ANNUAL REVIEW 2017 Land of the giants Cycle-Tested Credit Expertise Extensive Market Coverage Comprehensive Solutions Relative Value Focus

Ares Management is honored to be recognized as Lender of the Year in North America for the fourth consecutive year as well as Lender of the Year in Europe

Lender of the year in Europe Ares Management, L.P. (NYSE: ARES) is a leading global alternative asset manager with approximately $106 billion of AUM1 and offices throughout the United States, Europe, Asia and Australia. With more than $70 billion in AUM1 and approximately 235 investment professionals, the Ares Credit Group is one of the largest global alternative credit managers across the non-investment grade credit universe. Ares is also one of the largest direct lenders to the U.S. and European middle markets, operating out of twelve office locations in both geographies.

Note: As of December 31, 2017. The performance, awards/ratings noted herein may relate only to selected funds/strategies and may not be representative of any client’s given experience and should not be viewed as indicative of Ares’ past performance or its funds’ future performance. 1. AUM amounts include funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of Ares Capital Corporation and a registered investment adviser.

learn more at: www.aresmgmt.com | www.arescapitalcorp.com The battle of the brands the US market on page 80, advisor Hamilton TOBY MITCHENALL Lane said it had received a record number EDITOR'S of private placement memoranda in 2017 – ISSN 1474–8800 LETTER MARCH 2018 around 800 – and that this, combined with Senior Editor, Private Equity faster fundraising processes, has made it dif- Toby Mitchenall, Tel: +44 207 566 5447 [email protected] ficult to some investors to make considered

Special Projects Editor decisions. Graeme Kerr, Tel: +44 203 862 7491 [email protected] This chimes with what we hear from other

Americas Editor, Private Equity investors: that the number of funds in the Marine Cole, Tel: +1 212 633 1455 [email protected] It is the story that that’s been playing out for market at the moment is making it tricky to do

Editor, Private Equity International a decade. Big firms getting bigger and using anything but re-up with existing relationships. Isobel Markham, Tel: +1 646 380 6194 [email protected] their brand capital to grow their franchises This is turn gives rise to a recurring com-

Asia Reporter upwards and outwards. plaint we hear about the advent of more GP-led Carmela Mendoza, Tel: +852 2153 3148 The growth of powerful franchises happens secondaries transactions (as we explore on [email protected] in two ways and both are on abundant display page 10): “If I have my hands full with the day Reporters Rod James, Tel: +44 207 566 5453 in this year’s Annual Review. First is the fund job of assessing managers and making com- [email protected] size growth. Contributing to the $411 billion mitments, why should I be forced to reassess Alex Lynn, Tel: +44 207 566 5463 [email protected] raised across all private equity funds last year a fund to which I have already committed?” It Contributor were the largest ever euro-denominated fund is an issue that we expect to hear more about Adam Le (CVC Capital Partners’ Fund VII), the largest in the months to come. Senior Production Editor Mike Simlett, Tel: +44 20 7566 5457 ever Asia-focused fund (KKR’s third Asia fund) New managers, or even established man- [email protected] and the largest fund ever, full stop (Apollo’s agers looking to forge new relationships, are Production and Design Manager Miriam Vysna, Tel: +44 20 7566 5433 Fund IX). struggling to get a foot in the door unless they [email protected] However, a series of banner fundraises do have something genuinely extraordinary and a Head of Marketing Solutions Alistair Robinson not alone explain the growth of the market, spotless record to offer. Tel: +44 20 7566 5454 [email protected] or indeed the growth of the individual buyout One normally associates a flight to quality shops. Yes, fund size is increasing; the average with times of uncertainty or turmoil. While Subscriptions and Reprints Andre Anderson, +1 646 545 6296 fund raised in 2017 was $754 million. In 2014 today’s market is characterised by some of the [email protected] it was just $508 million. However, if you look former we have not yet seen much of the latter. Jack Wharton, +44 203 862749 [email protected] at the largest three funds raised in any year, However, the consolidation of capital among Sigi Fung, +852 2153 3140 they tend to account for around 20 percent of some of the established brands in the private [email protected] the buyout market, which held true in 2017 equity business – and indeed their dominance For subscription information visit www.privateequityinternational.com. (see page 71). of our 2017 Awards roll of honour in both

Director, Digital Product Development The second contributor to private equity vanilla private equity and emerging strategies Amanda Janis, Tel: +44 207 566 4270 [email protected] franchise growth has been the sideways expan- and specialist sectors – suggests investors are

Editorial Director sion into new strategies, geographies and asset seeking comfort in the familiar. For more on Philip Borel, Tel: +44 207 566 5434 [email protected] classes, as explored on page 6. Whatever you the awards turn to page 36.

Director of Research & Analytics do, don’t call it style drift; it is established Dan Gunner, [email protected] managers with the infrastructure, connec- Enjoy the review. Publishing Director Paul McLean, [email protected] tions and know-how to offer their investors a comprehensive set of products to access private Chief Executive Tim McLoughlin, [email protected] markets, which appears to be what they want. Managing Director — Americas What does this mean for institutional inves- Toby Mitchenall Colm Gilmore, [email protected] tors? In a nutshell, more work and tight due Managing Director — Asia e: [email protected] Chris Petersen, [email protected] diligence deadlines. As noted in our review of annual review 2017 private equity international 1 CONTENTS

STORIES OF THE YEAR 4 Succession, succession, 24 Investing in GPs everywhere 26 10 new firms making waves 6 GPs branch out in 2017 We profile the top debut fundraises 8 Credit line controversy 30 Friday’s best 10 GP-led secondaries deals The highlights from PEI’s Friday Letters over the last 12 months 12 LPs going direct 32 Transformative powers 14 The growth in cov-lite loans Our Operational Excellence Awards provide a reminder of how private 16 Korean LPs to the fore equity can create lasting value

18 Apollo’s mega-raise 34 Privately spoken The pick of the responses from our 20 The rise of Japan monthly Privately Speaking feature interview 22 Long-term funds

KEY THEMES 2017 THE PRIVATE EQUITY 69 The year in fundraising 82 Europe: Winds of change INTERNATIONAL AWARDS 2017 Strength in numbers The French presidential election and 36 Introduction Britain’s impending exit from the EU 74 Secondaries: Powering ahead come amid worries about a possible 38 The roll of honour Fundraising and transaction bear market volumes hit new highs in the 39 The private equity game changer secondaries market in 2017, with 84 Asia: Picking up speed of the year deals expected to smash records The year delivered strong exits for 40 Global again in 2018 GPs, increased dealflow in Japan, South Korea and Australia as well 43 EMEA 80 North America: Going supersize as a rise in fundraising As the economic cycle approaches its 54 Americas peak, it can be challenging to predict 86 Emerging markets what will happen in 2018, but one Emerging markets fundraising is 59 Asia-Pacific thing is almost certain: more money showing signs of bouncing back with will flow into private equity Asia leading the way AND FINALLY: 88 Best of Final Close A sideways look at private equity

90 PEI Fortune Teller What do I do if there is GFC II?

92 Quotables 74 84 The best soundbites of the year

NEW YORK Private Equity International is published © PEI 2018 be aware that external contributors 130 West 42nd Street, Suite 450 10 times a year by PEI. may represent firms that may have New York, NY 10036 No statement in this magazine is to an interest in companies and/or +1 212 633 1919 To find out more about PEI please visit: be construed as a recommendation their securities mentioned in their Fax: +1 212 633 2904 www.thisisPEI.com to buy or sell securities. Neither this contributions herein. publication nor any part of it may LONDON PRINTED BY: Stephens & George Ltd. be reproduced or transmitted in any Cancellation policy: you can 100 Wood Street www.stephensandgeorge.co.uk form or by any means, electronic or cancel your subscription at any London EC2V 7AN mechanical, including photocopying, time during the first three months +44 20 7566 5444 recording, or by any information of subscribing and you will receive Fax: +44 20 7566 5455 storage or retrieval system, without a refund of 70 percent of the total HONG KONG the prior permission of the publisher. annual subscription fee. Thereafter, no 19F On Hing Building Whilst every effort has been made to refund is available. Any cancellation 1 On Hing Terrace ensure its accuracy, the publisher and request needs to be sent in writing Central, Hong Kong contributors accept no responsibility [fax, mail or email] to the subscriptions +852 2153 3240 for the accuracy of the content in departments in either our London or Fax: +852 2110 0372 this magazine. Readers should also New York offices.

2 private equity international annual review 2017 Look ahead. Share our vision.

MVision is a pre-eminent alternative assets fundraising advisory firm, experienced in raising significant amounts of capital for our GP clients

Our long established investor relationships and in-depth industry knowledge means the advice we offer is relevant, targeted and efficient

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MVision Private Equity Advisers Limited is authorised and regulated by the UK Financial Conduct Authority. MVision Private Equity Advisers USA LLC is registered with the SEC as a broker dealer, and is a member of FINRA and SIPC. MVision Strategic (Asia) Limited is licensed by the Hong Kong Securities and Futures Commission. 16048-02 STORIES OF THE YEAR

MOVING ON Succession, succession, everywhere

Some of the largest private equity managers have “We began to feel at some point that unveiled their transition plans from founder control to it’s time to hand the reins to younger people,” Rubenstein told Bloomberg. the next generation. By Marine Cole and Toby Mitchenall “Our firm is in a very good shape so we wanted to make a transition when it was Part and parcel of the evolution of the pri- in good shape.” vate equity industry is the gradual with- These succession events are, of course, drawal of the personalities that helped inevitable and necessary. shape it. The most successful have managed From an industry observer’s standpoint, to create institutions that bear their cultural though, they are also tinged with regret. DNA, but that will ultimately outlive them Rubenstein, in particular, has been a source with new generations at the helm. of colour and column inches since he graced That became apparent in 2017 with a the pages of PEI in our first edition. Who string of leading fund managers unveiling could forget the holiday rap he recorded their succession plans as the founders reach for investors back in 2014? retirement age. The entrepreneurial spirit needed to In July, KKR appointed Joe Bae and Handing over control: many firms have yet to found a firm in an alternative asset niche address the issue publicly Scott Nuttall as co-presidents and co- is not necessarily the same spirit required chief operating officers, with co-founders to guide a publicly listed asset management Henry Kravis and George Roberts, both We began to business. The challenge, as Rubenstein told 73, remaining co-chairmen and co-chief feel at some us in 2016, is to find someone with the executive officers. A few months later, it creative mindset of an entrepreneur. was Carlyle’s turn. Effective 1 January 2018, point that it’s Of course, Rubenstein, Conway, Kravis co-chief executives David Rubenstein and time to hand the reins to and Roberts have not left the building: they Bill Conway and chairman Daniel D’Aniello younger people are all still involved in their firms. And less stepped back and Kewsong Lee and Glenn operational responsibility frees up time David Rubenstein Youngkin became co-CEOs. for more extracurricular activities – like And in mid-November, Apollo Global rapping. Management expanded its executive lead- Nevertheless, one can’t help feeling that ership team by naming Scott Kleinman and as the founders of the industry take their James Zelter as co-presidents, with the three steps away from the limelight, the industry initial founders keeping their current roles. will lose some of its colour. n

TIMELINE

September October “The PE industry is still very personalised, and not very Carlyle announces institutionalised,” TPG’s David Bonderman says in a report. Kewsong Lee and Glenn “Most of the big businesses are still run by their founders. Youngkin will become There will need to be a generational change over time.” co-CEOs on 1 January

01 02 03 04 05 06 07 08 09 10 11 12 2017

July November KKR appoints Joe Bae and Apollo Global Management expands its Scott Nuttall as co-presidents leadership team by naming Scott Kleinman and co-chief operating officers and James Zelter as co-presidents

4 private equity international annual review 2017 A remarkable track record of long-term growth. An award-winning reputation.

Since launching in 2006, Gulf Capital has become one of the region’s most successful alternative investment firms. We have built a track record of delivering long-term returns and industry-leading results that has made us the firm of choice for regional and global investors. www.gulfcapital.com

Firm of the Year Best SME Credit Best Private Equity Firm in the Middle East, MENA 2014 Fund 2015 2011, 2012, 2013, 2014 and 2015 Best Alternative Investment Firm, 2016 STORIES OF THE YEAR

GROWTH STRATEGIES GPs branch out Private equity firms have turned to credit and sector- specialisation to keep up with LP demands for capital allocations over the past year, writes Alex Lynn

With vast amounts of capital being com- Hong Kong-based private equity firm mitted to private equity funds in 2017, China Everbright and venture capital firm general partners have branched out into Walden International are seeking $500 mil- other strategies and geographies to ensure lion for their new private equity vehicle this money is put to work. focused on the semiconductor industry. Private credit has been among the most Apax Partners has also raised at least $1 bil- common routes for strategic expansions lion for a vehicle targeting minority stakes this year. In August, Chicago-based Thoma and buyout deals in high-growth software, Bravo hired Jack Le Roy from Summit Part- internet and tech-enabled services compa- ners amid plans to raise $750 million for the nies globally. strategy. Texas-based The Sterling Group This year also saw the continuation of Growth areas: expansion is targeting new strat- is raising its initial private credit vehicle the trend of firms looking at long-term egies and geographies with a target of between $200 million and capital. More than one quarter of private $250 million, sister publication Private Debt equity professionals believe long-life funds “We are starting to see Asian GPs – Investor reported in August. will grow in popularity over the next five mainly from China where there are some Zug-based Capital Dynamics is aiming years, according to Intertrust’s Private Equity huge firms – setting up teams in Europe to hold a first close in Q2 for its first direct Market 2017 report. and the US,” Antoine Dréan, founder of lending fund after launching a new private GPs also began looking further afield for placement agent Triago, says. “I wouldn’t credit division in September. opportunities in 2017. be surprised if we see a mega-firm from There were 23 first-time corporate Permira Advisers, one of Europe’s big- China acquire a group or groups in either credit funds in market as of 12 December, gest private equity firms, was seeking $1.5 the US or Europe over the coming year.” targeting at least $8.7 billion, according to billion for its debut Asia-focused vehicle, Strategic mergers and acquisitions are PEI data. PEI reported in November. Chinese pri- an “increasingly common” means of achiev- Many firms have launched sector-spe- vate equity giant CITIC PE appointed Réal ing broader geographic presence, Dréan cific funds in order to differentiate them- Desrochers, former head of private equity notes. Notable examples include Paris- selves from the competition, with health- at the California Public Employees’ Retire- based Eurazeo’s purchase of a 30 percent care and technology vehicles among the ment System, to lead the firm’s expansion stake in New York-headquartered Rhône most popular areas. in North America. Group in November. n

23 FIRST QUARTER MOST READ ONLINE

Number of first-time corporate 1. PEI awards: KKR, EQT among 6. Vista plots ‘long-life’ fund offering credit funds in market in0 2017 the winners 7. SoftBank to acquire Fortress 2. Coller: shared ownership ‘biggest for $3.3bn mistake’ new GP can make 8. CalPERS considers alternatives 3. Hamilton Lane files for IPO to PE model 4. Carlyle paid nearly $48m 9. SoftBank: ‘We are a small group $1.5bn in clawback in 2016 and can move very fast’ Target size of Permira’s debut 5. CalPERS’ PE advisor resigns 10. Axiom Asia smashes target with Asia-focused fund over $1bn close

6 private equity international annual review 2017 WHAT COUNTS IS NOT JUST WHAT YOU DO, BUT HOW YOU DO IT.

At Ardian, we strive to deliver quality investment performance from the US$66bn of assets we manage or advise for clients. We do this with a relentless focus on generating returns that are durable and sustainable in the long term. The value created and results achieved are shared with our investors, but also our partners, investee companies and their employees. That makes a difference.

