- platform in the fourth quarter, for a total in January 2018 on $615 mil- ondaries market is growing at a of $4.4 billion for the year. In other credit lion; and Sycamore Partners, the quick pace. It was involved in seven strategies, the New York-based credit giant consumer-focused GP that closed on $4.75 GP-led restructurings totalling $4 billion in closed its latest distressed debt fund, GSO billion in June, surpassing its $2.5 billion value, addition 10 GP liquidity investments Capital Solutions Fund III, on its hard-cap 2014-vintage predecessor. by secondaries investors for an aggregate of of $7 billion in April. Blackstone’s GSO and $5 billion and two stapled tender o ers for Tactical Opportunities also led a $2 billion LAW FIRM OF THE YEAR $1.2 billion. In other parts of the secondar- investment in insurance broker Acrisure IN NORTH AMERICA ies market, it assisted in 24 portfolio sales alongside Partners Group and Harvest (TRANSACTIONS) for $4.5 billion and 20 preferred equity Partners. “We’ve enjoyed a long-standing secondaries investments representing three relationship with a talented management 1. Kirkland & Ellis di erent investors. “Kirkland’s strong pres- team that has built a high growth business,” 2. Simpson Thacher & Bartlett ence in the secondaries market is a result says Lou Salvatore, senior managing direc- 3. Debevoise & Plimpton of the team-oriented approach Kirkland tor at GSO.
Ë¿ PEI AWARDS
ASIA-PACIFIC
LARGE-CAP FIRM MID-MARKET FIRM LIMITED PARTNER OF THE YEAR IN ASIA OF THE YEAR IN ASIA OF THE YEAR IN ASIA
1. KKR 1. Navis Capital Partners 1. CPPIB 2. Bain Capital 2. Advantage Partners 2. Japan Post Bank and Japan Post 3. Baring Private Equity Asia 3. Quadrant Private Equity Insurance 3. National University of Singapore With $9.3 billion of dry powder from its Kuala Lumpur-based Navis retains the top third Asia flagship fund, KKR was busy spot among mid-market firms in Asia. The CPPIB’s head of Asia-Pacific Suyi Kim (pic- with landmark deals in 2018 that showed firm struck four deals in 2018, including its tured) has built an enviable Asia-Pacific the region is a top priority for the firm largest deal in Australia with the acquisition business since establishing the Hong Kong in the years ahead. The private heavy- of medical devices supplier Device Technol- o ce in 2008. Today, 25 percent of the weight invested about $1.6 billion in LCY ogies for about $500 million. Navis invested C$368 billion ($277 billion; €246 billion) Chemical – the largest private equity deal in sustainable denim manufacturing busi- pension’s total assets are invested in the in Taiwan since 2012 and the first private ness Saitex Holdings, as well as DZ Cards, region, with 10.5 percent of total assets equity take-private in the country. It also a payment solutions provider in South-East in Greater China alone. teamed up with Chinese tech giant Tencent Asia and Africa, and Everrise, a premium 2018 was another busy year. The pension and secured the largest private equity deal supermarket group in east Malaysia. The made fund commitments including $500 in the Philippines with technology company firm was also busy with divestments – Alli- million to Baring Private Equity Voyager Innovations for $175 million. In ance Cosmetics Group was sold to Japa- Asia Fund VII, A$200 mil- India, KKR entered the environmental ser- nese strategic Mandom Corporation lion to BGH Capital’s vices sector through its $510 million acqui- and printed circuits board solution debut fund, and $380 sition of Ramky Enviro Engineers, one of provider MFS Technology to Hong million to PAG Asia III. the largest buyouts there to-date. The firm Kong-based DCP Capital. What’s Its direct investments was also highly acquisitive in China, with more the firm began raising capital include China inter- five transactions ranging from digital mar- for its eighth fund which has a target net content distribution keting solutions to hospital management. of $1.75 billion. platform Bytedance, online consumer finance and wealth management platform Du Xiaoman, and Indian educational technology firm Byju.
DEAL OF THE YEAR IN ASIA
1. Bain Capital-led consortium for Toshiba Memory Corporation 2. ChrysCapital for Mankind Pharma 3. KKR for Ramky Enviro Engineers
Bain Capital’s Toshiba Memory acquisition is the largest-ever private equity buyout in Asia, valued at $18 billion. The Bain Capi- tal-led consortium – which includes Apple, Dell, Kingston, Seagate, SK Hynix and Hoya – was selected by Toshiba’s Board as the preferred buyer of TMC after a protracted Going mobile: digital marketing is one of KKR’s focus’s in China eight-month bidding war. ››
ËÊ PEI AWARDS
ASIA-PACIFIC
Complex deal: Bain’s Toshiba memory deal involved high degree of creativity Building block: the Halla Cement deal generated a gross IRR of 71 percent in under two years
›› In an acquisition as large and com- pan-Asian manager had previously realised existing investors re-upped and demand plex as this, Bain’s execution strategy a successful investment in Lafarge’s India far-exceeded Fund III’s hard-cap, Weijian involved a high degree of creativity and cement business, so when Lafarge was look- Shan, chairman and chief executive of coordination across the firm’s global plat- ing to divest the business it approached PAG, told PEI at the time. The vehicle was form. Aside from addressing concerns of a BPEA. Post-acquisition, the firm carried roughly 60 percent larger than its predeces- wide range of stakeholders, the firm also out several value creation initiatives which sor, which closed on $3.66 billion in 2015. had to deal with complex legal issues – expanded margins by approximately 400 PAG’s e orts last year were also enough to Toshiba was in litigation with Western basis points and resulted in a 30 percent attract a minority investment from Black- Digital, which filed an injunction against increase in EBITDA in the first 12 months stone’s Strategic Capital Holdings Fund. the sale – as well as regulatory approval of ownership. BPEA initiated a competi- with Chinese authorities. tive sale process in late 2017 resulting in SECONDARIES FIRM local Korean cement company Asia Cement OF THE YEAR IN ASIA EXIT OF THE YEAR acquiring the company. The sale generated IN ASIA a total return of 2.4x invested capital and a 1. GIC gross IRR of 71 percent in under two years. 2. HarbourVest Partners 1. Baring Private Equity Asia for 3. NewQuest Capital Partners Halla Cement FUNDRAISE OF THE 2. Partners Group for Trimco YEAR (ASIA-PACIFIC) One of the organisations giving 3. COPE Private Equity for Serba traditional secondaries firms Dinamik 1. PAG a run for their money is 2. Hillhouse Capital Group Singaporean sovereign Formerly known as Lafarge Halla Cement, 3. The Carlyle Group wealth fund GIC, whose Hong Kong-headquartered BPEA invested New York, London and in the company in April 2016, carving the Hong Kong’s PAG collected $6.1 billion Singapore-based second- business out from parent company Lafarge- for its third Asia-focused buyout fund aries team is at the fore- Holcim and creating a new standalone busi- after just six months in market, smash- front of the market’s develop- ness with a fresh corporate identity. The ing its initial $4.5 billion target. Almost all ment. The unit’s highlights last year ››
