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December 2020/January 2021 • privateequityinternational.com EXTRA The Emerging Markets Guide Going it alone How to start your own firm The Debevoise Private Equity Group continues to “Dominant global private for decades. With consistently high rankings from PEI, Chambers equity practice & Partners, and The Legal 500 with experience recognized leader for more than 40 years. advising a 3 comprehensive range of clients” Chambers Global www.debevoise.com Contents How to contact us Senior Editor, Private Equity, Americas Isobel Markham [email protected], +1 646 380 6194 Senior Editor, Private Equity, EMEA Adam Le ISSN 1474–8800 • ISSUE 191 • DECEMBER 2020/JANUARY 2021 [email protected], +44 20 7566 5437 Senior Special Projects Editor Graeme Kerr [email protected], +44 20 3862 7491 Special Projects Editor Louise Fordham Insight Cover story [email protected], +44 20 7566 5440 Senior Reporters Carmela Mendoza 18 [email protected], +44 203 640 7512 2 Rod James Diversity Emerging managers will How to spin out [email protected], +44 20 7566 5453 bear the brunt of flight to familiarity Senior Reporter – Asia The pandemic has left many Alex Lynn Climate change Will the US wondering whether they could [email protected], +852 3704 4638 take the lead? 4 garner better economics by setting Contributors up their own funds. We spoke Bruno Alves, Amy Carroll, Claire Coe Smith, Ben Jackson, Karl Shmavonian, Rebecca Szkutak LP Watch AP7 preps for alts boost 4 to 21 market sources involved in successful spin-outs about leaving Managing Editor, Production: Mike Simlett China Merchants Capital The largest Production Editors: Daniel Blackburn, an established franchise and starting Adam Koppeser PE firm you’ve never heard of 6 anew Copy Editors: Eric Fish, Nicholas Manderson Retail investors Partners Group and Art Director: Mike Scorer UBS Wealth’s tie-up 10 EMERGING MARKETS GUIDE Head of Design: Miriam Vysna Senior Designer: Lee Southey Fundraising Capital concentrates 12 Designers: Denise Berjak, Pio Blanco Covid-19 What PE pros learned 14 Head of Marketing Solutions, 27 Private Equity Group: Continuation funds Get ‘em while Alistair Robinson How to get a deal done during [email protected], +44 20 7566 5454 they’re hot 15 Subscriptions and reprints a downturn 28 [email protected] EDITOR’S LETTER 16 Customer Service Due diligence in Africa 30 [email protected] Editorial Director, US: Rich Melville LatAm HNWIs are waiting for the Editorial Director: Philip Borel Analysis recovery 31 Director, Product: Amanda Janis Director of Research and Analytics: Dan Gunner DFIs: Picking up the pieces 32 Managing Director, Americas: Colm Gilmore 44 Managing Director, Asia: Chris Petersen Gulf Capital: Building global Chief Commercial Officer: Paul McLean leaders across growth markets 34 Chief Executive: Tim McLoughlin VC to benefit from Middle East diplomacy changes 37 Baltic GPs bet on regional play 38 Myanmar’s PE firms hope to win local hearts and minds 39 Germany roundtable Mittelstand Covid-19 calms Vietnam’s feeding deals, venture and corporate carve- For subscription information visit frenzy 40 privateequityinternational.com outs are all poised to accelerate, but sourcing remains challenging in a China’s boost for secondaries 42 covid-19 environment Q&A: EMPEA 43 And finally Life in quarantine 52 December 2020/January 2021 • Private Equity International 1 iversity has been Diversity and fundraising a recurring topic in the private Emerging managers will bear the equity industry, and the pandemic brunt of a flight to familiarity and racial justice Dmovement in the US this year have added urgency to the issue, writes of industry affairs of the Institutional LPs would seek safer options to Carmela Mendoza. Limited Partners Association, told an present to their internal investment Against this backdrop, Private investment summit in September committees and boards. Equity International fundraising data that this flight to familiarity – LPs Paradoxically, blue-chip GPs show capital is being concentrated focusing on re-ups with managers upping their game on diversity in the hands of ever fewer managers. they had relationships with before could make it even harder for Of the $369.2 billion of private the crisis – was the latest risk investors diverse managers to attract new equity, real estate and infrastructure would face and that opportunities relationships. Carlyle Group has set a commitments that closed in the first could be overlooked. goal of achieving 30 percent board half of the year, less than 3 percent At PEI’s Women in Private Equity diversity in its companies by 2023. was committed to firms raising their Forum in November, panellists In June, KKR co-chief executive first- or second-time funds. Only noted that a pandemic-altered Henry Kravis said 80 percent of its 16 percent of the 486 investment environment