@Ardian | www.ardian.com

Excellence. Loyalty. Entrepreneurship. As of September 30, 2017, Ardian has $66bn of assets under management has $66bn of assets Ardian As of September 30, 2017,

Paris London Frankfurt Milan Madrid Zurich New York San Francisco Beijing Singapore Jersey Luxembourg STORIES OF THE YEAR

FUND FINANCE Credit line controversy

The use of subscription a commitment to a private credit fund man- investors to help ensure credit facilities are aged by Alcentra over concerns about the used appropriately. credit lines was one of the leverage facility used in the fund. In doing so, the association nudged the most divisive issues in 2017, Howard Marks, the chairman of Oaktree debate in the direction of creating ‘indus- writes Toby Mitchenall Capital Management, poured petrol onto try best practice’ (while also acknowledging this sparking debate when he chose to focus that different fund types had differing credit The use of subscription credit lines was one of his widely read memos on the topic facility requirements). a defining debate among LPs and GPs in in April. Among the many aspects Marks As the debate rumbled on, PEI was gath- 2017. While it is nothing new for a fund to explored, the most notable ones pointed ering views from all parts of the private use a credit facility to finance acquisitions, to the unknown risks that may result from equity ecosystem to get a better handle on concern began to mount about the length the practice. how important an issue this was. What we of time managers were leaving these facili- His note would later prompt a former found was an issue as divisive among limited ties outstanding before calling capital from board member at the California Public partners as any we’ve covered during our limited partners. Employees’ Retirement System, Michael 17 years of publishing. This is not because In March, San Bernardino County Flaherman, to quiz the board about how investors seem genuinely worried about the Employees’ Retirement Association, a Cali- much the pension understands the risks possibility of fund level leverage triggering fornia pension fund with more than $8 bil- of credit facilities. In July ILPA released a the next financial crisis (they don’t), but lion of assets under management, rescinded document offering a nine-point guide for because GPs who use long-dated lending facilities to postpone capital calls can make their performance look better than it oth- erwise would. LPs who, like these managers, strive to maximise IRR tend to welcome the approach. But if you are an investor who focuses on the money multiple, and all you can do with your uncalled cash is park it in a zero-interest bank account while footing the extra cost of the facility – well, then you will be less inclined to applaud GPs for Cash call: lending facilities are used to postpone capital calls perfecting the art. n

TIMELINE

February July ILPA gathers ILPA issues LP views on April nine-point fund finance Howard Marks publishes guidance on ‘Lines in the sands’ memo the use of credit lines

01 02 03 04 05 06 07 08 09 10 11 12 2017

May What we found was an issue as Ex-CalPERS board March divisive among limited partners SBCERA rescinds Alcentra member asks for commitment based on report on credit as any we’ve covered during our credit facility line use 17 years of publishing

8 private equity international annual review 2017

STORIES OF THE YEAR

SECONDARIES Blue chips are down with GP-leds A handful of big-name deals pushed GP-led processes into the mainstream in 2017, but questions around their planning and execution will dominate discourse going into 2018, says Rod James

Many were expecting 2017 to be the year Group, which in turn made a stapled com- when GP-led secondaries processes truly mitment to the $800 million-target EQT arrived, when big-name deals would cement Mid-Market Asia III. LPs who decided to their role as a portfolio balancing tool, not part with their stakes received a 19.5 per- just a cry of distress. These observers were cent net internal rate of return and a 1.8x largely correct, as one big deal after another net money multiple. came to the market. A process on Nordic Capital’s Fund VII, In June it emerged that BC Partners, one a €4.3 billion buyout vehicle, had its first of Europe’s biggest private equity houses, was bidding round in the last week of Novem- considering using a stapled deal to help boost ber. The deal would involve moving the fundraising for its €6.7 billion 10th fund. remaining 10 assets in the 2008-vintage The process, which closed in Septem- fund, which has a net asset value of around ber, involved secondaries firm Lexington €2 billion, into a multi-year continuation Partners buying around $700 million worth All in: Blue-chip GPs are targeting secondaries vehicle which would have a five-year term. of stakes from 22 limited partners in BC The traffic has not all been one-way. In European Capital IX, a 2011-vintage, €6.7 October Apax Partners decided against billion vehicle, at the same time as commit- 19.5% carrying out a process on its €11.2 billion ting around $300 million to Fund X. Net IRR for LPs 2007-vintage Apax Europe VII fund as it in EQT deal In October Warburg Pincus sold a $1.2 became clear that there was insufficient billion strip of Asian investments from its investor support. Debate continues to rage 2012-vintage, $11.2 billion Fund XI, help- as to whether it is fair to propose a process ing the firm reduce its exposure to the with no “do-nothing” option which would region. Lexington and Goldman Sachs Asset allow LPs to continue with what they origi- Management backed the deal. $1.2bn nally signed up to. As secondaries become Size of Asian investment In September EQT gave investors in sold by Warburg Pincus more mainstream, further debate regarding its sixth and seventh flagship buyout funds how best to run such processes is likely to the option to sell their stakes to Partners continue into the new year. n

TIMELINE

July October Warburg Pincus taps Apax Partners decides not Lazard to run the $1.2bn to proceed with process sale of a strip of Asian on its seventh fund after assets from its 11th fund push back from its LPAC

01 02 03 04 05 06 07 08 09 10 11 12 2017

June September November BC Partners said to be EQT uses a secondaries deal First bids received for process considering using a staple to on its sixth and seventh funds on 2008-vintage €4.3bn help raise its €6.7bn 10th fund to help raise its $800m Asian Nordic Capital VII mid-market fund

10 private equity international annual review 2017 PROUD 2017 WINNER OF TWO PRIVATE EQUITY INTERNATIONAL AWARDS

THANK YOU FOR YOUR CONTINUED SUPPORT & VALIDATION OF EATON PARTNERS.

PRIVATE EQUITY | PRIVATE CREDIT | REAL ASSETS | REAL ESTATE | HEDGE FUNDS

Eaton Partners, LLC | Member FINRA | A subsidiary of Stifel Financial Corp. | www.eatonpartnersllc.com STORIES OF THE YEAR

DIRECT INVESTING Finding their own targets Limited partners bulked up direct investment teams and made large purchases in 2017, says Adam Le

From sovereign wealth funds such as Abu Dhabi Investment Authority, to pension funds including Canada Pension Plan Invest- ment Board and Ontario Public Services Employees Union Pension Trust, to family offices such as Man Capital or Chinese fund of funds Gopher Asset Management, making direct investments in private com- panies has been “very hot”, the head of pri- vate equity at a large pension fund told PEI. Direct hit: The Canadian pension funds were among those selecting their own deals The reasons are varied. ADIA, the world’s second-largest sovereign wealth Notable large deals by pension funds this barometer, the number of LPs planning to fund, said in July it had increased its expo- year included CPPIB’s November acquisi- make direct investments has plateaued at sure to direct private equity investments tion of a 30 percent stake in online insur- 31 percent, after jumping to 30 percent amid fears of a potential drop in returns. ance business BGL Group and fellow pen- from 17 percent between summer 2006 It cited a combination of high valuations, sion fund CDPQ’s $400 million investment and summer 2012. increasing competition and rising interest in Hyperion Insurance Group. The difficulty of making investments rates in the US as potentially dampening LPs are, of course, bulking up their teams directly, as opposed to through a fund future absolute returns for private equity, in order to make more direct investments, structure or co-investing with a GP, may in its annual report for 2016. such as USS Investment Management, the have contributed to the levelling off of inter- Others, such as Canada’s Caisse de dépôt investing arm of the UK’s Universities est in the strategy. Florida’s $196 billion et placement du Québec, have cited the abil- Superannuation Scheme, which hired three State Board of Administration mulled going ity to select the types of assets it feels will be investment professionals in October to help direct, according to documents published more resilient amid a potential downturn. it pursue its continuing shift towards directs. at the beginning of the year. After robust Sovereign wealth funds in general have But interest in the strategy may have internal discussion it ultimately passed on been preparing to ramp up direct invest- reached its peak. According to second- the proposal, citing a lack of internal staff ments. Almost half of SWFs surveyed in aries firm Coller Capital‘s bi-annual LP resources. n PwC’s Sovereign Investors 2020 report in 2016 said they would invest in targets SECOND QUARTER MOST READ ONLINE directly, up from 21 percent two years 1. PEI 300: Blackstone claims top 6. Ex-CalPERs member asks for earlier. spot credit-line report “They want to do it on their own,” Babak 2. PEI 300 revealed: the industry’s 7. Ardian invests $2.5bn in fundraising giants Mubadala deal Nikravesh, a partner at Hogan Lovells and 3. CalPERS considers merging 8. Abraaj shifts focus from one of the organisers of the inaugural Sover- PE with public equities regional funds eign Investors Conference in New York, told 4. CPPIB: ‘We are part of too much 9. SoftBank Vision Fund: Private Equity International in late November. money in Asia’ $93bn and counting 5. Blackstone launches retail 10. CalPERS cuts yearly costs by “Concretely, that means scaling up and put- channel nearly 40% ting people on the ground.”

12 private equity international annual review 2017 » We are delighted that our achievements have been

recognised by PEI’s readership Mid-market firm of the year in Europe and look forward to replicating the success of the past year in 2018. «

Guillaume Jacqueau Exit of the year Managing Partner, Equistone Partners Europe in Europe

www.equistonepe.com

© EQUISTONE PARTNERS EUROPE LIMITED Authorised and regulated by The Financial Conduct Authority.

PE International Ad March 2018.indd 1 09/02/2018 17:28 STORIES OF THE YEAR

LEVERAGE “The sponsor and borrower can then The rise of cov-lite loans outline what steps they will take to remedy the situation. That in turn allows lenders to Should we be worried about the continued loosening of provide thoughtful, constructive solutions, including more time and capital.” debt covenants, asks Isobel Markham In a cov-lite situation, the lenders are forced to take a back seat, Schwimmer Over the last 18 months, leverage has been performance of its businesses, covenants tells PEI. creeping up to 2007 levels, but this time or not. Lenders are “praying for a correction” around there’s an added element, something However, Randy Schwimmer, head of that will allow them to tighten up on terms, which the private equity industry didn’t see origination and capital markets at credit Schwimmer says. A rise in interest rates even in those heady pre-crisis days. asset management firm Churchill Asset would have more of a long-lasting impact. Back in 2007, only 29 percent of institu- Management, makes the case in his research However, as Schwimmer points out, LIBOR tional debt issued in the US was ‘covenant- paper The Case for Covenants that, if a busi- peaked at around 5.5 percent in 2007; in lite’ – devoid of all maintenance covenants. ness starts to go downhill, it’s best for the September it was at 1.3 percent. “We’ve got In Europe, the figure was just 7 percent, private equity house to bring the lender in a long way to go before we’re at pre-crisis according to data from LCD, part of S&P on the discussion at an early stage. interest rate levels,” he says. n Global Market Intelligence. This has rocketed to 75 percent of newly-issued institutional debt in the US last year, and 60 percent in Europe. To look at it another way, in January 2006, just 0.95 percent of outstanding leveraged loans in the US were cov-lite. In July this year, that number was 72.71 percent. The attractiveness of cov-lite loans for private equity buyers is clear: they offer much more flexibility. The firms can pursue expansion plans, add-on acquisitions, new product roll-outs and the like without lend- ers looking over their shoulders. For the private equity house, cov-lite loans are no more risky than those with a full set of covenants. A prudent GP will be closely monitoring the financial Rough ride: cov-lite loans put lenders at a disadvantage

TIMELINE

July October 72.7% of outstanding A healthcare services US leveraged loans are company with EBITDA cov-lite, up from 0.95% in $75m-$100m range January in 2006 has a covenant capping US Libor at 1.6% leverage at 9.5x EBITDA

01 02 03 04 05 06 07 08 09 10 11 12 2017

August December Hellman & Friedman raises US Libor at 1.9% $265m in cov-lite loans to fund its acquisition of SanpAV

14 private equity international annual review 2017 Fund V Acquisitions and Recent Disposals Australia/New Zealand $6B Transaction Value

iNova Allied Mills Patties Foods Pharmaceuticals Bakery Products Savoury Baked Goods Manufacturer Multinational Carve-Out Leveraged Buyout Public to Private Sep 2017 Mar 2017 Sep 2016

MARKET SERVICES

Financial Services Private Education Fire & Video Security IPO/Selldown Leveraged Buyout Trade Sale Sep 2016 Apr 2016 Apr 2016

Natural Health Products Baked Goods Manufacturer Private Vendor Corporate Carve-out Dec 2015 May 2015

2017 Australasia – Firm of the Year, PEI Award 2016 Australasia – Firm of the Year, PEI Award 2016 Best Management Buyout $300 – $500M for Link Group, AVCAL Award 2016 Best Management Buyout >$500M for Energy Developments, AVCAL Award 2015 Australasia – Firm of the Year, PEI Award 2015 Best IPO for Link Group, FinanceAsia Award 2015 Best Management Buyout $300M – $500M for Hoyts, AVCAL Award 2015 Exit of the Year Large Cap for Spotless, AVCJ Award 2014 Australasia – Firm of the Year, PEI Award 2014 Asia-Pacific – Upper Mid-Market Winner for Peters Ice Cream, PEI Operational Excellence Award 2014 Australia – Best Management Buyout >$500M for Asaleo Care (formerly SCAHA), AVCAL Award 2013 Australia – Private Equity Firm of the Year, M&A International Global Award 2013 Asia-Pacific – Large Equity House of the Year, ACQ Global Award 2013 Australia – Private Equity Firm of the Year, ACQ Global Award 2012 Australia – Firm of the Year, PEI Award

www.pep.com.au STORIES OF THE YEAR

SOUTH KOREA Korean LPs to the fore A low interest rate environment and growth in pension fund money continue to fuel South Korean LPs’ expansion into alternatives, says Carmela Mendoza

The South Korean investor landscape saw great changes in 2017. Several pension funds and insurance companies pledged to increase their expo- Flying the flag: South Korea looks set to be a growing force in private equity as pensions try to boost returns sure to alternatives this year as they face public pressure to deliver higher returns. Benefit Association is plotting to expand Kyobo Life Insurance and Hyundai Marine Korea’s largest pension, the 601 trillion its alternatives portfolio with an additional & Fire Insurance are also getting more won ($550 billion; €466 billion) National 700 billion won into private equity. active in private equity and increasingly Pension Service, said in March it is planning Korean pensions have been overweight favouring the North American and Euro- to increase its holdings of foreign and alter- in fixed income – as much as 70-80 percent pean markets, according to PEI data. native investments from 31.3 percent in of their portfolios historically. Because of Korean LPs are diversifying into new 2017 to up to 40 percent by 2021, follow- the sensitivity of interest rate movements strategies such as distressed debt and credit, ing the Ministry of Strategy and Finance’s as well as the foreign exchange rate, Korean and a separately managed accounts have asset allocation plans. pensions suffer more compared with other also grown in favour. Korea Scientists and Other institutional investors are follow- global pensions. Engineers Mutual Aid Association plans to ing NPS’s lead. By 2021 the 5.4 trillion won With pension fund sizes increasing, it has allocate $120 million to a separately man- Government Employees Pension Service is become difficult to achieve required returns aged account for a multi-asset strategy by set to allocate up to 24 percent of its total from investing in conventional fixed income year end. Hyundai Marine & Fire Insurance, assets to alternatives, and the 14 trillion and bonds, which is prompting this move with $27 billion in assets, is also keen to won Korea Teachers Pension Fund is plan- toward greater exposure to alternatives, expand its private equity and private credit ning to allocate 40 percent over the next including alternative investments overseas. exposures via separately managed accounts three years. Meanwhile the Public Officials Insurers such as Samsung Life Insurance, from its existing manager roster. n

TIMELINE

April October Government Employees Pension Korea Scientists and Service names Chang-hoon Lee, Engineers Mutual-aid former head of Prudential Asset Association issues RFP Management, as CIO for $120m SMA

01 02 03 04 05 06 07 08 09 10 11 12 2017

March May November National Pension Service The Public Officials Korea Post Insurance Fund finalises plans to increase foreign Benefit Association negotiations to allocate $100m and alternative investments commits $40m to Apollo apiece to two global multi-strategy to 40% allocation by 2021 Investment Fund IX FoFs

16 private equity international annual review 2017

STORIES OF THE YEAR

FUNDRAISING Apollo’s mega-raise The largest private equity fund of 2017 was unorthodox, writes Marine Cole

In many ways, Apollo Investment Fund IX, allows them to lower placement fees. For We cut people Apollo Global Management’s ninth vehicle, Fund IX, Apollo spent just $3.5 million on and its 2017 fundraising, nicely sum up the third-party placement agents, down from back to about state of the current private equity market. $15.4 million for Fund VIII, which closed $25 billion The fund was oversubscribed in a on $18.4 billion four years ago; and more because we thought matter of months, illustrating the robust than $20 million for Fund VII. fundraising environment. It plans to invest In an unusual strategy, Fund IX had no that’s what we could more heavily in distressed debt opportu- specific initial target or hard-cap, which handle responsibly nities – possibly a quarter of total capital some limited partners saw as a risk. Apollo Leon Black – reminding us that the current economic initially said in its 2016 third-quarter earn- cycle has reached a high and looks set to ings conference call that the size of Fund IX turn a corner in the next couple of years. would be similar to Fund VIII. At launch, it as of 31 December. The mix of equity and The process demonstrates how large verbally communicated to LPs that the fund distressed debt strategies was also attrac- listed alternative asset managers have cre- would not exceed $20 billion – although tive, as it allows investors to cash in on both ated internal fundraising machines, which it ultimately closed at nearly $25 billion. sides of the cycle. Regardless of such unorthodoxies, Apollo’s Apollo co-founder Josh Harris told ana- fundraising process was quick and successful. lysts in April that its LP base is globalising, $248.9bn Co-founder Leon Black indicated in particularly in Asia, the Middle East and Apollo’s AUM as early December that it received $30 bil- Europe, with North America representing of December 2017 lion in demand in only six months. “We cut a little less than half of investors. people back to about $25 billion because Apollo, which had $249 billion in total we thought that’s what we could handle assets of the end of the year, will start responsibly,” he said. deploying the fund in early 2018. n 26% LPs were attracted by the performance Net IRR of Fund VII of Fund VIII which has an unrealised net THIRD QUARTER MOST internal rate of return of 23 percent and READ ONLINE Fund VII which had a 26 percent net IRR 1. The 10 largest H1 fund closes 2. Warburg Pincus to explore secondaries process 3. Deutsche secondaries team spins out 4. Committed capital fees ‘on the way out’ 5. Apax runs GP-led process on Fund VII 6. Family offices in five charts 7. GIC warns of investor complacency 8. BC investors agree secondaries deal with Lexington 9. EQT runs stapled secondaries deal on Fund VI 10. CITIC PE to market $2bn fund before year-end Sky high: Apollo’s huge fund was oversubscribed by $5 billion

18 private equity international annual review 2017 ACL-2018.02.17 PROUD WINNERS OF PEI 2017 AWARDS Landmark Partners specializes in secondary market transactions of private equity, real estate and real assets investments, with approximately $22.0 billion of committed capital. Founded in 1989, the firm has one of the longest track records in the industry and is a leading source of liquidity to owners of Secondaries Deal of the Year in North America interests in real estate, real asset, venture, mezzanine and buyout limited partnerships. Landmark Partners has more than Secondaries Deal of the Year in Europe 100 professionals across four offices in Boston, London, New York and Simsbury, Connecticut.