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›› include backing a yuan to dollar fund SECONDARIES ADVISOR prepared for the Royal Borough of Kens- restructuring involving Shanghai’s Loyal OF THE YEAR IN ASIA ington and Chelsea Pension Fund. Valley Capital – a complex deal that set a market precedent – and restructuring two 1. Eaton Partners FIRM OF THE YEAR vehicles managed by tech-focused investor 2. Credit Suisse Private Fund Group IN CHINA Vector Capital. “As a long-term investor, we 3. Greenhill will continue to leverage our knowledge 1. KKR across multiple asset classes and seek out The Asian secondaries market continues 2. CITICPE valuable LP opportunities,” says Yong Cheen full steam ahead with the region account- 3. Warburg Pincus Choo (pictured), GIC’s chief investment ing for around 10 percent of 2018 global o cer, private equity. deal volume. Eaton Partners was the KKR has made no secret of its dedication brains behind one of last to Asia, and China is a huge part of its SECONDARIES DEAL year’s most innovative strategy in the region; the firm has OF THE YEAR IN ASIA deals in Asia-Pacific: the invested more than $4 billion in yuan to dollar restruc- the Greater China market since 1. ICG Strategic Equity, Credit turing of a portfolio it launched its Asia platform. In Suisse Private Fund Group for of assets held by Loyal 2018 it grew its Chinese port- Standard Chartered spinout Valley Capital. The trans- folio with acquisitions including 2. HarbourVest Partners for Telstra action, understood to be Taiwan’s first private equity take- spinout the first transaction of its kind, private, of leading specialty chemicals 3. NewQuest, GIC, TR Capital, involved stakes in early stage healthcare producer LCY Chemical at a market cap Siguler Guff and Eaton Partners companies and Chinese “unicorns”. Eaton of $1.6 billion, and combining four digital for Loyal Valley Capital attracted high quality names to back the media companies to form one-stop digital deal including Singapore sovereign wealth marketing company Cue & Co. With Asia Good things come to fund GIC, and the transaction was worth once again a priority for the firm in 2019, those who wait. at least $500 million. we’re expecting more exciting deals in the This maxim cer- months to come. tainly holds true FIRM OF THE YEAR for those involved IN AUSTRALASIA FIRM OF THE YEAR in the spinout of IN JAPAN Standard Char- 1. Quadrant Private Equity tered’s private equity 2. BGH Capital 1. Nippon Sangyo Suishin Kiko team. The long-awaited 3. Crescent Capital Partners Ltd. (NSSK) deal involved backing the sale of PE 2. J-STAR assets on balance sheet and spinning out Sydney-based Quadrant set about deploy- 3. CLSA Capital Partners the emerging markets-focused captive ing its newly raised A$1.15 billion ($820 team. The London-headquartered bank million; €730 million) last year. The firm NSSK had a rampant announced in 2015 it was reducing its snapped up a majority stake in Aussie con- year of deal making private equity business and executed sev- fectionary business Darrell Lea in January with at least six eral secondaries deals with the help of for a reported A$200 million. Quadrant control buyouts Credit Suisse’s Private Fund Group. ICG’s also bought into after-school care pro- completed in 2018, Strategic Equity team, which has plans to vider Junior Adventures Group in June for including wedding develop existing o ces in Hong Kong and a reported A$100 million. Quadrant Private services business SOWA Singapore, emerged as the buyer in this Equity No.4, an A$850 million 2014-vin- Project, toiletry products man- circa $1 billion transaction, marking the tage, was running at 1.79x total value to ufacturer NiwaQ and hotel group Castle final step in Standard Chartered’s plans to drawn and 33.3 percent net IRR as of Inn. Five of its six deals were sourced on a exit its private equity business. 31 March 2018, according to documents proprietary basis with a minimum two ››
¿ PROUD WINNER OF TWO PRIVATE EQUITY INTERNATIONAL 2018 AWARDS IN ASIA
Placement Agent of Secondaries Advisor of the Year in Asia the Year in Asia
THOUGHT LEADERS IN ASIA & AROUND THE GLOBE
PRIVATE EQUITY | PRIVATE CREDIT | REAL ASSETS | REAL ESTATE | HEDGE FUNDS | SECONDARIES | DIRECTS
Eaton Partners | A Division of Stifel, Nicolaus & Company, Incorporated | Member SIPC & NYSE | www.eaton-partners.com PEI AWARDS
ASIA-PACIFIC
›› months of exclusivity. “The wave of middle market deal activity is beginning to look like the build up to a tsunami and NSSK is in the middle of it,” says manag- ing partner Jun Tsusaka (pictured). “The number of divestitures of non-core business units by corporations will see a gradual and steady gain in the next five years and as a local firm we are well positioned.”
FIRM OF THE YEAR IN KOREA
1. Affinity Equity Partners 2. Hahn & Co 3. VIG Partners
A nity Equity Partners deployed a healthy Vehicle funding: financing business Hyundai Commercial was among Affinity Equity Partner’s deals $1.1 billion across four new deals and a follow-on investment in Korea last year. LPs including GIC, Adams Street Partners, PropertyGuru, will support the company Deals included online retailer SSG.com, HarbourVest and Pantheon. ChrysCapital consolidate its position in the region, as it vehicle financing business Hyundai Com- was a late entrant in the process and had to aims to take full control of Vietnam’s No. 1 mercial and Lock&Lock, a food storage stave o competition from global PE bid- property portal Batdongsan.com.vn. business in China, Vietnam and Korea. The ders, before eventually winning through on firm also completed a follow-on investment its existing relationship with management. FUND OF FUNDS in Burger King Korea to accelerate store MANAGER OF THE expansion in Korea and to establish a master FIRM OF THE YEAR YEAR IN ASIA franchise to develop the Burger King brand IN SOUTH-EAST ASIA in Japan. 1. LGT Capital Partners 1. KKR 2. Asia Alternatives FIRM OF THE YEAR 2. Ekuinas 3. Pantheon IN INDIA 3. Warburg Pincus A first-time winner in Asia, LGT Capital 1. ChrysCapital For the third year running, KKR wins Partners invested over $800 million across 2. Everstone Group firm of the year in South-East Asia, beat- primaries, secondaries and co-investments 3. KKR ing Malaysian firm Ekuinas and Warburg in 2018 and also raised over $800 million for Pincus. Its milestones in the region include Asian strategies, including its flagship Asia Mumbai’s ChrysCapital ended the year on a flagship investment in the Philippines and Fund IV. With a presence in Asia since 1999 a high, raising $867 million for its eighth taking the lead role in an approximately and four o ces including over 30 people India-focused vehicle in its largest and fast- $145 million fundraising round for Sin- based in its Hong Kong headquarters, the est fundraise. ChrysCapital VIII was sig- gapore-based property technology group firm has one of the most experienced and nificantly oversubscribed beyond the firm’s Property Guru. The firm invested $175 most stable teams in the region. LGT Capital $850 million hard-cap and major investors million in Voyager Innovations with Tencent Partners has also actively integrated ESG into in the previous fund re-upped commit- to acquire a substantial minority stake in its private equity investment programmes ments. The firm also deployed $325 mil- the digital payments company, the largest since 2003 focusing on in-depth ESG due lion in a tightly contested bid for a stake in investment in a Filipino technology com- diligence and engagement. The firm has been Mankind Pharma alongside a consortium of pany to date. Meanwhile, its investment in publishing its annual ESG Report since 2013.