had made it harder companies had at least two board vehicles that held final closes in H1 for diverse managers to attract new directors with diverse backgrounds, are managed by new firms. investors. Anamica Broetz, head a goal it had set several years ago. Jennifer Choi, managing director of investor relations at DWS, said An LP that needs to meet its New managers only accounted for 16% of PE funds raised in H1 Total number of funds raised in H1 2020 Percentage of funds raised by new managers 0 50 100 150 200 250 0 10 20 30 40 50 Private equity Private equity Real estate Real estate Infrastructure Infrastructure Source: PEI 2 Private Equity International • December 2020/January 2021 The big numbers “ The onus is on the Facts and figures from investor to make the “Taxation of around the private equity universe carried interest has best possible been an issue for a return, not the decade or longer and has never easiest return ” been pushed through by either Head of Europe private equity, investment Democrat or GOP consultancy lawmakers” $10.3bnRaised by Goldman Sachs Asset Management for Vintage VIII, diversity targets will have a choice. It Kelly DePonte, a the fifth-largest secondaries fund ever raised could go with a fledgling GP – albeit managing director with Probitas one led by people from diverse Partners, tells backgrounds – on which it has yet sister title Buyouts to perform diligence and whose that a hike to the 16.8% team it has yet to meet in-person. Massachusetts Pension taxation of carried Reserves Investment Alternatively, it could choose an interest is unlikely Management Board’s private equity returns, gross of fees, established manager that is already under a Biden Percentage77% of North American as of 30 September – up focusing on creating diverse administration LPs who can virtually underwrite from 4.4 percent at 30 June a fund without a meeting with the leadership, deal teams and operating GP (Capstone Partners) teams. The latter option can often appear the safer financial choice. Ups “That thought sends shivers down my spine,” says the head of Europe, & $22.8bn private equity, at an investment Raised by Thoma Bravo downs across three funds closed consultancy. “As an LP you shouldn’t in October, with at least be taking the easy route. We are six institutional investors Number2 of ESG-linked backing all three paid to choose the best funds for subscription credit facilities EQT “Private markets now has, the latest – up to €5 our clients and the onus is on the are around five billion – for its infrastructure unit investor to make the best possible years behind return, not the easiest return.” public markets” Better returns Stephen Barrie, All this leads to a potentially deputy director troubling state of affairs for diverse of ethics and engagement managers. Research has shown at the Church that investing in diverse or women- Size$100bn that Brookfield Asset Management’s new series of impact funds of England could grow to be over time, according to chief executive Bruce Flatt owned managers pays off. In a 2019 Pension Fund, study, the diverse PE funds that GCM tells Responsible Grosvenor had tracked between Investment Forum: 1994 and 2018 were shown to have Europe delegates performed better than industry that when it comes $10bn benchmarks in 78.6 percent of the to assessing and Amount of committed vintage years studied. reporting carbon capital in SoftBank’s Vision footprint, private Fund II as of 9 November. The pandemic is clearly forcing It is 100 percent financed 67%Percentage of investors in LPs to double down on managers markets managers by SoftBank Group but Hamilton Lane’s latest direct are lagging expects to admit third-party equity fund that opted to pay a they know well. But ignoring new investors in future 1 percent management fee on and diverse managers at a time like invested capital with 12.5 percent carried interest, versus the option this could be a costly decision down to pay 1 percent on committed capital with 10 percent carry the road. December 2020/January 2021 • Private Equity International 3 Insight Climate change no substitute for an actual climate LP Watch AP7 change mitigation policy. Will the US take Take Biden’s plan for a $2 trillion preps for major green stimulus over the next four the lead? years to help the US economy alts boost bounce back from covid. An analysis by Vivid Economics shows green spending would increase 14-fold P7, Sweden’s largest Comment if Biden’s plans were implemented public pension, has been in full. To get a sense of how net A exploring how it could positive that would be for the increase its exposure to private Expert analysis by Bruno Alves environment, the US would overtake equity and begin investing in other the EU as the biggest low-carbon alternative asset classes. spender – the current US stimulus The SKr655 billion ($73.9 billion; ell, that took a while.