Boston | London | New York | Simsbury landmarkpartners.com THIS IS NOT A SOLICITATION OR OFFERING. LANDMARK WAS SELECTED TO BE ON A LIST OF NOMINEES FOR THE AWARDS REFERENCED ABOVE BY THE EDITORIAL BOARD OF PRIVATE EQUITY INTERNATIONAL AND WAS SELECTED AS THE WINNER OF THE AWARDS THROUGH A VOTING PROCESS BY READERS OF PRIVATE EQUITY INTERNATIONAL. LANDMARK DID NOT APPLY FOR THE AWARD. THE SELECTION OF LANDMARK TO RECEIVE THE AWARD WAS BASED IN PART ON SUBJECTIVE CRITERIA AND A LIMITED UNIVERSE OF CANDIDATES. THERE CAN BE NO ASSURANCE THAT A DIFFERENT EDITORIAL BOARD OR VOTERS MIGHT NOT HAVE SELECTED OTHER FIRMS OR TRANSACTIONS AS THE WINNERS. LANDMARK DOES NOT KNOW WHETHER IT HAS BEEN RATED BY THIS OR ANY OTHER THIRD PARTY IN ANY WAY THAT WOULD CONFLICT WITH THIS AWARD. THE INFORMATION PROVIDED ABOVE IS SOLELY FOR INFORMATIONAL PURPOSES AND MAY NOT BE REPRESENTATIVE OF A PARTICULAR INVESTOR’S EXPERIENCE, NOR SHOULD THE INFORMATION BE CONSTRUED, OR RELIED UPON, AS ANY INDICATION OF FUTURE PERFORMANCE OF LANDMARK OR ANY OF ITS FUNDS. STORIES OF THE YEAR

ASIA The rise of Japan With structural changes in place, increased appetite from “Founder/owner successions have been a LPs and strong dealflow, Japan will continue to be a large part of that and continue to drive a lot of dealflow in the mid-market buyout major market for private equity, writes Carmela Mendoza space,” he says. Tsuyoshi Imai, a Tokyo-based partner at Japan made headlines this year with mega- on a combined ¥168 billion ($1.5 billion; Ropes and Gray, adds that a lot of private deals and oversubscribed fundraises, as pri- €1.4 billion). Final closings of more than $3 equity firms are bullish on Japan because vate equity firms continue to cash in on billion were also held for Integral Group, of the strong exit activity in the last three enhanced corporate governance standards, NSSK, Tokio Marine Capital, CITIC Capital to four years. demographic shifts and a buzzing mid- and The Longreach Group, all of which will Folsom believes the penetration of pri- market scene. mainly invest in Japan. Nomura Holdings is vate equity in Japan, which is just 5 percent Consulting firm Bain & Company char- also back in private equity after a three-year of overall M&A activity, will grow further acterised 2017 as one of the biggest years hiatus and is looking to seed a Japan-focused going forward. “That 5 percent could move ever for Japan’s private equity market, on fund with $895 million of its own capital. to 10 percent in the future, which means track to deliver its largest deal volume since Richard Folsom, co-founder of the size of the pie for private equity could the 2008 global financial crisis. Deal value Advantage Partners, expects the strong double, opening a lot of room for new play- climbed to $24 billion through September, investment activity to continue in 2018. ers in the market,” he says. n an almost three-fold increase from the pre- vious year’s $8.8 billion. Global firms KKR and Bain Capital set their sights on closing mega-deals – $18 billion for Toshiba’s memory chip unit, $4.5 billion for auto parts maker Calsonic Kansei and $1.3 billion for Hitachi’s power tools unit, among others. Fundraising activity also soared this year, with 12 Japan-focused vehicles raising more than $4 billion, dwarfing the $350 million that was raised in 2016, according to PEI data. J-STAR and Advantage Partners held final closes for their latest buyout vehicles Bright prospects: private equity’s share of M&A is forecast to double in the future

TIMELINE

January May KKR buys Hitachi Koki, Advantage November Hitachi’s power tool Partners V closes Nomura Holdings unit, for $1.3bn on ¥60bn returns to private equity

01 02 03 04 05 06 07 08 09 10 11 12 2017

April September J-STAR No. 3 Bain Capital-led group closes in on buys Toshiba’s chip unit ¥33.25bn for $18bn

20 private equity international annual review 2017 TEAM WORK

Our investment professionals collaborate across continents as we are dedicated to giving our investors genuine global advice.

Fund Investments Secondary Investments Co-Investments Partnership Investments alpinvest.com STORIES OF THE YEAR

LONG-TERM FUNDS Time on their side Investors can expect more vehicles with a life longer than 10 years in 2018, writes Adam Le

Long-term funds – vehicles with a life longer than the traditional 10 years – increased in popularity this year with the arrival of several funds dedicated to the strategy. Long-term funds that held their final close include Bain Capital spin-out Core Equity Holdings, which raised €1 billion for its debut vehicle in September, and Cove Hill Partners, also founded by a Bain alum- Patient approach: holding assets for longer brings greater expertise nus, which held a final close on its debut vehicle in September on $1 billion. Other private equity firms are getting in Carlyle was also active during the year, Proponents of the strategy argue the on the long-term action in different ways. making at least two investments from its traditional private equity model is an out- KKR is seeking to acquire as many as 12 $3.6 billion Carlyle Global Partners vehi- dated piece of technology that needs a long-term core investments from its bal- cle. Launched in 2015, the fund focuses on revamp. By holding assets for longer, these ance sheet over the next five years, Scott long-dated investments in North America managers believe they can gain deeper Nuttall, the firm’s co-president, said. KKR and Europe and holds six assets including expertise in the industries they focus on completed the first of these with the $4.3 the March acquisition of ice products dis- without having to sacrifice returns, as they billion acquisition of US insurance broker- tributor Arctic Glacier and the July pur- would in an infrastructure-like fund. age and consulting firm USI Insurance Ser- chase of basin energy assets Hilcorp San “Why would you sell a business that vices alongside CDPQ in March. Juan. you know, a team that you like, a strategy Blackstone, which raised $5 billion for Apollo Global Management plans to that you’ve helped devise, [when] you keep its Core Equity Partners long-term vehicle, launch a long-term equity and credit vehi- generating the sorts of returns you want to made investments from the fund this year cle, it announced in December. Named generate?” Core Equity partner Alain Stoes- including music rights organisation SESAC Hybrid Value, the fund will aim to deliver sel told PEI in June. Holdings in January. returns in the mid-teens. n

TIMELINE

March Why would you sell a business that September Carlyle’s long-term you know, a team that you like, a Core Equity fund acquires Arctic strategy that you’ve helped devise, and Cove Hill Glacier hold final closes [when] you keep generating the sorts on their debut of returns you want to generate?” vehicles

01 02 03 04 05 06 07 08 09 10 11 12 2017

January July December Blackstone’s $5bn Carlyle fund Apollo announces Core Equity Partners acquires Hilcorp plans for Hybrid Value fund invests in SESAC San Juan assets long-term vehicle

22 private equity international annual review 2017 DEVELOPING COMPANIES ACROSS THE GLOBE

A LEADING INVESTMENT FIRM www.eqtpartners.com STORIES OF THE YEAR

INVESTING IN GPS Grabbing a slice of the PE pie General and limited partners have been snapping up Chas Burkhart told PEI in November. It manager stakes during 2017, writes Alex Lynn instead plans to launch a$200 million per- manent capital vehicle of “unconstrained duration” by the second quarter of 2018. Private equity firms are finding that, rather October and had been expected to hold a In July, Blackstone acquired a minor- than doing the deal, they are the deal, as first close on $2 billion in December. ity stake in buyout firm Leonard Green specialist funds and other asset managers Goldman Sachs Asset Management is & Partners through its Strategic Capital see the value in the GP model. understood to be raising at least $1.5 billion Holdings fund, a $3.3 billion permanent A number of firms who raise capital for its second Petershill fund, which will capital vehicle focusing primarily on hedge for the strategy – acquiring stakes in asset acquire stakes in hedge funds and private fund managers. managers primarily to access a share of equity firms. Meanwhile, Hycroft Capital Likewise, Eurazeo, which uses perma- management fees and carry across all the is aiming to raise at least $750 million for nent capital, acquired a stake in New York- target GP’s vehicles – have enjoyed a strong its debut fund. based Rhône Group in November, and then year of fundraising. Dyal Capital Partners’ The fund of firms model is by no means a majority stake in Paris-based Idinvest in fourth fund, for example, had secured $1 new. Pennsylvania-based Rosemont Invest- February 2018. billion of commitments as of the end of ment Partners was an early adopter of the With this flurry of activity late in the model, having first raised such a vehicle year, the trend shows little sign of slowing in 2000. down in 2018. However, the depth of the In some cases, And just as the private equity model has exit market remains to be seen, Virginie evolved to welcome more long-term funds Bourel, partner and head of strategic advi- the funds are or permanent capital vehicles, so too have sory at placement agent and advisory firm looking at an funds of firms. Rosemont, which has so far Triago, tells PEI. IPO for the management raised three closed-ended funds targeting “In some cases, the funds are looking minority equity stakes in other investment at an IPO for the management company; company management businesses, has scrapped the it could be one by one or a combination of Virginie Bourel traditional fixed-term fund model, founder several,” she says. n

FOURTH QUARTER MOST READ ONLINE 1. Blackstone is moving towards permanent capital 2. 10 new firms making waves in 2017 3. CDPQ poaches PSP private equity senior director 4. Introducing the Private Equity Hall of Fame 5. Apax pulls GP-led deal 6. Carlyle names successors as co-founders step aside 7. PEI Awards 2017: let the games begin 8. Apollo’s child prodigy 9. LPs face huge risks on co-investments 10. Fundraising continues to outstrip 2016 Tempting target: funds are looking to buy stakes in GPs

24 private equity international annual review 2017 proud satisfaction from the achievements of those you are close to

€12 billion closed for 10 clients in 2017

We are proud of what our clients have achieved in 2017, resulting in our team being recognised by the industry through this award

Thank you to all our clients, investors, industry partners and peers

This award demonstrates the strength of our model, approach and team and we wanted to thank everyone who helped us to make our vision a reality

rede-partners.com London Office 3rd Floor, 110 Park Street, London W1K 6NX +44 20 7952 2460 [email protected] New York Office 12 E 49th St, 17th Floor, New York, NY 10017 +1 (646) 982-1638 [email protected]

0870 Rede Partners Advert_v1.indd 1 20/02/2018 09:34 STORIES OF THE YEAR

FIRST-TIME FUNDS Making waves in 2017 From Sydney to Boston, a slew of firms made a splash with their first vehicles last year. We profile the top debut fundraises

Raising a first-time fund is never an easy task, but limited partners’ insatiable appe- tite for private equity coupled with a desire to get in there early with potential future winners has made this year a good time for established teams with a strong track record to try their luck. Here’s a compila- tion of some of the top debut fundraises by emerging managers.

SPINNING OUT OF AUSTRALIA’S GIANT Adamantem Capital Founded in July 2016 by Anthony Kerwick and Rob Koczkar, former managing direc- manufacturing, high-end equipment, GOING LONG (US VERSION) tors at Pacific Equity Partners, Adamantem advanced materials, medical technologies Cove Hill Partners Capital is expecting to hold a final close and environmental protection technolo- Bain Capital veteran Andrew Balson on its debut fund on around A$600 mil- gies looking to expand their businesses into raised more than $1 billion this year in a lion ($456 million: €385 million) to invest China. The firm closed its debut fund on its few months for his new long-term private in mid-market opportunities in Australia $1 billion target, with China Investment equity fund, Cove Hill Partners Fund I, and New Zealand. The founders were hit Corporation as an anchor investor. which has a 15-year life span. Boston-based with a lawsuit by PEP in April alleging the Cove Hill Partners, which Balson founded Adamantem team might have used confi- GOING LONG (EUROPE VERSION) after working for 17 years at Bain Capital, dential information such as the financial Core Equity Holdings collected money mostly from family offices, performance of PEP’s funds and portfolio The Brussels-based firm closed on $1 bil- university endowments and foundations companies in its fundraising materials, but lion for Core Equity Holdings I, a 15-year to make five to eight investments in the PEP lost its case in late September. life structure that aims to invests between consumer and technology sectors in North €200 million and €500 million of equity in America. WHERE EUROPE AND ASIA MEET three to five deals. The four main partners, AGIC Capital who together have more than five decades THE APOLLO Founded in 2015 by ex-Deutsche Bank of combined experience in private equity OF THE LOWER MID-MARKET executive chairman Henry Cai, Asia Ger- – most of it at Bain Capital, have collected Gamut Capital Management many Industrial Promotion Capital targets capital from North American and European Former Apollo Global Management senior investments in European small and mid- endowments, foundations and large family partners Stan Parker and Jordan Zaken cap companies specialising in intelligent offices. launched mid-market firm Gamut ››

26 private equity international annual review 2017

STORIES OF THE YEAR

›› Capital Management in 2015 and held a final close on their debut fund Gamut Investment Fund I on $1 billion, ahead of its $750 million target, at the beginning of 2017. Their aim is to replicate Apollo’s strategy of investing in buyouts, carve-outs and distressed-for-control investments in the lower mid-market.

DEUTSCHE SECONDARIES VETERANS Glendower Capital The secondaries team, led by Carlo Pirzio- Biroli, Charles Smith, Adam Graev, Chi Summa Equity: trend spotting in the Nordic region Cheung and Deirdre Davies, spun out of Deutsche Bank in the summer and will ($211 million: €198 million) for its debut FOLLOWING NORDIC MEGA-TRENDS continue to advise on existing assets. The fund, which will invest A$15 million-A$40 Summa Equity firm also planned to pre-market Glendower million in local mid-sized companies with Set up in 2016 by five partners – Reynir Secondary Opportunities Fund IV in the enterprise values of up to A$100 million Indahl and Johannes Lien, formerly at Scan- autumn, seeking between $1.5 billion and across a broad range of industries in Aus- dinavian private equity house Altor, Tommi $2 billion, indicating it will be in full fun- tralia and New Zealand. Unkuri and Jenny Keisu, formerly at Nordic draising mode in 2018. Meanwhile, it has Capital, and Christian Melby, formerly at already closed a couple of deals, purchasing OPERATIONS-HEAVY Norwegian firm Norvestor Equity – Nordic two stakes in Duke Street Capital’s sixth CARLYLE SPIN-OUT lower mid-market firm Summa Equity fund from Kuwait Investment Authority. Stellex Capital Management smashed through its initial SKr3.3 billion The mid-market private equity firm ($372 million; €349 million) target to close ZEROING IN ON AUSTRALIA’S launched by two former Carlyle execu- its debut fund on SKr4.3 billion. The “mega- MID-MARKET tives held a final close on its first fund in trend driven” firm follows four investment Odyssey Private Equity the summer after nearly two years of fun- themes: resource scarcity, energy efficiency, Former Quadrant Private Equity co- draising, raising $870 million, ahead of its changing demographics and tech-enabled founder George Penklis teamed up with $750 million target. The Teachers’ Retire- businesses. three former CHAMP Ventures executives ment System of Texas was an early backer, – Gareth Banks, Jonathan Kelly and Paul committing $50 million in November 2015 TARGETING UK BUSINESSES Readdy – to set up Odyssey Private Equity to the fund raised by founding partners Ray Tenzing Private Equity in 2016. The firm raised A$275 million Whiteman and Michael Stewart. Founded in January 2015 by Guy Gillon and Rob Jones, who both have experi- ence investing with special situations investment firms, and Christian Hamil- ton, a former partner at UK mid-market firm Inflexion Private Equity, UK lower mid-market firm Tenzing closed its debut fund on its £200 million ($269 million; €227 million) hard-cap after just three months in market. The fund is targeting buyout investments in UK businesses with enterprise values of between £10 million and £50 million with high organic growth Odyssey Private Equity: backing mid-market deals in Australia prospects. n

28 private equity international annual review 2017

COMMENT

A YEAR IN PE

BLACKSTONE’S BIG NUMBERS Friday’s best Rarely is the industry’s largest manager far from the headlines, but in May Blackstone A look back at highlights from PEI’s Friday Letters tells you was on the front pages for securing a whop- everything you need to know about the last 12 months ping $20 billion commitment from Saudi Arabia’s Public Investment Fund which, with further fundraising, was to grow into Whether you agreed or disagreed with an issue as divisive among limited partners a $40 billion infrastructure fund. PEI noted them – and as ever we had subscribers as any we’ve covered during our 17 years that another, lower profile, deal the firm who did both in 2017 – our Friday Let- of publishing. had struck that week – the acquisition of ters sought to provide fresh insight into “Managers who have their clients’ best annuity provider Fidelity & Guaranty Life the day’s trends and news. interests at heart will need to tread care- – would have a bigger impact. fully to not upset anybody. Says an industry “The FGL deal brings the firm an WHY THIS ISN’T 2007 veteran in Hong Kong: ‘We haven’t used any alternative asset manager’s holy grail: At the start of the year, references to the re- facilities at all. Half my investors tell me ready access to a sizeable chunk of quasi- emergence of pre-crisis excessive behaviour to keep it this way. The other half aren’t permanent capital – up to $28 billion of proliferated. Surely the signs were pointing happy.’ Now there’s a dilemma. When what’s it – to invest across all its platforms while to a return to the bad old days? Private Equity at stake is the goodwill of the investor base, earning management fees and carry from International thought it was worth examin- GPs know they have their work cut out.” those commitments.” ing how different the market of 2017 was from a decade before. SUPER RESPONSIBLE IMPACT INVESTING IS COMPLICATED “Let’s take a breath and consider two In April Australian superannuation fund A debate among board members of the good reasons why this is not 2007. First First Super said it would stop making New Mexico State Investment Council in is total deal value. In 2007 the total value new private equity commitments, and June showed that – for those responsible for of global buyout activity was $683 billion, might wind down its entire programme, public money – investing with purpose may a shade lower than in 2006’s $685 billion pending a review of its portfolio. This was not be the simple ‘win-win’ it first seems. total. Last year the equivalent figure was prompted by revelations of “poor labour “While every public body will have its just $257 billion, and the annual total has practices” at some portfolio companies. own political sensitivities that need to be not exceeded $300 billion in any year since The fund’s public reassessment of its pri- taken into account, it’s clear impact invest- the crisis.” vate equity programme was “unlikely to ment does come with political implications spark a revolution”, PEI concluded, but – not least the argument that the pension DIVIDING LINES ON FUND FINANCE raise some questions such as whether plan should be looking first and foremost Subscription credit facilities were a defining other LPs have a fiduciary duty to take to make social and environmental impact topic of debate for the industry in 2017. a similar stance. in its own state.” Our February letter ‘Money for nothing’ “One thing can be said for sure; the epi- prompted reader responses that encour- sode serves as another reminder to both LPs TECHNOLOGY EVERYWHERE aged us to investigate the issue in greater and GPs – if one is needed in 2017 – that Huge amounts of capital for technology- depth. Having explored it throughout the environmental, social and governance issues focused funds made us wonder whether year, PEI concluded in November this was have a tangible financial significance.” the ‘too much money, too few deals’ maxim