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We are honoured to be recognized as the Firm of Invested across 84 Deals the Year in India, and thank our partners for their support over the past two decades. $5.3 billion For more information, please visit www.chryscapital.com Realized from 67 Full Exits PEI AWARDS
ASIA-PACIFIC
PLACEMENT AGENT Simpson Thacher & Bartlett acted as Carlyle Group, Partners Group, CVC Capi- OF THE YEAR IN ASIA sponsor counsel on several of the largest tal Partners, Advantage Partners, TPG and fundraisings in 2018 in the Asia Pacific A nity Equity on deals in the region. The 1. Eaton Partners region. The firm advised A nity Equity firm has most recently advised on Carlyle’s 2. Campbell Lutyens Partners on its Fund V, which closed on $6 minority investment in Baidu’s divested 3. UBS Private Funds Group billion in January, at the time the largest financial services group, CVC’s 25 percent private equity fund ever raised by an Asia- investment stake into RKE International, Four-time winner Eaton Partners has based sponsor. It also assisted Blackstone a toll road operator in China, and MBK always taken a research-driven approach to on two landmark fundraising, including Partners and TPG’s proposed merger of identifying key themes in Asia and maps the its first buyout fund dedicated to Asia. WTT and Hong Kong Broadband Network market for best in class managers. Global The firm advised Carlyle on Carlyle Asia Limited. partner and head of Asia for Eaton, Chris Partners V, which closed on $6.55 billion. “It has been an exciting year in the PE Lerner, says: “When done right, we think It also helped Yunfeng Capital raise $2.5 space across Asia Pacific and our team’s Asia can deliver outperformance so while billion for its China-focused Yunfeng Fund success is a testament to the delivery we do not take on the largest funds and III. “2018 was another incredibly strong of the best legal advice across complex, we only take on a small number of funds, year for Simpson Thacher’s Asia private international deals,” says Andrew Whan, it’s satisfying and motivating when inves- funds practice,” says Adam Furber, head head of the firm’s corporate practice in tors recognise the quality of our ideas and of the firm’s Asia private funds practice Asia Pacific. fund managers. In 2018, the firm completed in Hong Kong. closes on five funds totalling more than $1 LAW FIRM OF THE YEAR billion in capital commitments including LAW FIRM OF THE YEAR IN ASIA (SECONDARIES) TMT-focused Huaxing Growth Capital, IN ASIA Beijing-based N5 Capital and Singapore- (TRANSACTIONS) 1. Kirkland & Ellis Proud winner of the PEI 2018 Award based Jungle Ventures. 2. Dechert 1. Clifford Chance 3. Ropes & Gray LAW FIRM OF THE YEAR 2. Kirkland & Ellis for Fund of funds of the year in Asia IN ASIA (FUND 3. Ropes & Gray Kirkland & Ellis worked on high-profile sec- FORMATION) ondaries transactions in 2018, with total Through its o ces in Beijing, Hong Kong, volume of about $30 billion globally. In 1. Simpson Thacher & Bartlett Seoul, Shanghai, Singapore, Sydney and Asia, it represented clients in $5.2 billion- 2. Ropes & Gray Tokyo, Cli ord Chance advised major cli- worth of secondaries transactions. These 3. Dechert ents in Asia Pacific in 2018 including the deals included three portfolio sales worth $2.1 billion, six GP-led restructurings also worth $2.1 billion, and a $1 billion staple o er. In particular, Kirkland & Ellis repre- sented HarbourVest in connection with the spin-out of the Telstra Ventures franchise. “Kirkland has the largest investment funds practice in Asia and the largest dedicated secondaries investment practice in Asia, USD BILLION INSTITUTIONAL STAFF LOCATIONS which allowed Kirkland to provide best-in- AUM INVESTORS GLOBALLY WORLDWIDE class legal services in 2018 for secondaries market transactions in a number of Asian jurisdictions, including India, China, Hong 60 500+ 450+ 11 Kong, Japan and Singapore,” says Michael Belsley, global head of Kirkland’s secondary Major clients: Clifford Chance advised on Carlyle’s investment in Baidu financial group market practice. Pfae kon | New York | Dublin | London | Paris | Vaduz | Dubai | Beijing | Hong Kong | Tokyo | Sydney [email protected] | www.lgtcp.com ¿¹ Proud winner of the PEI 2018 Award for Fund of funds of the year in Asia
USD BILLION INSTITUTIONAL STAFF LOCATIONS AUM INVESTORS GLOBALLY WORLDWIDE 60 500+ 450+ 11
Pfae kon | New York | Dublin | London | Paris | Vaduz | Dubai | Beijing | Hong Kong | Tokyo | Sydney [email protected] | www.lgtcp.com KEY THEMES 2018 67 Fundraising A muted year
72 Secondaries Deals surge in size
76 North America The deals keep on turning
78 Europe Big funds and Brexit bargains
80 Asia China shapes the region
82 LP Perspectives Seven sentiments that matter FUNDRAISING
CAPITAL RAISED Cooling-o period
Private equity fundraising Private equity fundraising since 2008 slowed in 2018, with fewer, $bn No larger funds dominating 855 809 802 the market 766 757 727 741 758 736
586 • Private equity fundraising, as meas- 508 ured by the capital committed to the funds that closed in 2018, fell by 24 percent to $358.25 billion. The number of funds closed was also down
sharply from 757 to 508. Part of the 438.67 236.81 192.31 241.51 259.08 364.11 386.49 356.99 391.06 473.21 358.25 reason is likely to be the cyclical nature 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 of the market. A number of big play- Capital raised Number of funds closed Source: Private Equity International ers, such as Advent International and Warburg Pincus, are back in market Strategy breakdown for 2018 fundraising raising capital and will likely close
funds in 2019. 4% Capital raised: 63% 12% 11% 6% 2% $358.25bn • The bottom chart shows a breakdown 1% of capital raised by strategy exclud- ing buyouts – which eclipse all other 1% 508 28% 38% 17% 6% 7& numbers. Venture funds were the only funds closed 3% ones to see an uptick in fundraising compared with the 2017 haul. This is % partly due to the $6.3 billion close of Buyout Growth Fund of funds Co-investment Venture capital Secondaries Distressed
Insight Venture Partner’s 10th vehicle Source: Private Equity International in July, which surpassed the fund’s $5.5 billion target. PE fundraising strategies excluding buyout since 2008 $bn
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Other Growth Venture capital Secondaries
Source: Private Equity International
¿Ê FUNDRAISING
Ten largest funds closed in 2018 by regional focus
Hellman & Friedman Capital Partners IX Carlyle Partners VII 508 $16bn $18.5bn Private equity funds closed in 2018
$358bn Capital raised by private equity funds in 2018
BC European Capital X Hillhouse Fund IV EQT VIII $8bn $10.6bn $12.3bn
Bridgepoint Europe VI Carlyle Asia Partners V American Securities Partners VIII $6.5bn $6.6bn $7bn
Landmark Equity Partners XVI $7bn
Europe Insight Venture Partners X $6.3bn Asia-Pacific Multi-regional North America
Source: Private Equity International
¿ FUNDRAISING
Regional focus of 2018 PE fundraising • Fundraising for emerging markets hit a 10-year low in 2018, with just
Europe $1.32 billion raised in the MENA, Latin America and sub-Saharan Africa $65.61bn Multi-Regional regions combined. That was the least $99.22bn since 2008, and followed the 2017 figure of $3.89 billion, which was the second lowest haul over the last North America decade. Fundraising for these emerg- $135.48bn ing markets has been on a downward spiral since 2014 when $10.4 billion
MENA was collected. $0.80bn • Region-agnostic fundraising fell,
Sub-Saharan Africa making up less than 30 percent of Latin America $0.16bn Asia-Pacific the 2018 raise for the lowest exposure $0.36bn $56.62bn to multi-regional fundraising since before 2012. With North America- $358.25bn focused fundraising remaining at Total raised similar proportions to 2017, Europe and Asia-Pacific saw big increases in Source: Private Equity International exposure.