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would apply more readily than it already does FUND RESTRUCTURING FRICTION tinged with regret. Rubenstein, in particu- to the sector. Two factors were worth con- As a number of high profile firms orches- lar, has been a source of colour and column sidering, PEI noted. First was the shrinking trated secondaries processes on ageing inches since he first graced the pages of PEI public markets; “the public market investor’s funds, PEI examined the “frictional” costs in our first edition. Who could forget the loss is the private equity investor’s gain when to LPs of being forced to roll over into a holiday rap he recorded for investors back it comes to increasingly sizeable dealflow.” new vehicle. in 2014? (Try as they might.)” Second was the sheer scope of target com- “For an LP with a small investment staff panies that fall into a tech funds remit. – as many have – being asked to roll over LESS ISN’T MORE FOR CALPERS “To describe ‘technology’ as a sector is, into a new fund is not as simple as ticking In November we learned that the Califor- at best, to capture a very broad church of a box: there are frictional costs. They may nia Public Employees’ Retirement System’s investment strategies and, at worst, to mis- not be measured in millions, but they could drive to reduce its number of GP relation- label it as a sector altogether.” be avoided altogether simply by sticking to ships to benefit from efficiency gains and the original fund plan.” negotiate favourable terms had not yielded NORWAY GPFG: LATE TO THE PARTY the results it had hoped for. Complexity and In September Norway’s giant Government GOODBYE TO THE ENTREPRENEURS monitoring intensity haven’t diminished and Pension Fund Global hinted that it was now As two of the industry’s largest and most CalPERS hasn’t benefited from significant too big and too late to think about investing influential groups – KKR and Carlyle – fee reductions. in alternatives. We disagreed. announced plans to shift leadership away “This is not a sign, by any means, that the “This does not seem rational. Yes, it from the founders to the next generation, in trend for concentration of private equity would and should take a long time to imple- October PEI lamented the institutionalisa- portfolios has failed. Rather, it’s a realisation ment a private equity strategy of this scale tion of private equity. that CalPERS’ approach has not let it fully responsibly, but as a fund whose mission is “These succession events are, of course, milk these fewer but deeper relationships. to safeguard and grow assets over genera- inevitable and necessary. From an industry For other big US public pensions, there is tions, it has time on its side.” observer’s standpoint, though, they are also no reason for it not to roll on.” n

annual review 2017 private equity international 31 OPEX AWARDS

VALUE CREATION Smooth operators

Our Operational Excellence Awards provided a welcome reminder of how private equity can create lasting value WINNERS

AMERICAS What do a bankrupt American 10-pin bowl- Competition was particularly tough. Large cap ing firm, a struggling Dutch pastry maker There were record entry levels in many The Carlyle Group — and a tiny Vietnamese mobile phone retailer categories, making it a difficult call for the Vogue International have in common? It’s the kind of question judges, who comprise some of the lead- Upper mid-market that crops up every year when we choose ing scholars and operational experts in the Cerberus Capital Management — the winners of our annual Operational private equity industry. Bowlmor AMF Excellence Awards, celebrating the GPs that It’s never easy. How exactly do you Lower mid-market have done the most to transform portfolio balance the dizzying array of entrants in Francisco Partners — Paymetric companies. sectors ranging from financial services to All three of these companies – US bowl- outdoor retailers and Chinese tape manu- Small cap ing alley operator Bowlmor AMF, Dutch facturers, all with multiples that would The Riverside Company — YourMembership baker Banketgroep and Vietnam’s Mobile please even the most demanding investor? World – made the 2017 winners list in And returns are only part of the criteria. another stark reminder of the power of GPs are also expected to provide specific EMEA private equity to turnaround wildly differ- details of the changes and the initiatives Large cap ent industries. they had undertaken, from product devel- Partners Group and Capvis — Now in their sixth year, the search for opment and acquisition activity through to VAT Group the award winners started in July when we supply chain improvement and manage- Upper mid-market asked fund managers to submit their best ment enhancement. EQT — Faerch Plast examples of how they deliver operational And not just details but tangible evi- value as owners. To be eligible, an investment dence of how these initiatives created value. Lower mid-market Gilde Equity Management — had to be either fully or partially realised Impressive exit numbers were clearly a Banketgroep after 1 June 2016. Entries are invited from plus, but the main thing our judges were three regions — Americas, Asia-Pacific and looking for was some genuinely ground- Small cap YFM Equity Partners — Europe, Middle East and Africa. We then breaking work. GO Outdoors divided them into four categories, accord- “The entries get better every year,” said ing to the deal’s entry price — large cap long-time judge Steve Kaplan, professor of ASIA-PACIFIC (greater than $500 million), upper mid-cap entrepreneurship and finance at the Uni- ($150 million-$500 million), lower mid-cap versity of Chicago’s Booth School of Busi- Upper mid-market ($50 million-$150 million) and small cap ness. Or as fellow judge and ex-3i executive ShawKwei & Partners — (less than $50 million). Miles Graham put it: “This year (once again) YongLe Tape it is more challenging to identify clear win- Lower mid-market ners than last year.” Advantage Partners — But there was widespread agreement Hisense Broadband Multimedia Technologies that the 11 winners – there was no large- cap Asia-Pacific award in 2017 – really had Small cap achieved the astonishing turnarounds we’ve Mekong Capital — Mobile World come to expect from this remarkable roll of honour. n

32 private equity international annual review 2017 THE LPA ANATOMISED, SECOND EDITION Your practical guide to negotiating private fund terms and creating GP/LP alignment

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• A to Z of LPA terms and how to negotiate them effectively. • Is it time for a more flexible model for GP/LP alignment? • The role of litigation and regulation in the evolution of private fund partnership agreements. • Case study: How to handle a challenging LPA negotiation. • A comparison of LPAs in the US, Europe and Asia. • How to structure and negotiate separately managed accounts. • Issues GPs must consider when approaching LPs to discuss revising fund terms.

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In their own words Every month, PEI talks to a leading figure in the private equity industry for our Privately Speaking feature interview. Here’s our pick of this year’s responses

Blackstone global head of private equity PAI Partners chief executive Michel Paris Clessidra chief executive Mario Fera Joe Baratta

ON THE DANGERS OF RELYING ON ON STICKING TO WHAT IT KNOWS: ON THE DECISION TO BUY CLESSIDRA RISING PUCHASE MULTIPLES: “For the time being we are a pure leveraged AFTER THE DEATH OF THE FOUNDER “That to me is the biggest risk. Many invest buyout player, and we’re just trying to be CLAUDIO SPOSITO: today assuming the low interest rate world as good as possible as a pure LBO player “I saw the opportunity for Italmobiliare will persist forever and the next buyer will covering the whole of Europe.” almost immediately when I realised there pay the same high multiples. We don’t do was an entry point: it was time to go live on that.” ON REASSURING ITS LP BASE: Clessidra. It is a fascinating platform that “It’s clear we significantly challenged the is on the verge of disappearing and we can ON SHIFTING THE FOCUS TO investor base last time. Also because some probably recoup it and make it brighter OPERATIONAL IMPROVEMENT: of our investors suffered a lot through the and stronger.” “That’s leading us into companies where we crisis and had a diminished capacity to come can do a lot to them during our ownership back. At least one large investor decided ON SHARING ECONOMICS WIDELY to really transform the profitability, either not to come back, which has forced us – or AMONG THE TEAM: through consolidation or operating margin helped us – to think about new names... “I told them I wanted to bet on the younger restructuring, or by buying things that are We’ve made a significant effort to reshape team, on everyone’s ability to do well on out of favour. Our ability to act as a good the investor base, and we are going to ben- Fund III, because it will be the foundation custodian and value-added industrialist in efit from that.” of Fund IV. Juniors will get their chance our portfolio companies is way beyond what on the next fund, which means more vis- it was even 10 years ago.” ON COMPETITION IN THE MARKET: ibility and more accountability and feeling “Everybody is trying to be opportunistic. like more of a part of the story.” ON BLACKSTONE’S 2006 It’s difficult at the start of a process to INVESTMENT IN CASUAL DINING assess correctly the competitive landscape ON WHY THE FIRM HAD TO RELOCATE OPERATOR TRAGUS: and to be sure about who will be there at TO A NEW OFFICE: “Ultimately, we lost money. We lost inves- the end... We are trying to be as tactical “I was very adamant right from the begin- tor capital, which was painful. It obviously as possible. In some cases we are moving ning that we had to move offices. A psycho- got hit hard by the financial crisis and the full-speed, in some other cases we are just logical restart.” recession. Much harder than theme parks taking our time to have the opportunity to and visitor attractions.” better assess the competition.”

34 private equity international annual review 2017 PRIVATELY SPEAKING

Stonehage Fleming head of private equity CDH Investments founder Wu Shangzhi Prudential Portfolio Management Group head Richard Clarke-Jervoise of alternatives Michael Howard

ON FAMILIES’ APPROACH TO PE: ON CDH’S DIFFERENTIATING FACTOR: ON SUBSCRIPTION CREDIT LINES: “Private equity is very intuitive for a family, “Each deal is driven by a different value “If you are collecting all the expenses and because for most families, that’s where proposition, but if you look closely, it’s then clearing it off in three months’ time, their wealth came from, it was created by about building long-term relationships, then that is fine. If there is a long period a private company of one sort or another, waiting for the opportune time and dis- of leverage in there, then that is an issue, so they get that. And they understand risk cussing the next investment opportunity.” because it means we will be underweight completely from that point of view.” [against] our target and have to make a deci- ON SEEKING BUSINESSES WITH A sion as to where we put that money that ON CHARGING FEES ON COMMITTED UNIQUE CHINA ANGLE: should have been invested in private equity.” CAPITAL: “We seek to leverage our extensive experi- “I would be very surprised if in 10 years’ ence investing and helping Chinese compa- ON PUSHING INTO CO-INVESTMENT: time much more than 50 percent of the nies become leaders in China’s fast-growing “We already have a reasonably established asset class was charging on the basis of domestic consumption sectors. These deals co-investment programme in the US but committed capital. It’s just such an anomaly provide our investors exposure to oppor- it makes sense for us to establish a bigger within investment management as an indus- tunities that they will not get from their programme going forward... It will be inter- try. There are very good reasons for it, but global buyout funds and we believe CDH is esting to see how the industry develops.” I just think people will eventually say ‘we’re well-positioned to continue to capitalise on not prepared to pay for that’.” these opportunities in the future.” ON MAINTAINING A PE ALLOCATION: “It means we are making slightly larger com- ON NAVIGATING THE NEXT ON ENSURING A SMOOTH mitments but quite frankly I would rather DOWNTURN: TRANSITION TO NEW LEADERSHIP: our managers use their discretion to choose “Everyone says private equity had quite a “If you look at the other partners and key the right deals rather than feel obliged to good crisis, and I do worry that the next leaders, most are in their late 40s or 50s, quickly get money out the door. Obviously one won’t be quite as good. I worry about and their responsibilities and expectations if it persists for a few years, then you have the complacency within parts of industry are quite clear.” a J-curve starting to kick in, but for now I that you saw within hedge funds previously, am quite happy if it is a one or two-year and you saw what happened to the hedge phenomenon to see people harvesting and fund industry.” being cautious about how they deploy.” n annual review 2017 private equity international 35

THE DOMINANCE OF PE POLYMATHS

The asset class is growing and evolving.

The most influential firms in the private equity business have been busy, not only raising capital for their flagship programmes, but also diversifying, innovating, building expertise and expanding their horizons.

It seems fitting that the PEI Awards should also grow and evolve.

This year, the thousands of voters who had their say in our annual awards were asked to pick not only which firms, investors and advisors had dominated in each region around the globe, but also to decide which houses had distinguished themselves in several new global categories, covering impact investing, long-term investing and a number of sector specialisms.

What do we learn from the results? That multi-strategy franchises are forces to be reckoned with when they engage in either new ventures or specialised sectors, but they do not have it all their own way. Blackstone beat specialists to the crown in the energy and long-term fund categories, and TPG won in the impact category, but Silver Lake and L Catterton are both recognised as leaders in their fields.

Across the entire honour roll, it is KKR that swept the board, thanks largely to its dominance in Asia. The firm won Healthcare Private Equity Firm of the Year, Fundraise of the Year in Asia-Pacific, Firm of the Year in South-East Asia and Large-Cap Firm of the Year in Asia-Pacific.

Apollo, buoyed by its world-beating fundraise and its reputation as a firm that can generate returns whether the economy is going up, down or sideways, won three awards. As did emerging markets giant Actis, recognised for its ability to invest successfully in regions that prove too tough for many firms.

The PEI Awards remain the only awards in the industry decided solely by the industry. The shortlists are drawn up in November by our global edit team who canvass the views of colleagues and contacts in the market to find out which firms, funds and deals stood out during the year. We also solicited nominations for the 71 categories. The four-strong shortlist was opened up to voting in early December and included a fifth write-in box, in case readers felt we had left anyone out. As ever, votes poured in from all over the world. Thank you to all those who participated.

The one gong that is not put to the reader vote is our Private Equity Gamechanger Award, awarded at the discretion of the editorial team. This year we pay tribute to SoftBank’s founder and chief executive Masayoshi Son. Rarely has the title of our award been more appropriate.

Congratulations to all our winners and runners up. PEI AWARDS PEI AWARDS 2017

GLOBAL AMERICAS

ENERGY PRIVATE EQUITY FIRM LARGE-CAP FIRM OF THE YEAR IN DISTRESSED DEBT INVESTOR OF THE YEAR NORTH AMERICA OF THE YEAR IN NORTH AMERICA Blackstone Apollo Global Management Apollo Global Management

HEALTHCARE PRIVATE EQUITY FIRM MID-MARKET FIRM OF THE YEAR IN FIRM OF THE YEAR IN CANADA OF THE YEAR NORTH AMERICA Bain Capital Private Equity KKR Oak Hill Capital Partners FIRM OF THE YEAR IN LATIN AMERICA TECHNOLOGY PRIVATE EQUITY FIRM LIMITED PARTNER OF THE YEAR IN Advent International OF THE YEAR NORTH AMERICA Silver Lake 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 for Aon Hewitt L Catterton PLACEMENT AGENT OF THE YEAR NORTH AMERICAN EXIT OF THE YEAR IN NORTH AMERICA LONG-TERM PRIVATE EQUITY FIRM Oaktree Capital Management for Eaton Partners OF THE YEAR AdvancePierre Foods Blackstone LAW FIRM OF THE YEAR IN NORTH FUNDRAISE OF THE YEAR (AMERICAS) AMERICA (FUND FORMATION) FRONTIER MARKETS FIRM Apollo Global Management Debevoise & Plimpton OF THE YEAR Actis SECONDARIES FIRM OF THE YEAR IN LAW FIRM OF THE YEAR THE AMERICAS IN NORTH AMERICA (TRANSACTIONS) IMPACT INVESTMENT FIRM AlpInvest Partners Kirkland & Ellis OF THE YEAR TPG SECONDARIES DEAL OF THE YEAR IN LAW FIRM OF THE YEAR NORTH AMERICA IN NORTH AMERICA (SECONDARIES) Landmark Partners for Clearlake Kirkland & Ellis Capital EMEA LENDER OF THE YEAR SECONDARIES ADVISOR OF THE YEAR IN NORTH AMERICA LARGE-CAP FIRM FIRM OF THE YEAR IN FRANCE IN THE AMERICAS Ares Management OF THE YEAR IN EUROPE Apax Partners MidMarket Evercore CVC Capital Partners FIRM OF THE YEAR IN GERMANY 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 CHINA OF THE YEAR IN EUROPE FIRM OF THE YEAR IN ITALY OF THE YEAR IN ASIA CITIC Capital Partners APG Asset Management Ambienta KKR FIRM OF THE YEAR IN JAPAN DEAL OF THE YEAR IN EUROPE FIRM OF THE YEAR IN MENA MID-MARKET FIRM NSSK Bain Capital Private Equity and Actis OF THE YEAR IN ASIA Cinven for Stada Everstone Group FIRM OF THE YEAR IN KOREA FIRM OF THE YEAR IN THE NORDICS Affinity Equity Partners EXIT OF THE YEAR IN EUROPE EQT LIMITED PARTNER Equistone Partners Europe for OF THE YEAR IN ASIA FIRM OF THE YEAR IN INDIA Meilleurtaux FIRM OF THE YEAR IN SWITZERLAND China Investment Corporation Everstone Group Partners Group FUNDRAISE OF THE YEAR (EMEA) DEAL OF THE YEAR IN ASIA FIRM OF THE YEAR CVC Capital Partners FIRM OF THE YEAR IN THE UK Bain Capital and others for Toshiba IN SOUTH-EAST ASIA Advent International Memory Corporation KKR SECONDARIES DEAL OF THE YEAR IN EUROPE FUND OF FUNDS MANAGER EXIT OF THE YEAR IN ASIA FUND OF FUNDS MANAGER AlpInvest Partners, Landmark OF THE YEAR IN EUROPE PAG for Universal Studios Japan OF THE YEAR IN ASIA Partners, Lazard for Investindustrial HarbourVest Partners Asia Alternatives FUNDRAISE OF THE YEAR SECONDARIES FIRM PLACEMENT AGENT (ASIA-PACIFIC) PLACEMENT AGENT OF THE YEAR IN EUROPE OF THE YEAR IN EUROPE KKR OF THE YEAR IN ASIA Ardian Rede Partners Eaton Partners SECONDARIES FIRM SECONDARIES ADVISOR LAW FIRM OF THE YEAR IN EUROPE OF THE YEAR IN ASIA LAW FIRM OF THE YEAR IN ASIA OF THE YEAR IN EUROPE (FUND FORMATION) TR Capital (FUND FORMATION) Campbell Lutyens Debevoise & Plimpton Weil, Gotshal & Manges SECONDARIES DEAL FIRM OF THE YEAR IN AFRICA LAW FIRM OF THE YEAR IN EUROPE OF THE YEAR IN ASIA LAW FIRM OF THE YEAR IN ASIA Actis (TRANSACTIONS) Lexington Partners and Lazard Asia (TRANSACTIONS) Clifford Chance for Warburg Pincus Clifford Chance FIRM OF THE YEAR IN BENELUX Waterland Private Equity Investments LAW FIRM OF THE YEAR IN EUROPE SECONDARIES ADVISOR LAW FIRM OF THE YEAR IN ASIA (SECONDARIES) OF THE YEAR IN ASIA (SECONDARIES) FIRM OF THE YEAR IN CEE Kirkland & Ellis Lazard Kirkland & Ellis Mid Europa Partners LENDER OF THE YEAR IN EUROPE FIRM OF THE YEAR IN AUSTRALASIA Ares Management Pacific Equity Partners

38 private equity international annual review 2017 PEI AWARDS GAME CHANGER

PRIVATE EQUITY GAME CHANGER OF THE YEAR 2017 Masayoshi Son, founder and chief executive, SoftBank

Vision Fund is just the first step and ¥10 trillion is simply not enough Masayoshi Son

In 1981 Masayoshi Son built a company things and emerging technologies, and he inspired by a photograph of an Intel micro- is building what he believes will be the his- 1981 processor that he saw in a science maga- toric private equity fund that will transform Year that Son founded SoftBank zine at university. Thirty-seven years, one the future. initial public offering and several M&A Over the course of 2017, Son has made deals later, the billionaire founder of big and bold investments and taken stakes Japanese telco company SoftBank rocked in visual computing company NVIDIA, San the private equity industry by forming the Francisco-based indoor farming company biggest fund in history – the SoftBank Plenty, office messaging service Slack and Vision Fund, which has an unprecedented AI-based driving systems developer Brain $100bn Target for Vision planned $100 billion war chest for tech- Corporation, as well as investment manager technology fund nology deals. Fortress Investment Group – altogether The Vision Fund was launched in Octo- deploying about one-third of the capital, ber 2016 and held a first close on over according to the firm’s latest financials. $93 billion in just seven months. Backers Son’s giant fund might merely be the of Son’s colossal fund include the Saudi tip of the iceberg. He is already thinking Arabia Public Investment Fund, Mubadala of follow-on raises to the Vision Fund. 7 months Time taken to Investment Company, Apple and Foxconn, Speaking to Nikkei in October last year, reach $93 billion among others. Son said the “Vision Fund is just the first first close Blackstone’s Stephen Schwarzman, calls step and ¥10 trillion ($88 billion; €72 bil- Son “bold, sleepless and aggressive” while lion) is simply not enough.” Son plans to Oaktree Capital’s Howard Marks ques- expand the scale, with Vision Funds 2, 3, tions the structure of his Vision Fund. But and 4 launched every two years, as part no matter. Son is convinced the future is of his grand vision for SoftBank to “keep all about artificial intelligence, internet of growing for 300 years”. n annual review 2017 private equity international 39 PEI AWARDS GLOBAL

ENERGY PRIVATE Silver Lake cemented its position as the EQUITY FIRM largest technology-focused private equity OF THE YEAR firm in the world in 2017 with the $15 billion final close in the spring of its latest 1. Blackstone flagship fund, Silver Lake Partners V. The 2. Actis fund had a $12.5 billion target and the firm 3. EnCap ultimately attracted LP commitments total- ling $14.5 billion. “What resonated with Blackstone committed and invested $3.5 investors in this fundraise is what resonates billion in seven new energy companies in with industry CEOs: Silver Lake’s flexible 2017, including the acquisition of EagleClaw investment structures, conservative use of KKR: healthcare fund held a final close in Midstream Ventures in the Permian’s Dela- November leverage and an intensive focus on growth,” ware Basin in West Texas, which the firm said Susannah Carrier, managing director purchased for about $2 billion through its HEALTHCARE PRIVATE and global head of fundraising and investor flagship fund and its energy-focused fund. EQUITY FIRM The investments are “consistent with our OF THE YEAR view of significant growth in US natural gas production volumes – not necessar- 1. KKR ily higher gas prices – in the future”, said 2. Summit Partners David Foley, chief executive of Blackstone 3. Waud Capital Energy Partners, the energy-focused pri- KKR successfully raised its debut healthcare growth fund, KKR Health Care Strategic Smarter solutions: Silver Lake is the world’s Growth Fund, in 2017, holding a final close largest technology-focused PE firm on $1.45 billion at the end of November. But it’s no foreigner to the space. The New relations. The Menlo Park, California-head- York-based alternative asset manager, which quartered firm, which now has $39 billion also has offices in Menlo Park, California, in combined assets under management and has been investing globally in the health- committed capital, also completed several care sector for more than 20 years, having deals, including a $500 million investment deployed about $12 billion across private in finance company SoFi. markets often directly from its balance sheet. It also made a slew of investments CONSUMER PRIVATE in 2017 including Cerêve, which makes EQUITY FIRM devices to fight insomnia, and has created OF THE YEAR

Blackstone: cooking with gas a new platform, Ajax Health, which sources and provides operational and financial capa- 1. L Catterton vate equity business of Blackstone. “In a bilities to a diversified portfolio of emerging 2. Ardian year when the public equity markets did medical device companies. 3. Sycamore not favour midstream master limited part- nerships, we were successful in investing TECHNOLOGY PRIVATE More than a year after Catterton partnered approximately $2 billion equity in three new EQUITY FIRM with LVMH and Groupe Arnault to create L natural gas-focused midstream investments, OF THE YEAR Catterton, the firm has been running at full two of which were in partnership with large speed and now has more than $14 billion public midstream companies, Grand Prix 1. Silver Lake of equity capital across six fund strategies. with Targa and Rover with Energy Trans- 2. Vista Equity Partners After closing on $4.2 billion in capital in fer,” he said. 3. Providence Equity Partners 2016, the firm continued its fundraising ››

40 private equity international annual review 2017

PEI AWARDS GLOBAL

31 December 2017 the team, led by head IMPACT INVESTMENT of private equity Joe Baratta (pictured), had FIRM OF THE YEAR deployed $1.4 billion into two investments last year: music rights business SESAC and 1. TPG online education business Ascend Learning. 2. LeapFrog 3. Bain Capital FRONTIER MARKETS L Catterton: acquisitions include high-end gyms FIRM OF THE YEAR TPG’s debut impact fund hit its $2 billion hard-cap in ›› efforts last year with L Catterton Asia 1. Actis October after launch- III, which is seeking $1.25 billion, and L 2. LeapFrog ing at the end of Catterton Europe IV, which has a target 3. The Abraaj Group 2016. As of January, of €500 million. On the deal side, the firm the Rise Fund had invested $2.3 billion in 26 consumer busi- Frontier markets can be tricky to navigate. done about half a ness across North America, Latin America, Actis blazed a trail last year with $830 mil- dozen investments, Europe and Asia, including the acquisition lion deployed in markets such as Africa including Dodla of high-end gym Equinox and Leslie’s, a and Latin America as of November. The Dairy, a dairy company retailer and online marketer of swimming London-headquartered firm made waves in aimed at reducing poverty in pool and spa supplies and services. It also Latin America with the launch of renew- India. Focused on making measurable social had 17 exits and recaps totaling more than able energy platform, Atlas Renewable and environmental improvements without $1 billion. Energy, which is targeting over 1.5GWs of compromising on returns, Rise has devel- installed solar capacity across the region. oped its own impact multiple of money, LONG-TERM PRIVATE Actis also expanded its footprint in Brazil which determines how much net positive EQUITY FIRM by establishing wind platform Echoenergia. value is being created, and hopes the work it OF THE YEAR In Africa, Actis has created a $275 million is doing in impact investing will eventually higher education platform which spans nine set a standard for the industry. “It was a big 1. Blackstone countries. The Honoris United Universities investment to create this approach, and this 2. CVC Capital Partners group brings together private universities is one of the contributions that we feel as 3. Cove Hill Partners and colleges in 48 campuses in 30 cities in a larger fund we can make to the industry,” Africa, targeting the rapid growth in inter- said Maya Chorengel (pictured), Rise Fund This year we are recognising the emergence est in education. senior partner. n of a new breed of private equity fund. The field of long-term funds includes estab- lished franchises, like our inaugural winner, and new entrants, like third placed Bain Capital spin-out Cove Hill Partners. Black- stone, which takes the crown, is investing its $4.76 billion 20-year Blackstone Core Equity Partners fund – currently the largest dedicated long-term fund in the market. It is relatively early days for the strategy: as of Actis: education is a growth sector in Africa

42 private equity international annual review 2017 PEI AWARDS EMEA

LARGE-CAP FIRM OF THE YEAR IN EUROPE

1. CVC Capital Partners 2. Advent International 3. Apax Partners

Was it ever in doubt? Well, maybe. Having been unseated in 2016 by EQT, CVC Capi- tal Partners has returned, edging out rival Advent International, to claim the honours at the large end of the European market. Doubtless helped forward by its monstrous fundraise for Fund VII (see details in the Fundraise of the Year category), the firm Timely deal: the Breitling acquisition helped CVC claim the honours also notched a series of smaller wins in the “business as usual category”. The firm deployed around €5 billion across 13 new billion in proceeds across its exits. “2017 professionals in two investments, including the £3 billion take was another successful year for Equistone – offices, with teams private of payments business Paysafe along- one in which we continued to deploy capi- dedicated to prima- side Blackstone, the acquisition of Swiss tal across our target markets amid ries and co-invest- luxury watchmaker Breitling for growing competition and to ments. In 2017 the an undisclosed amount and realise strong returns for team put €4.5 billion a $703 million carve-out of our investors,” said Guil- to work through funds women’s health products laume Jacqueau, pic- and co-investments. It is a from Israeli pharma giant tured, managing partner scale player – individual fund commitments Teva. The firm also sold its and Paris office head. If can range up to €1 billion – and is regarded majority stake in Ista, one its sale of French retailer as one of the industry’s more sophisticated of the world’s leading energy Meilleurtaux is anything to investors. GPs wanting to get APG on board efficiency service companies, to go by (the deal was selected by need to know it is serious about ESG issues: Cheung Kong Property Holdings Limited. readers as Exit of the Year in Europe), APG asks partners to provide detailed ESG 2018 will be yet another successful year disclosure through a reporting framework MID-MARKET FIRM OF for the firm. it developed with other LPs. Its ESG head THE YEAR IN EUROPE – Marta Jankovic (pictured) – is now also LIMITED PARTNER OF chair of industry body InvestEurope. 1. Equistone Partners Europe THE YEAR IN EUROPE 2. Partners Group DEAL OF THE YEAR 3. IK Investment Partners 1. APG Asset Management IN EUROPE 2. Stonehage Fleming Firm of the Year in France in 2014, Firm 3. ATP Private Equity Partners 1. Bain Capital Private Equity and of the Year in Germany in 2016, and now Cinven for Stada scooping the award in Europe in the mid- Pension-owned APG Asset Management is 2. HgCapital and others for Visma market category. Not surprising for Equis- an investment giant; the 700 staff at the 3. BC Partners and Pollen Street tone Partners Europe – the firm made organisation invest €469 billion of Dutch Capital for Shawbrook Bank seven investments last year across France, pension fund money. The investor launched Germany, the Netherlands, Switzerland its in-house private equity programme In what was Europe’s largest buyout in four and the UK and generated around €1.3 in 2013 and now has 23 investment years, Bain Capital Private Equity and ›› annual review 2017 private equity international 43 PEI AWARDS EMEA

from €16 million and upon exit the deal generated an 8.2x return and a whopping gross internal rate of return of 70 percent. The win in this category – Equistone’s first – no doubt contributed to readers also deeming the firm Mid-Market Firm of the Year in Europe, beating the likes of Partners Group and IK Investment Partners. With five other exits recorded last year, it’s clear Equistone is on a roll.

FUNDRAISE OF THE Hard to swallow: Stada acquisition was ‘by no means straightforward’ YEAR (EMEA)

›› Cinven partnered to acquire Stada, the EXIT OF THE YEAR 1. CVC Capital Partners listed German manufacturer of generic IN EUROPE 2. HgCapital copies of drugs such as Viagra. The deal 3. Waterland Private Equity was “by no means straightforward”, 1. Equistone Partners Europe for Investments according to Supraj Rajagopalan, a partner Meilleurtaux at Cinven who leads the healthcare and 2. Magnum Partners for Iberchem CVC Capital Partners held a ‘one-and- business services teams. The nail-biting 3. Nordic Capital for Tokmanni done’ on the largest euro- contest hit several speedbumps, includ- denominated fund in ing counterbids from Permira and Advent European M&A activity slipped last year by private equity history International as well as not enough share- almost 20 percent with just over $1 trillion in June 2017: the €16 holders accepting the initial offer. Bain and recorded across 8,188 deals, according to billion CVC Capital Cinven eventually emerged victorious with data from PitchBook. Declining volumes Partners VII. And Stada agreeing to the group’s €4.1 billion did little to thwart Equistone Partners it could have raised bid. If their 2017 activity is anything to go Europe’s exit activity – the firm began its that amount twice by – Bain was one of the top three larg- year with a splash with the February sale over. The fund officially est deployers of private equity capital in of French retail financial services broker launched in January with a Europe while Cinven sold stakes in at least Meilleurtaux to Goldman Sachs. Between €12.5 billion target. A month later the six assets including Visma – 2018 may be acquiring the asset in 2013 to exit last year, firm held two due diligence weeks – one an even bigger year for the buyout giants. Meilleurtaux’s revenues grew to €50 million at the Savoy Hotel in London and one at the Park Hyatt in New York – where its investment professionals from around the world gathered to answer investors’ questions. All in all, CVC held more than 1,500 LP meetings over the five-month fundraising, including those conducted during the two due diligence weeks. The fund received €30 billion-worth of inter- est from LPs despite offering no early-bird discount and lowering its hurdle rate to 6 percent. It also marked the last involve- ment for one of the firm’s long-time IR partners Mark St John (pictured), who will Meilleurtaux: sale generated an 8.2x return retire from the firm in 2018. ››

44 private equity international annual review 2017 PROVIDING LIQUIDITY SOLUTIONS THROUGH PARTNERSHIP INVESTING

Black Toro Capital is honored to be named Iberian Private Equity Firm of the Year for the second year in a row. BTC would like to thank its supporters and all stakeholders for this award.

Black Toro Capital Fund is focused on the stabilization and growth of mid-sized companies in Spain and Southern Europe. Since 2014 BTC has invested into market leaders: Carbures Europe: a leading composite materials producer for the aerospace and automotive. Torrot-Gas Gas: Spain’s leading interconnected electric mobility platform through manufacturing of Torrot’s electric scooters and Gas Gas’s off-road motorcycles. Farggi-La Menorquina: Spain’s largest premium and impulse ice cream manufacturing company and number 4 in sales behind Unilever and Froneri. Marypaz: Spain’s largest woman’s shoe’s retailer. ADL Biopharma: Southern Europe’s largest CDMO fermentation & API facility. Irestal Group: Stainless steel distributor with over 14,000 customers in Europe. Papeles el Carmen: Specialized in innovative flexible packaging solutions. Bultaco: Historical motorcycle brand focused on e-motorcycles and Amichi: Historic womens fashion.

www.blacktorocapital.com Barcelona | Madrid | London | Luxemburg PEI AWARDS EMEA

SECONDARIES DEAL OF – and set in motion the launch of an $8 bil- those that are struggling. THE YEAR IN EUROPE lion mature secondaries fund for the second “We continue to see half of 2018. It was also very active on the strong interest in the 1. AlpInvest Partners, sell-side, offloading $1 billion of pre-crisis market in 2018, both Landmark Partners, stakes to CPPIB and around $1.5 billion in private equity and Lazard for Investindustrial of stakes to Strategic Partners across two infrastructure oppor- 2. Lexington Partners and Campbell transactions. tunities, and we are Lutyens for BC Partners focused on maintaining 3. Ardian, Campbell Lutyens for SECONDARIES ADVISOR our flexible approach, work- Mubadala OF THE YEAR IN EUROPE ing with both GPs and LPs across a wide range of mandates,” said partner Thomas AlpInvest Partners and Landmark Partners 1. Campbell Lutyens Liaudet (pictured). were rewarded for their role in one of the 2. Credit Suisse more unusual secondaries deals of the 3. Lazard FIRM OF THE YEAR year. It involved southern-Europe-focused IN AFRICA Investindustrial raising a fund to buy €750 Few have done as much to promote the million of assets from its own 2008-vin- use of GP-led transactions as Campbell 1. Actis tage vehicle. Believing that there was still Lutyens. While North America was big on 2. Apis value in the fund the firm transferred six volume, it was Europe that led the way 3. AfricInvest assets into the new vehicle, a move that on innovation, due in no small part to the effectively amounted to a 10-year exten- secondaries advisor’s influence. In April, Africa is by no means a one-speed conti- sion on the original vehicle. It was partly the firm worked on the largest-ever sta- nent. Actis made strides in connecting its a response to increased competition from pled secondaries transaction, a $2.5 billion many diverse markets, cultures and lan- sovereign wealth funds, who can leave assets deal involving Ardian’s 2015-vintage ASF VII guages with the launch of Africa’s first pri- to mature for longer. AlpInvest became the fund and Abu Dhabi sovereign wealth fund vate higher education network in 2017. The majority LP in the new fund, with Land- Mubadala. Then in September, it managed a firm built on two previous education acqui- mark also backing the process. The innova- deal that saw BC Partners, one of Europe’s sitions with deals for Moroccan engineer- tive structure was formulated by secondar- biggest private equity houses, run a process ing school Ecole Marocaine des Sciences de ies advisor Lazard. on its ninth fund and use a staple to help l’Ingénieur, as well as Management College raise its €7 billion 10th fund, making it of Southern Africa and REGENT Business SECONDARIES FIRM OF clear that GP-led processes are not just for School in South Africa. Honoris United ›› THE YEAR IN EUROPE

1. Ardian 2. HarbourVest Partners 3. AlpInvest Partners

Ardian continues to tower over the rest of the secondaries market. According to the SI 30, an annual survey published by sister publication Secondaries Investor, Ardian raised $31.6 billion in the five years leading up to August 2017, compared with $16.8 billion for second-placed Blackstone. Last year saw it participate in the largest stapled deal of all time – a $2.5 billion transaction involving sovereign wealth fund Mubadala Africa: by no means a one-speed continent

46 private equity international annual review 2017 We’re privileged to have been recognised by our investors, partners and industry peers THANK YOU

Europe is a global leader in the development of environmental solutions, pioneered by private companies whose products and services are increasingly in global demand and supported by indisputable long-term drivers.