Proportion of amount raised by geographic focus • Three secondaries funds appear in the 10 largest private equity funds in 2014 33% 38% 14% 12% 3% market as at 1 January 2019 – Ardian, Lexington Partners and Coller Capi- 2015 41% 31% 12% 14% 2% tal, seeking a combined $33 billion 2016 34% 40% 15% 9% 2% of investor capital (42 percent of the $77.75 billion targeted by the 50 2017 40% 38% 12% 9% 1% secondaries funds in market). This highlights the growth in the market. 2018 27% 38% 18% 16% 1% With GPs deploying capital quickly,
% they are coming back to market faster
Multi-regional North America Europe Asia-Pacific Rest of the world than they planned to leverage the cur-
Source: Private Equity International rent investor interest in the secondar- ies space. Regional focus of secondaries funds in market
1% Amount targeted: 75% 23% $77.75bn 1%
% Multi-Regional North America Europe Rest of the world
Source: Private Equity International
¿Ì FUNDRAISING
Largest funds in market as of 1 Jan 2019 2,165 Total number of funds Europe in market
$61.33bn Multi-Regional $202.28bn $597.64bn North America Targeted by private $228.81bn equity funds in market
MENA $3.43bn Latin America Asia-Pacific $5.01bn $95.95bn
Sub-Saharan Africa $6.84bn
Source: Private Equity International
Largest funds in market as of 1 Jan 2019
TARGET SIZE FUND NAME FUND MANAGER REGION ($BN)
GPE IX Advent International 15.00 Multi-regional
Global Growth-E Warburg Pincus 13.75 Multi-regional
Secondary Fund VIII (ASF VIII) Ardian 12.00 Multi-regional
Capital Partners IX Lexington Partners 12.00 Multi-regional
TPG Partners VIII TPG 12.00 Multi-regional
Vista Equity Partners VII Vista Equity Partners 12.00 North America
Long Term Private Capital BlackRock 10.00 North America
China-Russia RMB Investment Fund Russian Direct Investment Fund 9.92 Multi-Regional
Coller International Partners VIII Coller Capital 9.00 Multi-Regional
Fund XIII Thoma Bravo 9.00 North America
Source: Private Equity International
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SECONDARIES Deals surge in size
Fundraising fell back last year in the secondaries market, but deal volume hit new records, setting the stage for new milestones in 2019, write Rod James andAdam Le
The past 12 months in the secondaries market were defined by big portfolio sales, TAKING A BREATHER? single-asset transactions and Asia exceeding Closed ended private equity secondaries fundraising 2012-18 all expectations. Deal volume hit record levels, but, on $bn No the back of the 2017 peak, fundraising for secondaries funds experienced a lull in 2018 with $32.07 billion of capital raised. The cyclical nature of fundraising is one
explanation for this drop, as well as the raised Capital large number of secondaries vehicles that Number of funds closed launched in 2018. More than $78 billion of capital was being targeted by funds that 2012 2013 2014 2015 2016 2017 2018 were raising capital at the time of going to Capital raised ($bn) Number of funds closed press, and many of these vehicles expect to Source: Private Equity International close in 2019. Managers with a sole focus on private LANDMARK PERFORMANCE equity secondaries fundraising continue to Five largest secondaries funds raised in 2018 contribute the lion’s share of capital raised, despite the drop in fundraising in 2018. FUND MANAGER FUND NAME CAPITAL RAISED ($BN) Advisor Greenhill estimates global sec- Landmark Partners Landmark Equity Partners XVI 7.00 ondaries transaction volumes stood at a Pomona Capital Pomona IX 1.80 Portfolio Advisors Portfolio Advisors Secondary Fund III 1.52 record $74 billion in 2018, compared with Newbury Partners Newbury Equity Partners IV 1.41 $58 billion for all of 2017. This was driven Ardian AESF VI 1.30 by growth in the number of $500-million- Source: Private Equity International plus deals, which accounted for 59 percent of overall volumes. considerable unfunded portions, LPs can advisory at Sixpoint Partners, believes So what’s in store for 2019? Here are our cushion the impact of a likely downturn. there will be greater interest in structured sister title Secondaries Investor’s predictions “This is a way for the larger institutional transactions as secondaries investors seek to for the coming year. investors to hedge their position, but not manage downside protection in the event of completely walk away from managers they an economic downturn. This could involve STRIP SALES FOR LPS, TOO like and have confidence in,” he said. “It preferred equity or adjustments in cashflow The Warburg Pincus deal in 2017 showed allows them to de-risk their portfolio and preferences. how a strip sale can help a GP de-risk its have some cash to weather the storm.” “[Buyers] are still equity investors, they portfolio. According to Ted Cardos, a part- still want equity upside and want to par- ner at Kirkland & Ellis, the macroeconomic DOWNSIDE PROTECTION THROUGH ticipate in value creation, but many are picture means 2019 could be the year LPs STRUCTURING willing to moderate that upside by doing go the same route. By selling o part of On a similar theme, Shawn Schestag, man- deals with a lower risk profile,” Schestag their newer fund investments, including aging director and head of secondaries told Secondaries Investor. ››
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I think we will be seeing more transactions over $1 billion in value, potentially even single asset transactions Yaron Zafir
failure and some of these situations need to be managed with the current economics.”
ASIA’S MACRO CLOUDS
Uncertain outlook: US China trade tensions are casting a shadow Asia had a strong year but trade tensions are casting a shadow. Funds focused on SINGLE-ASSET DEALS TO GROW co-investment stakes are likely to appear on Asia-Pacific accounted for $1.99 billion of IN SIZE the secondaries market this year. capital raised, which was 6 percent of the These transactions were a theme of 2018 “At some point some of those co- total. This is double the share of total capital and will remain so in 2019. Yaron Zafir, head investment participants may want liquid- raised for the region in 2017. of secondaries at advisor Rede Partners, ity in advance of the natural disposition by Asia was the location of some of the sees a particular opportunity for GPs that the GP that made that investment,” Perry biggest secondaries deals in 2018, including want to consolidate their position in an said. The right opportunity can be attractive the spin-out of Standard Chartered’s private asset that has multiple shareholders and but such deals typically lack diversification, equity team, the GP-led processes on TPG could use a special purpose vehicle to buy compared with an LP fund interest. Buyers Asia V and VI and the sale of $1.7 billion of the minority stakes. The combination of dry need to be selective, Perry added. private equity stakes by Singaporean sover- powder and an attractive opportunity set, eign wealth fund GIC. particularly in Europe, suggests an increase AN END TO THE GP-LED PARTY? Despite the success of these brand- in deal size this year. Not all are so positive about the secondar- name deals, there are dark macro clouds “I think we will be seeing more transac- ies market. Katja Salovaara, senior portfo- on the horizon in Asia. Fears of a trade war tions over $1 billion in value, potentially lio manager at Ilmarinen, a Finnish mutual have hurt Asian companies’ profits, putting even single asset transactions. If you look pension insurance company, believes the downward pressure on the region’s public at the amount of capital being raised for rationale for doing GP-led deals is often markets and driving a wedge between the secondaries, [the larger funds] might not weak, a reality that is becoming increasingly pricing expectations of buyers and sellers look to do more deals, but will just do apparent. Next year will be an inflection on the secondaries market. An escalation larger ones.” point, she believes, and not a favourable one. in tensions is likely to worsen the situation. “This year has been a Wild West year for “A lot of deals have been done on GROWTH IN CO-INVESTMENT GP-leds and they’re probably going to fade December and March net asset values,” STAKE SALES away [in 2019],” she said. “Intermediaries said one secondaries buyer that looked at An influx of capital into co-investment are trying to drum up interest but in many Asian deals last year. “Deals getting done funds and direct co-investments over the cases they’re trying to solve a problem that o June or September NAVs will be more last four to five years could mean dealflow doesn’t exist – there’s never been more dry tricky. There’s been an emphasis on trade for secondaries – if buyers can get comfort- powder for secondaries and LPs can sell wars for a while but people are now starting able with the assets. According to Verdun their stakes when they wish to. As an inves- to go into a more detailed analysis of what Perry, co-head of Strategic Partners, more tor you don’t want to reward someone for it might mean.”