A leading European private equity fund, Ambienta is focused on industrial growth investing in companies driven by environmental trends. With over €500 million in assets under management, we have the world’s largest capital pool for this strategy, supporting niche leading European businesses to develop into sustainable industry champions.

MILAN,2007-2017 LONDON, DÜSSELDORF [email protected]

pagina Ambienta.indd 3 09/02/18 17:02 PEI AWARDS EMEA

›› Universities – which is led by chief executive Luis Lopez – spanned 27,000 students on 48 campuses, learning centres and online, in nine countries and 30 cities across Africa.

FIRM OF THE YEAR IN BENELUX

1. Waterland Private Equity Investments 2. Gilde Equity Management 3. Main Capital Partners Apax Partners MidMarket team: prepared to jump into less familiar territory Buy-and-build specialist Waterland was in demand last year, raising €2 billion for its have finally imposed itself on the global of previous investors also returned for the seventh vehicle less than two months after stage. Mid Europa, which also took the CEE vehicle. Apax later ventured into less famil- its launch. “[Waterland] is the only GP in honours in last year’s awards, has picked up iar territory. It jumped into the small cap our portfolio where we have re-opted five where it left off, inking a number of sig- space with the acquisition of French private times,” Torben Vangstrup, managing part- nificant transactions and, PEI understands, equity firm EPF Partners, which it renamed ner at ATP PEP, told Private Equity Inter- started fundraising for its fifth fund seeking Apax Partners Development. Another nod national after the close. “I have seen €800 million. Among the high- to the future was its appointment of Micro- other buyout groups doing some lights from the firm’s year soft’s former head of MSN France, Gregory buy-and-build work, but I have were its sale of Zabka, Salinger, as chief digital officer. never seen it done as consist- the leading convenience ently and systematically as store chain in Poland, FIRM OF THE YEAR Waterland has been able to to CVC Capital Part- IN GERMANY do over the years.” Waterland’s ners in what the firm commitment to the strategy is described as the largest 1. Deutsche Beteiligungs evident from its activity last year; private equity exit ever in 2. 3i Group it made a flurry of bolt-on and plat- the region. The firm is led by 3. Equistone form investments and opened a new UK Robert Knorr and Matthew Strassberg office in February. (pictured). It’s fair to say that private equity is cur- rently a seller’s market. Few managers FIRM OF THE YEAR FIRM OF THE YEAR have provided better evidence of this than IN CEE IN FRANCE Deutsche Beteiligungs. The German firm completed five disposals within the space 1. Mid Europa Partners 1. Apax Partners MidMarket of only a few months last year, according to 2. Abris Capital Partners 2. Equistone its 2016-17 annual report. Together these 3. Enterprise Investors 3. Omnes Capital sales generated an average sale multiple of 3.8x; well above the long-term average. It is a good time to be the dominant force in Last year was a mix of old and new for Apax It’s no surprise the firm was hungry for CEE private equity. In a watershed moment Partners MidMarket. The firm smashed its more deals. Deutsche Beteiligungs invested from last year’s PEI awards, a Polish trans- €750 million target to raise €1 billion for around €63 million from its balance sheet action – one led by Mid Europa Partners Fund IX, having secured 84 percent of its alone in 2016-17, around two-thirds more – was voted European Deal of the Year. It commitments from existing LPs in euro than the average amount invested over the seemed like the appeal of the region may terms and 69 percent by number. A number last five years.

48 private equity international annual review 2017 PRIVATE EQUITY FIRM OF THE YEAR IN BENELUX 2017

SUPPORTING AMBITIOUS ENTREPRENEURS AND PURSUING ACCELERATED GROWTH THROUGH BUY & BUILD AND SYNERGETIC TEAMWORK

WE ARE HONOURED TO BE RECOGNISED BY OUR INVESTORS, OUR PARTNERS AND OUR INDUSTRY PEERS.

WATERLAND.NU PEI AWARDS EMEA

FIRM OF THE YEAR ‘win-win’ of private equity. Last year, more striking given that Actis had taken on IN IBERIA Ambienta proved that responsible invest- the family business at the height of the Arab ing can go hand in hand on growth. The Spring. The firm was also active in Morocco. 1. Black Toro Capital Milan-headquartered manager completed Honoris United Universities – a pan-African 2. CVC Capital Partners three primary acquisitions and sold Ital- education network launched by Actis in 2017 3. Magnum Partners ian manufacturer IP Cleaning Group to – bolstered its North African presence with Tennant Company for €330 million in the acquisition of Ecole Marocaine des Sci- April, having invested just €50 million ences de l’Ingénieur, the country’s largest three years prior. Ambienta’s ownership private education institution. had seen IPC save 73,000 cubic meters of water and cut detergent usage by 2,200 FIRM OF THE YEAR tons in 2016 alone. “[This award] rein- IN THE NORDICS forces our core principle that the way to drive sustainable value is through invest- 1. EQT ing in companies driven by environmental 2. Nordic Capital trends,” Nino Tronchetti Provera, founder 3. HgCapital and managing partner, said. The Nordic region is well-known for its less Sweet deal: Black Toro tasted success in the ice cream market FIRM OF THE YEAR than temperate climate, but EQT showed no IN MENA sign of feeling the chill in 2017. The Swed- Black Toro Capital is a fitting name for the ish firm started the year strong with a final Spanish firm. A number of impressive deals 1. Actis close for its EQT Mid Market Europe fund last year suggest the special situations man- 2. Investcorp at its €1.6 billion hard-cap in May. The same ager was more than a little bullish about its 3. Gulf Capital month was capped by its sale of business domestic market. Among the sweetest deals intelligence company Bureau van Dijk at a was a €40 million investment in ice-cream Investors in North Africa and the Middle 3x multiple. It would come to be a heated manufacturer Farga Group, owner of the East have had to contend with a degree of year of fundraising for EQT; the firm began Farggi ice cream brand. The transaction saw political and economic upheaval in recent marketing for Fund VIII in September and Farga acquire rival La Menorquina’s Iberian years. Actis appears to have taken these issues was said to be racing towards its €10.7 bil- production unit and distribution network in its stride; a particular highlight was the lion hard-cap in December. “They are having from its founder-owner, creating one of 2.5x return it generated through an initial their arm bitten off,” said one member of Europe’s biggest ice cream producers in the public offering of North African snack food the investment advisory community on the process. Other notable deals included Black business Edita. Such performance was all the sidelines of a recent event in London. Toro’s second investment into Seville-based fashion retailer Marypaz, which is among FIRM OF THE YEAR the largest in Spain, and an investment in IN SWITZERLAND biopharmaceutical company Bionaturis. 1. Partners Group FIRM OF THE YEAR 2. Capvis IN ITALY 3. Ace & Company

1. Ambienta Partners Group is flying the flag for Swiss 2. Clessidra private equity on both the primary and sec- 3. Quadrivo ondaries side. As of June 2017 the firm has over €57 billion in assets under management,

Environmentally friendly deals which gen- Rising dough: Egyptian snack foods business 17 percent of which comes from clients erate attractive returns are the ultimate Edita generated 2.5x return based in its home market. Last year saw it

50 private equity international annual review 2017 PEI AWARDS EMEA

were oversubscribed. Alongside this, the firm invested around $1 billion through 14 co-investments and $552 million into EMEA-focused secondaries transactions. While the firm is rooted in Boston – it cel- ebrated its 35th anniversary in 2017 – its team in Europe, which is led by Pete Wilson (pictured), has been operating from London since 1990.

PLACEMENT AGENT OF THE YEAR IN EUROPE

1. Rede Partners 2. Campbell Lutyens

Nordic bright spot: EQT had a stellar year 3. MVision Private Equity Advisers raise €3 billion for its Partners Group Direct its final shares in global payments business Fundraising for private equity vehicles hit Equity 2016 fund along with an additional WorldPay in February. “We have been active a decade-long high last year with at least €3 billion to go towards direct private equity in the market for over 30 years and last year $411 billion amassed in final closes. London- investments. The fund will target the mid- deployed a record amount of capital in a headquartered Rede Partners was the driv- market, along with select large-cap invest- number of exciting UK-based international ing force behind many of the year’s headline ments, and will follow its tried-and-tested businesses,” James Brocklebank, managing fundraises in Europe, helping amass more strategy of identifying trends in a sector and partner, said. than €12 billion of primary capital for 10 picking the companies best placed to ben- clients including Alchemy, FPE and Summa efit from them. The firm’s existing direct FUND OF FUNDS Equity. Rede was also behind HgCapital’s private equity portfolio has recorded com- MANAGER OF THE YEAR double fund close on more than £3 bil- pound annual revenue growth rates of 15 IN EUROPE lion ($4.3 billion; €3.4 billion) and Apax percent and EBITDA growth of 19 percent France IX which raised €1 billion. Credit since 2014. 1. HarbourVest Partners Suisse’s chief operating officer for EMEA 2. LGT Capital Partners M&A Mark Barbour-Smith joined as chief FIRM OF THE YEAR 3. AlpInvest of staff. Rede takes its name from a word IN THE UK which means “to counsel or advise” and it’s There is much more to being a successful clear “to lead” is also part of the firm’s DNA. 1. Advent International fund of funds manager than just manag- 2. Livingbridge ing funds of funds. A look at HarbourVest LAW FIRM OF THE 3. Vitruvian Partners’ activity in 2017 gives a sense YEAR IN EUROPE of the diversity of skills required to (FUND FORMATION) Advent International has enjoyed its complement and enhance most active year in the UK for a firm’s ability to access 1. Debevoise & Plimpton over a decade. The firm com- the right funds when 2. Goodwin Procter pleted three acquisitions in the demand is through 3. Simpson Thacher & Bartlett UK, including the take-private the roof. Harbour- of industrial maintenance dis- Vest committed $821 One of the law firms in Europe spearhead- tributor Brammer Limited in million to European ing the surge in fundraising towards pre- February. These were accompanied private equity funds in crisis highs is Debevoise & Plimpton. This by two exits; most notably the sale of 2017, 70 percent of which is the first time the firm has won in this ›› annual review 2017 private equity international 51 PEI AWARDS EMEA

›› category in Europe, having clinched top place for fund formation in Asia in 2013 and North America in 2012. Some of the firm’s highlights in the region last year include advising London- based Metric Capital Partners on the first and final close of its Fund III on its €850 million hard-cap, and the hire of King & Wood Mallesons’ co-head of funds team Simon Witney in January. “Fundraising levels reached a high [since 2008] against a backdrop of ongoing regula- tory change, both for funds and their inves- tors,” said Geoffrey Kittredge (pictured), a Ares: many happy returns partner who leads Debevoise’s fund formation group. Blackstone, Carlyle, CD&R, Cinven, CVC theYear, the €750 million recapitalisation of “In that context, it Capital Partners, EQT, KKR, Partners Investindustrial’s 2008-vintage fund, which is perhaps more Group and Permira, to name just a few. was backed by AlpInvest and Landmark. important than With deals including CVC and Cinven’s Kirkland has 250 dedicated investment funds ever for funds and acquisition of NewDay as well as Permira, lawyers, including 86 partners, across North their advisors to stay Cinven and Mid Europa’s $3.3 billion pur- America, Europe and Asia-Pacific. engaged with indus- chase of Poland’s largest online marketplace try associations, regula- Allegro as some of its headline transactions LENDER OF THE YEAR tors, and government bodies last year, Clifford Chance has much to boast IN EUROPE to help chart a forward path for private funds about. Will they clinch the title again next in Europe.” year? A betting person would say yes. 1. Ares Management 2. ICG LAW FIRM OF THE LAW FIRM OF THE 3. Alcentra YEAR IN EUROPE YEAR IN EUROPE (TRANSACTIONS) (SECONDARIES) A decade after launching its direct business in Europe on the eve of the financial crisis, 1. Clifford Chance 1. Kirkland & Ellis Ares Management has completed more 2. Latham & Watkins 2. Clifford Chance than 130 investments totaling more than 3. Debevoise & Plimpton 3. Macfarlanes €10 billion. On the heels of raising €2.5 billion for its third European direct lend- With the exception of 2015 when King & In September 2016 Kirkland promoted Ted ing fund, Ares Capital Europe III, in 2016, Wood Mallesons usurped its stronghold on Cardos to partner and charged him with European direct lending was one of Ares’s the title, Clifford Chance has won in this leading the firm’s secondaries operation in most active investment strategies in 2017. category every year since the PEI Awards Europe. The firm had won that year’s award It provided €330 million loan financing to began in 2001. The reason? It works with for best secondaries law firm in Europe, so Dutch gaming company JVH, which Water- some of the biggest names in private equity the pressure was on to keep up the good land subsequently put up for sale in June. and on some of the largest deals. In 2017 work. The numbers speak for themselves. In In addition to Ares’ European direct the law firm advised private equity clients 2017, Kirkland & Ellis advised on $963 mil- lending team significantly increasing its on more than 40 deals representing a value lion of European secondaries portfolio trades assets under management, the strategy of over £28 billion ($38.9 billion; €31.9 and more than €1 billion-worth of GP-led also recognised a gross asset level realised billion) and worked with stalwarts of the processes. Among the many deals it worked IRR of 10.3 percent since inception as of industry including Advent, Apax Partners, on was our European Secondaries Deal of 30 September. n

52 private equity international annual review 2017 Leading buyout investor focused on the growth markets of Central and Eastern Europe

Mid Europa is an experienced investor in the region, working with local businesses which benefit from the region’s growth dynamics

We are honoured to be Private Equity International’s Readers’ Firm of the Year in CEE, for the sixth consecutive year

€4.6 billion Capital raised since inception 36 Investments completed to date 18 Countries invested in 4 Offices PEI AWARDS AMERICAS

LARGE-CAP FIRM OF THE YEAR IN NORTH AMERICA

1. Apollo Global Management 2. Clayton, Dubilier & Rice 3. The Carlyle Group

Who can raise $25 billion in less than a year? Apollo can, with investors entrusting capital to the manager even before a target was set. On the investment front, Apollo deployed $5 billion in private equity last year and committed a further $2.6 billion. This includes the take-private of telephone conferencing services provider West Corp Oak Hill: driving up returns with Checkers & Rally’s in a transaction valuing the business at $5.1 billion, teaming up with Ontario Teachers’ Pension Plan to acquire a majority stake in job portal CareerBuilder, and the $1.1 billion take-private of gulf club operator Club- Corp. Towards the end of the year, Apollo hinted at a future suc- cession plan, naming Scott Kleinman (pictured) and James Zelter as co-presidents, in which capacity the pair will have full responsibility for the firm’s Bright spot: Alaska Permanent is rapidly gaining ground revenue-generating and investing busi- nesses. significantly surpassing both its $2 billion LIMITED PARTNER target and its $2.5 billion hard-cap (includ- OF THE YEAR MID-MARKET FIRM ing a $300 million GP commitment). As IN NORTH AMERICA OF THE YEAR well as more conventional LPs, the fund IN NORTH AMERICA attracted investment from current and 1. Alaska Permanent Fund former portfolio company management 2. University of California 1. Oak Hill Capital Partners teams. 3. Ford Foundation 2. New Mountain Capital On the transaction side, Oak Hill 3. Audax Group offloaded Wave Broadband to TPG in a The newest converts are often the most $2.4 billion deal and picked up several busi- zealous, and Alaska Permanent Fund is no It’s a first-time win for Oak Hill Capital nesses, including Checkers & Rally’s Res- exception. Partners, a firm with a family office herit- taurants. The firm also continued to build The $65 billion sovereign wealth fund age that makes a point of being the largest its senior advisor programme with the hire is a relative newcomer to private equity, investor in each of its funds. The firm closed of former FedEx Corporate Services CEO having only invested through two separately its fourth fund on $2.65 billion in 2017, T. Michael Glenn. managed accounts prior to the appointment

54 private equity international annual review 2017 PEI AWARDS

of Stephen Moseley as head of private NORTH AMERICAN EXIT even before a target was set, and the fund equity in 2013. OF THE YEAR attracted $30 billion in investor interest. In APFC is now making up for lost time; the end, the fund welcomed 350 distinct the fund committed $1.2 billion to funds 1. Oaktree Capital Management limited partners. As with all its predeces- and co-invested $200 million alongside for AdvancePierre Foods sors, Fund IX will invest across three broad sponsors last year alone. Its direct and co- 2. Berkshire Partners, ABRY Partners, areas – distressed-for-control, carve-outs invest portfolio netted a 9.7x cash-on-cash Pamlico Capital Management for and buyouts – and has the ability to tailor return through Celgene’s pending acquisi- LTS Group the asset mix depending on the investment tion of Juno Therapeutics. 3. Cerberus Capital Management climate. Due to come online imminently, “We spend more than half of our time for Bowlmor AMF the market is watching with keen interest on co-investments and direct investments to see where this capital is deployed. so we’re continually assessing the expected Oaktree invested $100 million to acquire return on both our time and our money,” Pierre Foods through bankruptcy in 2008, Moseley told PEI. and merged the business with Advance Food “Recent performance definitely sup- Co. and Advance Brands in September ports this approach.” 2010. When Oaktree listed the business in 2016, retaining a 42 percent share, the firm NORTH AMERICAN DEAL reportedly scooped a massive 17x money. OF THE YEAR The total return was bumped up to 23x with an IRR of more than 90 percent when 1. Blackstone for Aon Hewitt the company was acquired by Tyson Foods 2. Sycamore Partners for Staples in a $4.2 billion take-private. 3. Apollo Global Management for “Clearly, one of the all-time great pri- West Corp vate equity investments and certainly the standout in the history of Oaktree, it’s even Apollo: eclipsing the rest Blackstone agreed to pay up to $4.8 bil- more astounding to note that this is not lion for Aon’s tech-enabled benefits and a high-tech company, but a prosaic food SECONDARIES FIRM human resources platform, the largest of producer and distributor,” co-chairman and OF THE YEAR its kind in the US serving approximately chief investment officer Bruce Karsh said IN THE AMERICAS 15 percent of the US working population on the firm’s first-quarter earnings call in across more than 1,400 companies. Black- April. 1. AlpInvest Partners stone relaunched the company as Alight, 2. Landmark Partners and has partnered with management to FUNDRAISE OF THE 3. Lexington Partners invest into new products and services as YEAR (AMERICAS) well as pursuing add-ons to build on its Last year was a record one for secondaries core benefits administration platform, 1. Apollo Global Management fundraising and AlpInvest played no small accelerate growth in its cloud deploy- 2. Silver Lake part, hitting a $6.5 billion final close on ment and services business and enter key 3. Bain Capital Private Equity its sixth secondaries programme. The $3.3 strategic adjacencies. billion dedicated commingled secondar- “We saw Alight as a tremendous oppor- Apollo Global Management’s ninth flagship ies vehicle AlpInvest Secondaries Fund VI tunity to invest in a highly attractive busi- fund will go down in private equity history. was almost four-and-a-half times the size ness with strong margins and cash flow, In less than a year the firm raised almost of its previous dedicated fund. The fund with the opportunity to accelerate growth $25 billion for Fund IX, shattering the has committed to 12 transactions since in multiple vectors by investing in next gen- record for the largest-ever private equity it began deployment in September 2016, eration technology and driving increased fund set by the $21.7 billion Blackstone more than half of which were GP-led deals. innovation,” said Peter Wallace, a senior Capital Partners V back in 2007. Investors “One of the biggest challenges was getting managing director. entrusted their capital to the manager the AlpInvest brand known in the LP ›› annual review 2017 private equity international 55 PEI AWARDS AMERICAS

›› market,” the firm’s secondaries head helped a lot of that happen, proving to be in this way will depend on broader market Wouter Moerel told PEI in December. They among the busiest in North America last conditions. know now. year. In March it helped Ardian offload a “[If] a recession happens in the next portfolio of more than $1 billion in pre- four years, it will be something we can also SECONDARIES DEAL crisis stakes to Canada Pension Plan Invest- take advantage of in Fund IX in terms of OF THE YEAR ment Board. It also helped struggling Dallas that prowess,” co-founder Leon Black said IN NORTH AMERICA Police and Fire Pension System execute on the firm’s second-quarter earnings call multiple stake sales as it looked to gener- in August, “but if it doesn’t happen, we’re 1. Landmark Partners for ate cash flows from its illiquid portfolio. confident from what we were able to do in Clearlake Capital With a couple of big deals already in the Fund VIII that we can continue to do that 2. CPPIB, Evercore for Ardian pipeline, including Alaska Permanent Fund’s in Fund IX.” portfolio sale sale of $1 billion of stakes, 2018 is set to On the investment side, Apollo teamed 3. Coller Capital and UBS for Avista be just as busy. up with GSO Capital Partners to acquire Capital stapled deal Mood Media and provided $800 million in DISTRESSED DEBT debtor-in-possession financing to Westing- Preferred equity was a key theme in the INVESTOR OF THE YEAR house Electric Company. secondaries market last year, with 17Capital IN NORTH AMERICA raising more than €1 billion in record time FIRM OF THE YEAR and Whitehorse Liquidity Partners closing 1. Apollo Global Management IN CANADA its debut fund above target on $400 million. 2. Oaktree Capital Management Few secondaries generalists have embraced 3. GSO Capital Partners 1. Bain Capital Private Equity preferred equity as wholeheartedly as 2. Whitehorse Liquidity Partners Landmark, with such deals accounting for Investors clearly have confidence in Apollo’s 3. Onex nearly a quarter of invested capital from its distressed investing capabilities. Pension 2008-vintage Fund XV. In April last year, fund documents during its latest fundrais- The initial public offering of luxury parka the firm used the fund to help Clearlake ing indicated Apollo was intending to invest maker Canada Goose in March on the New Capital, a West Coast lower- and mid-mar- up to a quarter of its mammoth $25 billion York Stock Exchange and the Toronto Stock ket private equity firm, purchase Reservoir Fund IX in distressed debt opportunities, Exchange was one of the biggest of the year, Capital’s stake in its own GP management compared to less than 5 percent in Fund a success for Bain Capital, which purchased company. The stake represented around a VIII. Investors were clearly in favour, with a majority stake in the company in 2013. 20 percent stake in Clearlake, sister pub- demand reaching $30 billion. Whether Canada Goose could be the gift that keeps lication Secondaries Investor reported at the Apollo sticks to the plan to invest Fund IX on giving, as Bain has sold only a minority time. Around a third of voters threw their backing behind the deal.

SECONDARIES ADVISOR OF THE YEAR IN THE AMERICAS

1. Evercore 2. Credit Suisse 3. Park Hill

According to a report published by Ever- core, 2017 saw record secondaries market transaction volumes of $54 billion, $17 bil- lion up on 2016. The advisory firm itself In distress: ready for the downturn

56 private equity international annual review 2017 PEI AWARDS AMERICAS

investments. It also committed $1.7 billion to 31 funds, deployed $1.4 billion of US co- investment capital and $1.3 billion of US secondary capital. To top it off, HarbourVest closed its fourth co-investment fund on its $1.75 billion hard-cap. “Both public and private markets were incredibly robust in 2017, which made for an active year in private equity,” said manag- ing director John Toomey (pictured). “As a result, we saw commitments from more than 100 new investors globally who turned to HarbourVest for access to not only fund Bain Capital: golden eggs of funds, but also secondary, co-investment and bespoke SMA solutions.” of its shares in the IPO and hasn’t pocketed Advent also purchased a minority stake its full return yet. in Estácio Participações, the second-larg- PLACEMENT AGENT “We look for great companies with est post-secondary education company in OF THE YEAR strong brands, a great consumer proposi- Brazil, building off its prior success with IN NORTH AMERICA tion and strong management teams who Kroton Educacional. are looking for partners who can help them The firm also generated $1 billion in 1. Eaton Partners grow and expand, whether that’s into new realisations from eight companies, includ- 2. Park Hill markets, new product categories or other ing pending deals, breaking previous years’ 3. Credit Suisse strategies,” said Ryan Cotton, managing figures. “These results underscore the director at Bain Capital Private Equity. effectiveness of our strategy, which com- Eaton Partners helped bines deep sector expertise, local market raise nearly $11 bil- FIRM OF THE YEAR knowledge and a collaborative, operational lion in aggregate IN LATIN AMERICA approach to building value in companies.” globally in 2017, including seven funds 1. Advent International FUND OF FUNDS that hit their hard-cap 2. Actis MANAGER OF THE YEAR or were oversubscribed. 3. Nexxus Capital IN NORTH AMERICA In North America, the place- ment firm, which was started in 1983 Advent International invested nearly $1 1. HarbourVest Partners by Charlie Eaton (pictured), placed or billion last year in Latin America, ventur- 2. Adams Street Partners arranged about $5 billion. ing into new markets not explored before. 3. Hamilton Lane The firm also bulked up its workforce, “2017 was a record year for Advent forming a team dedicated to direct capital in Latin America in terms of both capi- Boston-headquartered HarbourVest Part- raising and hiring managing director Bill tal deployed and realisations,” said Patrice ners knocked last year’s winner Adams McLeod as part of the team. It also hired Etlin, a managing partner at Advent Street Partners off the top spot to five more people in the rest of the business, International in Sao Paulo. “We claim the crown, which it has including a managing director. invested over $700 million in now held no less than nine Two years after being acquired by mid- seven new deals and add-on times. In 2017 the firm raised market investment bank Stifel Financial, acquisitions, including our $5 billion for fund of funds, Eaton Partners continues its growth plan, first direct investments ever both commingled and sepa- opening offices in San Francisco and in New in Peru and Chile, GMD and rate accounts, $1.8 billion of York in 2017, following a new Chicago out- Enjoy, respectively.” which was for US primary fund post in 2016. ›› annual review 2017 private equity international 57 PEI AWARDS AMERICAS

LAW FIRM OF THE YEAR LAW FIRM OF THE YEAR leads Kirkland’s secondaries practice, said: IN NORTH AMERICA IN NORTH AMERICA “With respect to secondary transactions, (FUND FORMATION) (TRANSACTIONS) Kirkland’s goal is not only to provide high- quality legal services to our clients, but to 1. Debevoise & Plimpton 1. Kirkland & Ellis be a thought-leader in this market segment.” 2. Simpson Thacher & Bartlett 2. Simpson Thacher & Bartlett In 2017, across all markets, Kirkland 3. Linklaters 3. Dechert was involved in more than $12.9 billion of secondaries transactions, including 61 Debevoise & Plimpton knocked last year’s Kirkland & Ellis worked on more than 200 secondaries portfolio sales for an aggregate winner Proskauer off the top spot to claim deals and on some of the largest transactions of $6.1 billion of transaction value. the crown for fund formation law firm of in the region last year, including Blackstone’s the year on the back of a string of impres- $6.1 billion acquisition of TeamHealth Hold- sive fundraisings. ings, a physician services organisation, and The jewel in the crown on the private Pamplona Capital Management’s acquisi- equity side was the $10 billion Clayton, tion of global biopharmaceutical provider Dubilier & Rice Fund X, which attracted Parexel International for about $5 billion. more than $20 billion in investor demand. It also advised on one of the most contrar- The firm also worked with Stone Point ian transactions of 2017: Sycamore Partners’ Capital in the formation of the $5.5 bil- acquisition of Staples, for $6.7 billion. lion Trident VII buyout fund, advised “Dealflow in 2017 remained very robust, HarbourVest Partners on its $1.9 billion which required us to utilise both our depth Global Investment Program and $1.75 bil- and breadth of experience – which is unique On its own: Ares targets less crowded markets lion co-investment fund, mid-market firm given the size of our practice and the number One Equity Partners on its $1.65 billion of deals we handle – to help both long-term LENDER OF THE YEAR Fund VI, and Morgan Stanley Investment clients and new clients execute important IN NORTH AMERICA Management with the formation of North transactions,” said Jon Ballis, a corporate Haven Capital Partners VI, which raised partner and member of Kirkland’s global 1. Ares Management more than $1.5 billion. management executive committee. 2. KKR 3. Golub Capital LAW FIRM OF THE YEAR IN NORTH AMERICA It was a big year for Ares Management. (SECONDARIES) In January, it acquired American Capital, bringing its BDC’s assets under manage- 1. Kirkland & Ellis ment to more than $12 billion. It also raised 2. Proskauer $3.4 billion for its junior lending fund, sur- 3. Simpson Thacher & Bartlett passing the $2.5 billion target for its first vehicle for the strategy. Ares Private Credit In North America, Kirkland & Ellis’s name Solutions will allow the firm to boost its pops up on many of the most prominent deal activity in the upper mid-market. secondaries deals to have taken place last “A big part of why we raised this fund was year. It worked on our American Deal of the to migrate ‘upmarket’ into larger companies, Year, Clearlake’s acquisition, using preferred where we continue to bring private capital equity financing, of a stake in its own GP. into a market segment that is less crowded It also dotted the i’s and crossed the t’s of from competition,” Jim Miller, a partner and the Warburg Pincus strip sale and the fund co-head of US direct lending for Ares, said

On a high: Debevoise & Plimpton helped recapitalisations carried out by tech-focused during the firm’s conference call for third- clients reach new heights in 2017 PE firm Vector Capital. Michael Belsley, who quarter earnings results in November. n

58 private equity international annual review 2017 PEI AWARDS ASIA-PACIFIC

LARGE-CAP FIRM OF THE YEAR IN ASIA

1. KKR 2. Baring Private Equity Asia 3. Affinity Equity Partners

A second large-cap title in a row for KKR, whose expertise in the region continues to be highly prized by LPs. It’s easy to see why – KKR amassed $9.3 billion in June against a $7 billion target for its third pan- Asia fund, the largest ever in the region’s 20-year private equity history. That fund will focus on cross-border deals, corporate carve-outs and the Asian consumer story. Highlights of the year also included 13 KKR: opened a Shanghai office to aid its expansion in China new investments across Japan, Australia, South-East Asia and India. In Japan alone, King in India and Indonesia and Domino’s Currently, CIC allocates approximately the private equity powerhouse sealed nearly Pizza. In 2017, Everstone, founded by Atul 40 percent of its $813 billion of assets to $6 billion worth of deals, betting big on the Kapur and Sameer Sain (pictured) in 2006, overseas investments. In line with this, CIC deal-making potential of the country. All made investments in two healthcare and teamed up with Goldman Sachs in November this, and an eighth office in Asia too: the wellness companies, and delivered four to raise a $5 billion private equity fund for firm opened its Shanghai office in August, successful exits to its LPs. During the year, US companies to tap the Chinese market. as it seeks to partner with more Chinese it also raised about $70 million for DSG The sovereign wealth fund is all about companies in their regional expansion. Consumer Partners, a consumer-focused “diversifying and not putting all its eggs in platform, which will back early-stage one basket”, CIC chairman Tu Guangshao MID-MARKET FIRM ventures in India and South-East Asia. said in Hong Kong in January. ›› OF THE YEAR IN ASIA LIMITED PARTNER 1. Everstone Group OF THE YEAR IN ASIA 2. Navis Capital Partners 3. Kedaara Capital 1. China Investment Corporation 2. Japan Post Bank For the second time in a row, Everstone 3. Government Pension has come out on top among mid-market Investment Fund firms in Asia. With $4 billion of assets under management and teams in India, At a time when many Chinese investors Singapore, London and Mauritius, are facing scrutiny on overseas investments, the firm is one of the largest China Investment Corporation continues to investment houses in the take a different path. The year’s top investor region. It’s also one of in Asia has been vocal about ramping up the top restaurateurs its direct investments in the US, especially in India and South-East in advanced manufacturing, technology Asia, as it continues healthcare and infrastructure, in a bid to

to extend the reach of diversify its portfolio amid low returns in CIC: teaming up with US firms to tap China’s portfolio companies Burger public markets. potential annual review 2017 private equity international 59

PEI AWARDS ASIA-PACIFIC

EXIT OF THE YEAR PAG completed the sale of Universal Studios IN ASIA Japan in February 2017 to Comcast NBC Universal, giving Comcast total ownership 1. PAG for Universal Studios Japan of USJ and valuing the theme park operator 2. Warburg Pincus for Vincom Retail at $7.5 billion. 3. LeapFrog Investments for Mahindra Insurance FUNDRAISE OF THE YEAR IN ASIA In one of this year’s tightest races, Asian stal- wart PAG pipped global rival Warburg Pincus 1. KKR and emerging markets specialist LeapFrog 2. Affinity Equity Partners to take top honours for its exit from Uni- 3. Asia Alternatives versal Studios Japan. PAG first invested in the Japanese theme park in 2013, when the When it comes to selecting the standout Bain: Toshiba chip business was Japan’s big- firm took a $250 million stake in the busi- fundraises of the year, size matters to gest PE deal in a decade ness alongside existing investors including voters in the PEI awards. When KKR majority owner Goldman Sachs, according to closed KKR Asian Fund III in June on DEAL OF THE YEAR media reports at the time. After a successful $9.3 billion it broke its own record for the IN ASIA run at the park driven in part by the open- largest private equity fund dedicated to the ing of its Harry Potter-themed attraction, region, surpassing its $6 billion Asian Fund 1. Bain Capital and others for II. The latest Asian fund, which received Toshiba Memory Corporation strong support from its existing investors 2. KKR for Calsonic Kansei including Washington State Investment 3. Queensland Investment Board and New York State Common Corporation, Pagoda Investment, Retirement, will focus on cross-border Goldman Sachs, PIA for Icon deals, corporate carve-outs – particularly Cancer Care in Japan – and the Asian consumer story. In keeping with KKR’s other recent funds, the The Bain Capital-led consortium’s $18 bil- firm and its staff accounted for a sizeable Source: [email protected], flickr [email protected], Source: lion investment in Toshiba’s prized memory Universal credit: PAG sold Japanese theme chunk of the fund – around 9 percent of chip business was Japan’s largest private park to Comcast the total. equity deal in a decade, which was finally sealed in September after being delayed by lawsuits and government opposition. Bain was joined in the deal by Apple, Dell Tech- nologies Capital, Kingston Technology and Seagate, the firm said when the deal was formally sealed. The deal felt like the crest of a Japanese mega buyout wave. By the end of September, private equity deal volume in Japan has reached an all-time high of $23.9 billion, according to consulting firm Bain & Company, 2.5x the previous year’s total. Bain’s win – which saw it edge out a competing KKR-led consortium – will be viewed as a watershed moment for Japanese private equity. Rising sum: Japan will account for a lot of capital