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NORTH AMERICA These deals keep on turning US private equity activity is likely to continue apace whatever happens to the economic and credit cycles, writes Isobel Markham
The changing structure of the private to the unwinding of quantitative easing, supply disruption.” With so much direct markets will push the US dealmaking train however, the credit cycle is more of a con- credit locked up in investment vehicles through whatever 2019 has to throw at cern. This is unlikely to have as much of an with the same “use it or lose it” structure as it, despite a muted year for fundraising e ect on private equity deal activity as one a private equity fund, and with that capital in 2018. might think, according to Justin Abelow, not subject to the same regulatory regime “Things are going to keep going strong,” who co-heads the private equity practice or credit cycle timing as traditional bank said Christopher Anthony, a partner with at Houlihan Lokey. capital, “when we do hit the back end of Debevoise & Plimpton. “The possibility “Private equity has vertically integrated this credit cycle, that is going to be enor- of a slowdown is on everyone’s radar, but by in e ect buying its suppliers,” he said, mously muted”. for now we’re not seeing any slowdown in referring to the rise of private equity- In e ect, no matter where we are in the deal activity.” a liated private credit funds. cycle, lenders will keep lending, and there- The economic cycle – although “Firms do that for two reasons: one is to fore dealmakers will keep making deals. undoubtedly moving into the later stages capture margin that was previously shared Abelow predicts this dynamic will – is still marked by high consumer confi- with suppliers. The second is to control particularly insulate the lower and core dence and optimistic chief executives. Due supply of key items and prevent potential mid-markets, as those are the parts of the market private credit funds are primarily servicing. MUTED MARKET So, no falling o the edge of a cli in the North America-focused fundraising, 2010-18 next few months. But market participants are aware the good times won’t last forever. $bn No Abelow and Brian Gildea, head of invest- ments at Hamilton Lane, agree buyers have shifted preference toward business models with elements of defensibility, such as high levels of recurring revenue or diversity
Capital raised Capital of customer, end-market or geography.
Number of funds closed Both are also seeing managers modelling a downturn into their base case models.
2010 2011 2012 2013 2014 2015 2016 2017 2018 This is not to say investor appetite Capital raised ($bn) Number of funds closed for risk isn’t there. According to Probitas Source: Private Equity International Partners’ Private Equity Institutional Investor Trends for 2019 survey, interest in US ven- Five largest North America-focused funds closed in 2018 ture capital is up for 2019 from 31 percent FUND MANAGER FUND NAME CAPITAL RAISED ($BN) to 37 percent. Carlyle Partners VII The Carlyle Group 18.50 “We’ve continued to see a lot of investor American Securities Partners VIII American Securities 7.00 Macquarie Infrastructure Partners IV Macquarie Group 5.05 interest in venture, and yet many of those Roark Capital Partners V Roark Capital Group 5.00 unicorn companies haven’t gone public yet, Quantum Energy Partners VII Quantum Energy Partners 4.83 and thus haven’t distributed a lot of value
Source: Private Equity International back. So you are seeing increasing expo- sures to venture as a result,” Gildea said.
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“A number of the big names have planned Now’s really not sponsor-to-sponsor recaps as sellers look 2019 or 2020 for IPOs so I think it will be to take advantage of a strong exit envi- interesting to see how the capital markets the time to be ronment. respond to that.” stretching or “The costs of going public are so high If these IPOs – set to include start- chasing allocation that in a lot of cases today the most obvious up giants such as Airbnb and Uber – are course of action is for the sponsor to sell successful, this could encourage investors Brian Gildea half the business to another sponsor. You to redirect some of their private equity see that happening time and again,” he said. allocation into venture next year. If they “And for every time we’ve seen it don’t, some of these companies could end paid by a US private equity firm was 11.9x happen, there must be a dozen conversa- up in private equity hands, Abelow said. – a shade down on the 12.1x recorded in tions happening about things like that. It’s “That’s been an interesting subterra- 2017 – made up of 6.2x debt and 5.7x very possible we’ll see a very large increase nean story in the last handful of quarters: equity. in those transactions in the months to venture capital has become a pretty good “Leverage levels are high,” said Gildea. come.” source of dealflow for private equity firms, “Interest costs are low and debt service After a slew of mega-funds closed in and it never used to be.” levels are still high. Some of the bank guide- 2017, fundraising in 2018 was a little Dealmaking was also strong in 2018. In lines around leverage levels were loosened a more muted. In 2018, 232 North America- the first three quarters of the year, 3,501 little bit at the midpoint of the year. That’s focused funds closed on a combined $142 deals closed for a total of $509 billion, part of the reason you saw leverage levels billion, compared with 373 funds with a according to data from PitchBook – a tick up a little bit.” combined $179 billion in 2017, according year-to-date increase of 2.1 percent and In such a high-priced environment, GPs to PEI data. 3.4 percent, respectively. are increasingly turning to buy-and-build as This is a sign of good discipline from Valuations remained sky-high. As of 28 a way of buying down valuation multiples. LPs, said Gildea: “Now’s really not the time September, the median EBITDA multiple Abelow is also seeing an increase in to be stretching or chasing allocation.”
ÊÊ KEY THEMES 2018
EUROPE Big funds and Brexit bargains Hefty funds coming to market and the potential for cheap deals after Brexit are on the minds of the continent’s PE practitioners, reports Alex Lynn
Europe’s 2019 will be a year of big funds Brexit had a tangible impact on UK businesses in the months following Brexit. and – some anticipate – Brexit bargains. private equity in the last year. UK private “When everyone else has pulled out, that’s The region is braced for mega-fund equity spending dropped by one-third to when I’m looking to invest,” said the inves- mania. London’s Cinven is understood to €21.4 billion, losing its position as Europe’s tor, who wanted to remain nameless. be seeking at least €8 billion for its seventh busiest market. European private equity buyout multi- fund and compatriot Apax Partners will The “pausing” of UK transactions in ples stood at 10x EV/EBITDA as of 30 Sep- return to market early this year. The pair the latter half of the year could lead to a tember, the highest annual level on record, raised €7 billion and $9 billion for their flurry of activity if and when terms of its according to PitchBook’s Q3 PE Breakdown. previous flagships respectively. EU exit become clear in March, accord- Prices have risen every year since 2013. Switzerland-headquartered Partners ing to Nick Sealey, co-head of European LPs will be looking for GPs that can keep Group is reportedly seeking around €5 investment banking at Baird. “There’s an pricing down in 2019, Kristina Widegren, billion for its fourth buyout fund and UK- element of caution; buyers and sellers are principal at European placement agent headquartered Permira is expected to being measured in trying not to invest at Rede Partners, told PEI. target around €10 billion for Fund VII. the wrong time. There could be an upswing “There’s greater sensitivity around pric- “I expect to see strong fundraising in after Brexit, as buyers will move fast on ing at the minute so we expect to see more 2019,” said Katja Salovaara, senior private good businesses in a less competitive envi- strategies begin to take that into account, equity portfolio manager at Finnish mutual ronment.” like special situations. We could see more pension insurance company Ilmarinen. spin-outs come to market with a strong “We’re not seeing much of a slowdown LICKING THEIR LIPS focus on value.” and there’s quite a lot of high-profile names Sealey’s view was echoed by a head of Europe-focused fundraising rose to $71 coming back to market in Europe. Investors Europe at one of the PEI 300’s top-five billon in 2018, up from $57 billion in 2017, like ourselves are extremely busy in private firms, who told PEI they were licking their despite a fall in the number of funds closed equity land.” lips at the thought of snapping up cheap UK from 119 to 97, according to PEI research. But some of the funds met a cool recep- tion on the fundraising trail as the UK lost its place as the most active private equity There market in Europe. could be an Mid-market investor Lyceum Capital upswing Partners cancelled a £375 million ($475 million; €416 million) fundraise for its after Brexit, as buyers fourth fund in January and pivoted to deal- will move fast on by-deal, citing a diminished appetite for UK good businesses in private equity following the EU referen- dum, among other factors. The firm – which a less competitive shed seven partners after the move – has environment since relaunched with capital to invest as Nick Sealey Horizon Capital. Dick Hanson, a pioneer of European private equity, called time on DH Private
Ê EUROPE
fund in March. Saturn I targets European BRACED FOR MEGA FUNDS software companies with enterprise values Europe-focused fundraising, 2010-18 above £1 billion. The market is becoming more accept- $bn No ing of such a move, Widegren added. “You still have some LPs who feel very strongly about being a single-strategy firm, but it’s becoming a smaller group. It’s beneficial for both parties: if they can’t get the ticket
Capital raised Capital size they’d like in a flagship fund it allows them to allocate to a GP they like in more Number of funds closed than one way.”
2010 2011 2012 2013 2014 2015 2016 2017 2018 CHANGING OF THE GUARD Capital raised ($bn) Number of funds closed The value of private equity buyouts in con- Five largest Europe-focused funds closed in 2018 tinental Europe rose 15 percent year-on- year to €79.3 billion across 523 deals in FUND MANAGER FUND NAME CAPITAL RAISED ($BN) 2018, the highest annual figure since 2007, EQT VIII EQT 12.24 according to CMBOR research sponsored Bridgepoint Europe VI Bridgepoint 6.49 PAI Europe VII PAI Partners 5.69 by Equistone Partners Europe and Investec. Triton Fund V Triton Partners 5.69 The Netherlands claimed the top spot Astorg VII Astorg Partners 4.55 with €23.5 billion of investment. The coun-
Source: Private Equity International try was home to four of the 10 largest buyouts, including Carlyle Group’s acqui- Equity Partners in November after three Northern Europe-focused Triton held a sition of AzkoNobel Specialty Chemicals decades in the asset class. The firm, previ- final close on €448 million for Triton Smaller and KKR’s investment into food producer ously known as Doughty Hanson after its Mid-Cap Fund I in July, after raising its €400 Upfield. two founders, will be wound down and its million hard-cap. The move enables the Silver Lake’s purchase of Zoopla was the remaining investments realised after failing firm to acquire businesses it had originally UK’s only representation in the top-10 larg- to get its new fund – launched with a €1 bil- targeted with earlier vintages, but that no est buyouts, having previously accounted lion target in May last year – o the ground. longer meet the size requirements of its for eight places in the previous three years’ Fellow UK buyout firm Terra Firma flagship funds. rankings. Capital Partners, meanwhile, has seen its “Typically this fund competes with local France is also nipping at the UK’s heels, fundraise hit the skids after LPs asked to single-country funds, rather than pan-Euro- with spending by private equity firms see a demonstrable track record from its peans, and valuations are lower,” said Andi climbing 35 percent to €20.1 billion. deal-by-deal activity before committing to Klein, who sits on the TSM investment advi- A glut of European deals is unsurprising a blind-pool vehicle. sory committee. “The gap has narrowed, given the rise in fundraising. The increased but it’s still significant.” sums have prompted concerns over whether BITESIZE London’s Permira Advisers gathered the pace of European deployment is sus- If 2017 was the year of expanding into new $1.3 billion through a first close for its tainable. asset classes, 2018 was the year European debut growth fund, which has a $2 billion “We’ve seen some GPs raise funds prob- firms launched or raised funds targeting target, in May. IK Investment Partners, also ably earlier than they should have done and di erent segments and stake sizes. UK-based, is seeking an unknown amount waiting up to a year before making the “It’s a conversation we have in pretty for IK Minority Partnerships I. first investment,” said Rhonda Ryan, head much every GP interaction, so it’s definitely HgCapital upped its target size by rais- of European private equity and debt at LP on most GPs’ agendas,” Widegren told PEI. ing £1.5 billion for its debut large-cap advisory firm Mercer.
ÊÌ KEY THEMES 2018
ASIA China shapes the region
Asian private equity in 2019 will see a reshaping of dealflow, strong investment activity in China and Japan, and a decrease in capital commitments from Asian insurers, says Carmela Mendoza
The region’s private equity industry saw other asset classes has continued to draw reflects the more challenging environment in record fundraising and witnessed a whirl- limited partners’ capital in record numbers a state-owned Chinese outbound investment wind of developments in the last year, from and remains attractive to global pensions and the increased scrutiny of Chinese money the drop in China outbound dealmaking and sovereign wealth funds. in countries like the US,” she said. to new multibillion PE entities set up by Graham McDonald, global head of pri- There was also a levelling o of China Japanese institutional investors. vate equity at Aberdeen Standard Invest- (including Hong Kong) outbound deal Fundraising volume in Asia in 2018 ments, noted the $97 billion SoftBank volume this year in infrastructure, trans- reflected a consistent theme of higher levels Vision Fund is a response to investor portation, industrial, technology, and con- of capital raised across global markets. Fun- demand. “Sometimes there is a fear in the sumer retail sectors, partly as a result of draising focused on the continent hit $57 investor community of missing out. And this rising protectionist trade policies across billion in 2018, easily surpassing the $45 is alive and well in certain aspects of that… Western governments. billion gathered in 2017, according to PEI. As investors we have to be alert to that or Lee said the firm’s clients are reluctant Hillhouse Capital Group amassed $10.6 we get left behind.” to invest time and resources looking at US billion for its Fund IV, the largest ever pri- Similarly California State Teachers’ deals that may not get approval from the vate equity fund dedicated to the region. The Retirement System’s chief investment Committee on Foreign Investment in the US. Carlyle Group gathered $6.55 billion for Asia o cer Christopher Ailman told PEI in May “While previously it was just the sensitive Partners V and Hong Kong-headquartered that these disruptors in private equity will sectors, right now that reticence is felt more PAG secured $6 billion for Asia III. have a huge impact and change the way the broadly across sectors such as consumer/ Australia-focused private equity also industry operates. “The huge size of these retail,” she noted. saw a strong year for fundraising. Aggre- funds lends themselves more to buying and “In particular, Chinese investors are not gate capital raised by private equity and holding a company, and less to the speed of keen to look into US transactions unless they venture capital climbed to A$5.4 billion turnover. The sheer size, the sheer bite-size are open and receptive to minority deals in ($3.9 billion; €3.4 billion) in 2018 at the to come in and actually move the needle for less sensitive sectors.” end of September – the highest amount these funds is going to be a very interesting So what can Asia private equity expect raised since 2008 – compared with A$2.7 challenge.” in 2019? Here are three things to watch for billion in 2017, according to the Australia in the next 12 months, according to market Private Equity and Venture Capital Association CHINA’S PRIVATE SHIFT participants and research. 2018 Yearbook. The year also saw a big change in where For China-focused fundraising, Min- China deals are sourced. Judith Lee, manag- INTRA-ASIA TRADE GROWS gchen Xia, managing director of the fund ing director and head of investment banking Greater scrutiny by US, Australian and investment team in Asia at Hamilton Lane, at RBC Capital Markets, said only around European governments into China-backed noted that deleveraging in China has reduced 20 percent of capital for M&A came from deals has dampened the country’s cross- liquidity in the domestic market, making fun- China state-owned enterprises, while the border dealflow. In the US alone, Chinese draising for yuan-denominated funds more rest came mainly from the private sector, direct investment into the country slumped challenging. However, US-denominated which includes private equity shops. “In by 35 percent in 2017 to $29 billion of fundraising remains active, as this capital is 2012, right before president Xi Jinping’s completed deals, compared with $60 bil- sourced largely from overseas LPs. anti-corruption campaign, a majority of SOE lion in 2016, according to Rhodium Group’s Private equity’s performance against money was being put into play. This change China Investment Monitor. The value of
ASIA-PACIFIC
to buy and build production capacity, said Siew Kam Boon, a Singapore-based partner at law firm Dechert.
CHINA AND JAPAN ATTRACT LPs China and Japan were singled out by LPs surveyed in Probitas Partners’ Private Equity Institutional Investor Trends for 2019 as the most attractive Asian markets (47 percent and 25 percent, respectively). Although liquidity in China has tightened as the esca- lating trade conflict between Washington and Beijing has stoked market volatility, pri- vate equity opportunities abound especially in consumer, healthcare and TMT sectors. According to Peng Yu, a Hong Kong-based THE LURE OF CHINA partner with Ropes & Gray, experienced Asia Pacific-focused fundraising, 2010-18 sponsors are also looking at other markets such as Europe with a China angle – bring- $bn No ing products, expertise, supply chain or customer base to China. Japan, meanwhile, has much untapped potential with its small and medium-sized enterprises as well as in mega deals from the restructuring of large conglomerates. South- Capital raised Capital East Asia also remains a top-ranked geography Number of funds closed due to a rapidly increasing urban population and improved corporate governance. 2010 2011 2012 2013 2014 2015 2016 2017 2018
Capital raised ($bn) Number of funds closed INSURERS REDUCE ALLOCATIONS The amount of capital that Asia (excluding Five largest Asia Pacific-focused funds closed in 2018 Japan) insurers held was a whopping $4.5 FUND MANAGER FUND NAME CAPITAL RAISED ($BN) trillion in 2017, according to Boston-head- Hillhouse Fund IV Hillhouse Capital Group 10.60 quartered advisory firm Cerulli Associates. Carlyle Asia Partners V The Carlyle Group 6.55 While their allocation to alternatives saw PAG Asia Capital III PAG 6.00 a fourfold increase in the last five years – Bain Capital Asia Fund IV Bain Capital 4.00 from $242.2 billion in 2013 to $973.8 bil- YunFeng Fund III YunFeng Capital 2.50 lion in 2017 – commitments to alternatives Source: Private Equity International is likely to decrease in the near-term due to newly announced Chinese acquisitions in growing divergence between the US and revised capital and regulatory frameworks the US plummeted by 90 percent compared China. in China, Taiwan and Korea. with the previous year. While it isn’t clear whether the trade In addition to being conservative inves- South-East Asia, Japan and Korea are war will result in a rise in private equity tors, insurers “typically take considerable likely to benefit. Private equity investors investments in the region, there is more time to evaluate investments or potential are taking a fresh look at South-East Asia, likely to be a rise in strategic outbound deals before ploughing in money”, Cerulli which is well-placed to benefit from the M&A from Chinese investors as they seek managing director for Asia Ken Yap said.
PERSPECTIVES 2019
INVESTOR SURVEY Seven LP perspectives that matter
Private Equity International’s Perspectives is one of the most comprehensive surveys of the private equity investor universe. Here are the charts that tell us what LPs think of today’s major talking points. By Toby Mitchenall
PERSPECTIVES 2019
HIGH FEES ARE A TOUGH SELL To what extent do you agree A 10-year bull run in public markets is a that fees charged by private mixed blessing for private equity. Yes, rising equity funds are difficult to justify valuations make for an exciting market to internally: sell businesses into, but the relative perfor- mance of the wider stock market – which 2.4%
is easily accessed through low cost track- 34.5% 16.7% ers – can make private equity seem like a needlessly expensive option for an asset allocator. Earlier this year, Pennsylvania state treasurer Joe Torsella claimed the two state pension systems had “wasted” up to $5.5 billion in investment expenses and would have been better served by low-cost passive funds. This simple comparison of the last 10 years ignores some important factors, 46.4% Strongly agree most notably the relative outperformance Agree of private equity over the full market cycle. Disagree Even so, our survey suggests Torsella is Strongly disagree not alone in his late-cycle misgivings: 61 Source: Private Equity International percent of limited partners said they either agree or strongly agree with the statement GPs are increasingly instigating that “the fees charged by private equity restructuring processes on old funds are di cult to justify internally”. funds in order to move assets into a new vehicle. In these RESTRUCTURING COSTS DISPUTED circumstances, do you believe the Our survey reports that most LPs (57 per- costs of the process were fairly cent) have had a fund restructuring – where divided between the GP and the assets are moved from an existing vehicle to fund?
a new one with new terms – proposed by at 22.0%
least one of their GPs. In the last two years 42.7% a number of storied firms have run such processes on their funds, such as Nordic Capital, InvestIndustrial and – ongoing as this publication goes to press – TH Lee. These are complex transactions and often divide opinion among an investor base. Per our survey, more than a third of LPs who have been involved in such a proposal said they did not have su cient time to make 35.4% Yes a decision, while a similar proportion said No they had insu cient information. Have not been party to a restructuring While this may seem alarming, it ›› Source: Private Equity International
É PERSPECTIVES 2019
Which of the following best How significant a part do the following play in due diligence? describes your assessment of GP investment behaviour in the last GP performance track record 97.6
12 months? GP team size and investment capacity 91.6 8.4
Investment thesis and style drift 89.0 9.8 1.2% 8.3% Firm “culture” at the GP level 61.0 39.0
Fund structural review 60.2 39.8
Succession planning and retention 57.8 41.0 plans at the GP level Fee validation 52.4 45.1
GP balance sheet/financial strength 19.3 66.3 14.5
Gender pay gap at GP level 38.6 56.6
35.7% 0 20 40 60 80 100 Percentage of respondents
54.8% Forms a major part of the process Forms a minor part of the process Not covered in due diligence
Source: Private Equity International
I see occasional examples of “style drift” among my GPs ›› is to some extent expected. We have PEI reported distributions have outpaced
GPs are remaining disciplined and sticking frequently heard a significant minority of capital calls for five years, and the gap to their investment thesis LPs do not have the bandwidth to assess between the two was widening. “If manag- I see widespread examples of “style drift” these deals within the timeframes. More ers are keeping an eye on pricing relative among my GPs divisive is the cost allocation of such a deal: to public markets and other M&A transac- Other nearly two-thirds of LPs said the costs of tions, and decide to slow down on this basis, Source: Private Equity International the process were not fairly divided between then I am more comfortable with a slower the GP and the fund. investment pace,” Angela Willetts, co-head of private equity at Capital Dynamics, told I SEE STYLE DRIFT PEI in August. Two words no one in private equity wants to hear: “style drift”. It can take many di er- GENDER AS AGENDA ITEM ent forms: investing in an unknown sector, Diversity and inclusion is an emerg- a new geography, moving from majority to ing factor among limited partners when minority stakes, buying public stocks; or selecting a manager. While the “staples” buying larger (or smaller) companies. It of due diligence – track record, team size tends to be a topic of conversation at the and investment thesis – remain the cen- height of a market, when competition for tral tenets of nearly all LPs’ due diligence, assets pushes managers to get creative: 55 a portion – 43 percent – are including percent of LPs report seeing “occasional gender pay disparity at the GP as part of examples of style drift” among their GPs, their due diligence process. We fully expect while 8 percent reported seeing “wide- this percentage to increase in the coming spread examples”. Just over a third said GPs years. Lobby group ILPA is now including were “remaining disciplined and sticking to gender and ethnic diversity in its due dili- their investment theses”. gence template. Said Andrea Auerbach, head Should we be alarmed by this find- of private markets at LP advisor Cambridge ing? Other data suggest GPs are slowing Associates: “If [some of our clients] don’t see their investment pace, rather than drift- su cient levels of diversity and inclusion, or ing beyond their remit. In August 2018, well-intentioned and meaningful e orts ››
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›› to build towards a team and organisa- Do you plan on investing in 11.6% tion that has more diversity of personnel, co-investment opportunities they will make an investment decision fully in private equity over the incorporating that information.” next 12 months? CO-INVESTMENT STAMPEDE It is a popular way to cut fees when invest- ing in private equity, which is why, accord- Yes No 23.3% ing to our survey, 65 percent of limited Unsure partners intend to deploy capital through 65.1% co-investments in the next 12 months. Source: Private Equity International Widespread co-investment is a relatively new feature of private equity investing. “I Thinking of your fundraises in the last 12 months that you expressed don’t think we’ve been through a whole interest in, which of the following describes your experience? cycle yet with co-investments and there are certainly some challenges there,” said
We have consistently received our full Per Olofsson, head of alternatives at AP7. requested allocation in our chosen funds 59.8 GP POWER We have had our allocation scaled back in most of our chosen funds due to 28.0 The received wisdom in private equity is excess demand that rampant demand from LPs has put
We have had our allocation scaled back GPs in a position of firm negotiating power 3.7 in some of our chosen funds in fundraising; take our terms or we will easily replace you in our investor base. One We have been unable to secure 3.7 allocations in most of our chosen funds data point from our survey suggests the situation may be more balanced. Most LPs Have not made any new commitments in the last 12 months 2.4 (60 percent) told us they have consistently received the full allocation in their chosen
Other 2.4 funds, whereas only 28 percent had seen their allocations scaled back in some of their 0 10 20 30 40 50 60 chosen funds. Rather than pare LPs commit- Percentage of respondents ments back, it is likely GPs are simply raising Source: Private Equity International bigger – or additional – funds.
84.1 Which of the following ASIA ON MY MIND 80 emerging market Asian PE has come of age and global inves- 70 geographies will you tors are arriving in droves. The region’s GDP 60 consider for investment growth and rising middle classes, combined over the next 12 50 with the growth of “institutional-grade” gen- 40 39.0 months? Please select 31.7 eral partners is proving a draw; a number of US all that apply. 30 public pensions are growing their exposure. 20 17.1 13.4 “In the past five years, nearly 40 percent Percentage of respondents Percentage 10 of our global private equity commitments 0 have been to managers focused on the Asian Asia-Pacific Central/ Latin Middle East Sub-Saharan Eastern America and North Africa region,” said Art Wang, managing director, Europe Africa private markets at San Francisco Employees’ Source: Private Equity International Retirement System.
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: Order your copy today quoting SUBBK15 and receive a 15% discount QUOTABLES
SOUNDBITES
“If the market was to Quotes of the year naturally evolve, I think it probably would have The private equity world was not short happened already” of an opinion or two this year David Enriquez, interim co-head of private equity at New York City Employees’ Retirement System, on how the 10-year limited partnership is here to stay
“There’s no reason that ultimately it won’t “At a big picture level, account for half the this asset class is “We need to remember assets we manage” becoming less attractive” Blackstone’s Joan Solotar, that ‘the end of private Future Fund’s Steve Byrom tells PEI head of private wealth solutions, equity as we know it’ has high asset prices for assets and a on the future for retail lack of differentiation among GP been proclaimed before” investors with the firm In its annual report, business models is making the Bain & Co reassures the industry asset class less appealing about its resilience
“Having 5 per cent to 7 per cent to alternatives “Society is “The superior results is meaningless because demanding that of Yale and a number of of the fees…I don’t have companies, both public peers strongly suggest that a magic number but it’s not and private, serve active management can be a worth dipping a toe in” powerful tool for institutions a social purpose” Sandra Robertson, CIO of Oxford BlackRock CEO Laurence Fink University Endowment Management, that commit the resources to says companies must not discusses asset allocation achieve superior, risk-adjusted only make profit but investment results” contribute to society Yale endowment hits back at remarks by Warren Buffett suggesting endowments should adopt a passive strategy “Doing a new thing is not an easy task, but we have to because the market “If we are recruiting only in “This volatility isn't environment is so harsh for the image of those who’ve built the beginning of the earning investment returns” the industry – and I of course end, it's just natural Japan Post Insurance’s recognise their talent, vision volatility as people Tadasu Matsuo tells delegates at the and ability – we will be excluding reset expectations” PERE Investor Forum in Tokyo about its push into alternatives a whole pool of talent” Carlyle co-CEO Glenn Youngkin Level 20 CEO Jeryl Andrew tells CNBC that growth explains why private equity needs is slowing, not stalling diversity to thrive
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Selected recent transactions—Americas
CAD 450,000,000 $663,000,000 $176,000,000 Project Manager sponsored Project Manager sponsored sale Project Sale of a sale of an infrastructure of PE LP interests and a co-investment Tango 1 investment Falcon co-investment with Continental positon primary staple
February 2019 Lead Advisor April 2018 Exclusive Advisor January 2018 Exclusive Advisor
$190,000,000 $64,000,000 $425,000,000 Manager sponsored Project Project Sale of a portfolio Project Sale of partial sale of a direct of PE LP a portfolio Universe investment in a portfolio Park Sapphire interests of PE interests
December 2017 Exclusive Advisor December 2017 Exclusive Advisor September 2017 Exclusive Advisor
Selected recent transactions—EMEA & Asia
AUD 450,000,000 €800,000,000 $1,000,000
Project Manager sponsored Project Manager sponsored Project Sale of PE Investments Tango 2 sale of an infrastructure Tango 3 sale of an infrastructure Augusta and GP spin-out investment investment
Announced Lead Advisor Announced Lead Advisor Announced Exclusive Advisor
$205,000,000 €258,000,000 €325,000,000
Project Sale of a portfolio Project Manager sponsored Project Manager sponsored Do-re-mi of direct Aphex sale of a portfolio Scala sale of PE LP interests PE assets of direct assets with team spin-out
March 2018 Exclusive Advisor December 2017 Exclusive Advisor November 2017 Exclusive Advisor
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