62 private equity international annual review 2017 PEI AWARDS ASIA-PACIFIC

SECONDARIES FIRM OF THE YEAR IN ASIA

1. TR Capital 2. HarbourVest Partners 3. NewQuest Capital Partners

The Asian secondaries market has come a long way in recent years and last year accounted for around 8 percent of global deal volume by seller base, according to TR Capital: Good morning, Vietnam! Evercore. Hong Kong-based TR Capital is one of the few secondaries firms making place. “A really cool deal,” was how one solutions and LP portfolio sales in 2018,” waves in this area. Highlights from last market source described this innovative said Nick Miles, regional head of Lazard’s year include closing its third fund on $200 transaction. Warburg Pincus sold a roughly private fund advisory group for Asia-Pacific. million and closing five deals, including its $1.2 billion strip of its Asian portfolio, Lazard’s work with buyout giant first Vietnamese LP stake acquisition and made up of stakes in 29 Asian companies, Warburg Pincus on the sale of a strip two Indian fund restructurings which are into a new vehicle with new terms. of assets from its Asian portfolio worth understood to have closed. Lexington was the majority buyer, and around $1.2 billion grabbed headlines for “As Asian investors become increasingly Goldman Sachs Asset Management, along its innovation, size and brand name GP. sophisticated, secondary investment is with a few other parties, also joined in. Expect Lazard to further open up the Asian no longer a niche option,” said partner The deal was significant because it secondaries market this year. Frederic Azemard. involved a large, brand name primary This is TR Capital’s second win in this manager tapping the secondaries market FIRM OF THE YEAR category in a row – surely a sign we’ll be to help with its portfolio management IN AUSTRALASIA hearing more about the direct secondaries – a sign secondaries are becoming more specialist in years to come. mainstream. 1. Pacific Equity Partners 2. Quadrant Private Equity SECONDARIES DEAL SECONDARIES ADVISOR 3. Archer Capital OF THE YEAR IN ASIA OF THE YEAR IN ASIA Perhaps not surprising, given its longstand- 1. Lexington Partners and Lazard 1. Lazard ing name in Australian private equity, Pacific for Warburg Pincus 2. Greenhill Cogent Equity Partners retains its crown as the 2. Temasek and Greenhill Cogent 3. Atlantic-Pacific Capital king of Australasia for the fourth year in a for British Columbia Investment row, marking its eighth win in the category. Management Corporation Leading the charge in the region last year PEP continued to invest its fifth fund, an ›› 3. Canada Pension Plan Investment was Lazard, which executed at least two Board and Lazard for Olympus headline-grabbing deals, one of which was Capital Asia voted by PEI readers as Secondaries Deal of the Year in Asia. The firm advised on around Competition for Asian secondaries deal of $2 billion in net asset value of Asia-focused the year in 2017 was fiercer than ever and secondaries deals last year, accounting for it’s arguable the three deals in contention around 40 percent of regional volume. all deserve honourable mention. There “The legitimisation and growth of can be only one winner, and this year GP-led liquidity solutions was a key theme secondaries giant Lexington Partners in 2017, and Lazard expects volumes in along with advisory firm Lazard took top Asia-Pacific to grow in both GP-led PEP: buoyed by bakery good manufacturer annual review 2017 private equity international 63 PEI AWARDS ASIA-PACIFIC

›› A$2.1 billion ($1.6 billion; €1.4 billion) on its China cross-border strategy, a first vehicle that closed on its hard-cap in Sep- for its third China buyout fund, includ- tember 2015 and added two investments ing German automotive and component to its portfolio this year. supply provider Formel D, Ansell’s sexual The first involves a complementary busi- wellness business, APAC healthcare solu- ness to portfolio company Pinnacle Bakery. tions company Fullerton Health and PEP acquired all of the shares of bakery McDonald’s 20-year franchise in China goods manufacturer Allied Mills for A$190 and Hong Kong. million. And with its second deal, it teamed Expect CITIC’s investments to make up with The Carlyle Group in a 50/50 part- it big not just overseas but also in their nership for pharmaceutical company iNova, home markets. Since completing its acqui- for $930 million in cash. 2017 also saw the sition of McDonald’s in August, the firm firm bolster its team with new hires and has already forged partnerships with promotions. Chinese strategics, to expand the burger chain’s footprint in China, especially in the FIRM OF THE YEAR lower-tier cities. Affinity: strength in Korea won over chaebols including Hyundai IN CHINA FIRM OF THE YEAR FIRM OF THE YEAR 1. CITIC Capital Partners IN JAPAN IN KOREA 2. CMC Capital Partners 3. PAG 1. NSSK 1. Affinity Equity Partners 2. Advantage Partners 2. MBK Partners CITIC Capital Partners took the China 3. J-STAR 3. Hahn & Company award from last year’s winner PAG. 2017 saw CITIC Capital raise $1.57 billion In a closely fought race, NSSK Another year, another win for Affinity for the US dollar-denominated tranche came out just ahead of a very Equity Partners. The Hong Kong- of CITIC Capital China Partners III. strong mid-market field. headquartered firm’s story in The Hong Kong-based buyout house also NSSK closed its second Korea highlights its strength in scored seven notable investments brought flagship fund on ¥60 bil- buying from chaebols (family about by its resources and deep network lion ($532 million; €453 owned conglomerates) and in in China. Key investments were centred million) in September, securing proprietary deals, in exceeding the $500 million an otherwise challenging market target it had set when it began to do so. pitching NSSK II to investors in the In February Affinity teamed up with summer of 2016. Unlike its predecessor two LP co-investors, GIC and AlpInvest which received commitments solely from Partners, as well as Hyundai Commercial Japanese LPs, NSSK II was backed by global to acquire General Electric’s 43 percent institutional investors from North America, stake in South Korean credit card business Europe and Asia such as public pension Hyundai Card. Five months later it bought funds, endowments, funds of funds, and a 64 percent stake in listed plastic stor- financial institutions, according to founder age company Lock & Lock for over $560 Jun Tsusaka (pictured). million. Building on its platform investing In addition to knocking out a success- strategy, Affinity also secured the master ful fundraise, the firm scored three deals franchise rights for Burger King Japan, – publishing group Bunkasha, transport working off its operating platform and man-

CITIC Capital: completed McDonald’s business Kantoku Global and elderly care agement expertise of portfolio company acquisition in August business SCH. Burger King Korea. Capping the year, ››

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›› Affinity sold half of its shares in Loen FIRM OF THE YEAR Entertainment to mobile operator Kakao, IN SOUTH-EAST ASIA in a deal that saw a more than 50 percent jump in share price at exit. 1. KKR 2. Navis Capital Partners FIRM OF THE YEAR 3. Mekong Capital IN INDIA Perhaps not surprisingly, given its victory 1. Everstone Group in the large-cap and fundraise of the year 2. Kedaara Capital in Asia categories, KKR retains its crown 3. ChrysCapital as king of South-East Asia for the second year in a row. For the seventh year running, Everstone In a year where private equity-backed takes home the award for India. Building deals in the region slowed down, KKR on strong economic fundamentals and fast- powered ahead on the deal-making front growing consumer themes across India and with significant acquisitions in Indonesia South-East Asia, Everstone backed two and Vietnam. healthcare and wellness focused compa- The firm acquired a minority stake in KKR: powered ahead on deals in Vietnam and nies, OmniActive Health Technologies and Indonesian mass-market bread company Indonesia Chemopharm, in 2017. It also re-launched Sari Roti and invested another $250 mil- 50-year old bakery brand Modern Bakery lion in Vietnam’s largest diversified corpo- FUND OF FUNDS in India with a new brand entity as well as ration Masan Group and its branded meat MANAGER OF THE enhanced and healthier products. The man- platform Masan Nutri-Science. YEAR IN ASIA ager achieved liquidity for its LPs through a What’s more, KKR backed the series E row of four successful partial and full exits round of Indonesian moto-hailing company 1. Asia Alternatives for 20 percent of the invested capital of GO-JEK. 2. HarbourVest Partners Everstone Capital II, its second private Long admired for its activities elsewhere 3. Axiom Asia Private Capital equity fund that closed on $730 million in Asia, KKR is now very much a South-East in 2015. Asian powerhouse too. A first victory in this category for Asia Alternatives, following one of its quick- est fundraises for Fund V, which saw first close to final close in just three months. The San Francisco-headquartered fund of funds manager amassed $1.8 billion for its fifth pan-Asia fund and separate pockets, with about 85 percent of commitments coming from the firm’s existing investors. Founder and managing director of Asia Alternatives Rebecca Xu called the fund “a milestone for the company”, reflecting on the $515 million it raised for its debut fund in 2007. Xu added that while the majority of its capital raised of our capital came from North American LPs, the firm also attracted new commitments from LPs in Latin Amer- Everstone: took home India award for seventh year running ica, Europe and Asia.

66 private equity international annual review 2017 PEI AWARDS ASIA-PACIFIC

PLACEMENT AGENT OF THE YEAR IN ASIA

1. Eaton Partners 2. Campbell Lutyens 3. MVision

With LPs scrutinising commitments like never before, closing five funds in Asia with aggregate capital of over $3.6 billion – all of which hit the hard-cap or were oversub- scribed in less than a year – is no mean feat. Legal workout: Clifford Chance advised on gym merger Eaton has been pivotal in getting the fund- raises done but what’s important to highlight and third China fund which between them telecom tower infrastructures provider, with is the range and diversity of its investment raised more than $1.8 billion. The group’s Navis Capital on the merger of the Celebrity funds – from early stage through buyouts, expertise is deep and wide, acting as fund Fitness chain of gyms with Fitness First, with to country-specific sector specialists, to pan- counsel across asset classes spanning private CVC on the $330 million sale of its stake in Asia. Chris Lerner, global partner and head equity, real estate, special situations, credit the content solutions business of SPi Global, of Asia for Eaton, calls 2017 the firm’s “best opportunity and infrastructure. And to top and with Actis on its acquisition of a majority year in Asia in which the firm focused on a it off, Weil also has expertise advising on stake in China-based textile company Zheiji- limited number of high conviction ideas”. co-investments as well as carried interest ang RGB Textile Group, to name a few. The Connecticut-based firm also cel- plans and management platforms. With Asia ebrated its first decade in Asia in 2017, the next private equity hotspot, expect to LAW FIRM OF THE YEAR having raised over $10 billion for clients in find the team – including Hong Kong-based IN ASIA (SECONDARIES) the region since 2007 – a worthy winner partners John Fadley (pictured) and Albert for our placement agent of the year category. Cho – at Weil behind many of the headline 1. Kirkland & Ellis funds over the coming year. 2. Debevoise & Plimpton LAW FIRM OF THE 3. Simpson Thacher & Bartlett YEAR IN ASIA LAW FIRM OF THE (FUND FORMATION) YEAR IN ASIA Kirkland & Ellis has done a clean sweep (TRANSACTIONS) of the secondaries categories, picking up 1. Weil, Gotshal & Manges the award for best in North America, best 2. Cleary Gottlieb Steen & Hamilton 1. Clifford Chance in Europe and best in Asia, for the second 3. Shearman & Sterling 2. Morrison & Foerster year in a row. The firm worked on one of 3. Weil, Gotshal & Manges the most interesting deals to take place PEI is delighted to welcome Weil, Gotshal in 2017, the $1.2 billion sale of a strip of & Manges to its awards with its debut Clifford Chance is taking home the gong for Asian assets from Warburg Pincus XI, an win, clinching the top spot in this com- transactions law firm of the year for the sev- $11.2 billion, 2012-vintage buyout fund. petitive category. In the past 12 months enth year in a row thanks to its involvement The deal, which involved the sale of 29 the firm advised on close to 10 in a slew of the region’s most high-profile separate stakes, many of which were in funds including CLSA Capi- deals. Its Asia team – based out of venture capital funds, was backed by a tal Partners’ $400 million offices in Beijing, Hong Kong, Seoul, group of investors led by Goldman Sachs Japan mid-cap buyout Shanghai, Singapore, Sydney and and Lexington Partners. As well as being vehicle, CMC Capital’s Tokyo – worked with the Canada one of the largest secondaries transactions $600 million China Pension Plan Investment Board on to take place last year, the structure high- buyout fund and CITIC its acquisition together with KKR lighted the growing range of possibilities Capital’s third Japan fund of a stake in India’s Bharti Infratel, a that the market can offer.n annual review 2017 private equity international 67 KEY THEMES 2017 69 Fundraising Strength in numbers

74 Secondaries Powering ahead

80 North America Going supersize

82 Europe Winds of change

84 Asia Picking up speed

86 Emerging markets A tiger roars FUNDRAISING

FUND CLOSURES Strength in numbers Fundraising soared to a post-crisis high in 2017 with both capital raised and average fund size showing impressive growth, writes Sam McMurray

CAPITAL RISING Private equity fundraising, 2008-17

• It was the most successful year for $bn No fundraising since 2008, with $410.95 billion raised by the 545 funds that 826 held a final close. Fund size continued 732 724 704 to grow: there were 34 percent fewer 695 685 funds closed than in 2008, but only 633 646 574 5 percent less capital. Average fund size 545 hit $754 million, up 44 percent since the financial crisis. • The amount of capital raised was up 12.8 percent from 2016 – the big- gest year-on-year change since 2013. Conversely, the number of funds that closed fell 16 percent from 646 in 2016. Buyout funds saw the largest year-on- 433.16 237.57 188.02 242.69 254.73 358.81 367.75 346.81 364.46 410.95 year increase in average fund size – up 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Capital raised Number of funds closed a mighty 45 percent. Source: Private Equity International

REGIONAL SHIFT Capital raised by geographical focus, 2017 • Capital raised by funds targeting multi- Europe ple regions has remained relatively con- stant since 2012, standing at 40.4 per- $47.37bn Multi-Regional cent of total capital in 2017, against 41.5 $166.02bn percent five years earlier. In the same period, the proportion of capital focus- ing on only North American opportuni- North America ties has risen from 31.6 percent to 38.4 $157.83bn percent, while the European share is up from 6.1 percent to 11.5 percent. MENA • The portion of capital raised by funds focusing on Asia-Pacific increased from $0.29bn 8.8 percent in 2016 to 9.2 percent in Sub-Saharan Africa 2017. But this is well below the 12.9 Latin America $0.34bn Asia-Pacific percent in 2008 and the 15 percent in $1.37bn $37.73bn 2012. Since 2008, there have only been three occasions where less capital has been raised by funds with an Asia-Pacific $410.95bn Total raised focus than in 2017. Source: Private Equity International annual review 2017 private equity international 69 KEY THEMES 2017

Top 10 largest funds closed in 2017

CVC Capital Partners VII Apollo Investment Fund IX 545 CVC Capital Partners Apollo Global Management $18.6bn $24.7bn Funds closed in 2017

$24.7bn Apollo Investment Fund IX was the largest fund close in 2017

$7.5bn Strategic Partners Fund VII, a secondaries vehicle, is the only Clayton, Dubilier & Rice X Vista Equity Partners VI Silver Lake Partners V non-buyout fund in the top 10 Clayton, Dubilier & Rice Vista Equity Partners Silver Lake $9.4bn $10.56bn $15.0bn

Permira VI Bain Capital Fund XII Permira Advisers Bain Capital $9.0bn $9.4bn

KKR Americas Fund XII KKR $13.9bn

KKR Asian Fund III Strategic Partners Fund VII KKR Blackstone $9.3bn $7.5bn

Buyout Secondaries

Source: Private Equity International

70 private equity international annual review 2017 FUNDRAISING

BUOYANT BUYOUTS Capital raised by buyout funds, 2008-17 • Capital raised by buyout funds has $bn % decreased by only 2 percent since 2008 – the smallest fall for any strategy except secondaries. Buyout capital grew by 28 percent since 2016 – the largest growth for any strategy. • The proportion of capital raised by the largest, the top three and the top 10 buyout funds has remained relatively consistent. Rather than simply being a case of the largest funds getting larger, this suggests a greater proportion of 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 buyout managers are raising significantly more capital quicker than in previous Total capital Top 3 as % of total Largest as % of total Top 10 as % of total years. Source: Private Equity International

GENERALISING GROWTH Change in number of funds closed by strategy, 2008-17 • The number of growth capital funds 19.23% closing each year has fallen at a greater rate than for any strategy since 2008 Fund Co- (with the exception of fund of funds Buyout Growth Venture of funds Investments Distressed Total and distressed strategies). Secondaries • One explanation is that buyout and ven- ture capital managers are encroaching -20.00% into traditional growth territory. Com- -38.04% -34.02% panies are staying private longer, par- -62.62% ticularly in the tech sector, backed by -83.18% VC funds that are sticking around for additional rounds of financing before -131.71% -128.57% exiting through a higher-valued IPO. Source: Private Equity International

SIZEABLE SECONDARIES Average size of secondaries funds, 2010-17 • Secondaries is the only private equity $1.54bn 2017 strategy to see positive year-on-year $1.38bn growth in average fund size since 2010. The number of funds closing per year $1.12bn peaked in the period after the financial crisis and has steadily increased again $0.95bn

since 2015, with 26 funds closing on an $0.91bn aggregate $38.29 billion in 2017. • Secondaries and co-investments were $0.86bn

the only strategies to raise more capital $0.54bn in 2017 than in 2008, with secondaries 2010 recording a 381 percent increase. Source: Private Equity International annual review 2017 private equity international 71 KEY THEMES 2017

TIME ON THE ROAD Average time taken to reach a final close by private equity funds, 2012–17 • While there is much talk about speed in today’s fundraising environment, smaller funds are actually spending longer on 22 the road. At the larger end, for funds of over $5 billion, the average time to reach a final close dropped from 12 months in 2016 to just eight months in 2017. 15 But for funds smaller than $1 billion, Months 13 12 12 12 the average time increased from 11 to 11 11 11 10 13 months. 9 • At the same time, the number of firms 8 holding ‘one-and-dones’ is rocketing – a remarkable 43 percent of funds were raised during 2016 and 2017 without holding interim closes, according to Hamilton Lane. “If you are not there, 2012 2013 2014 2015 2016 2017 it is gone,” Ilmarinen’s Katja Salovaara Funds larger than $5bn Funds smaller than $1bn told PEI. Source: Private Equity International

CONVERTING EQUITY TO DEBT • For many private equity firms, the move offering. Of course, any expansion is not locking down nearly $9.2 billion. into debt strategies is a natural way to without risks. • Meanwhile, Apollo has increased expec- expand. There is logic to such moves • Data from our sister title Private Debt tations for capital expenditure on debt and it isn’t necessarily a worry for LPs. Investor show there are currently 150 investment in its ninth vehicle up from Equity shops can expand their LP bases, first-time funds in market targeting a the 1 percent predicted for credit increase their fee-paying assets under combined $46.7 billion for private debt. opportunities in Apollo VIII. management and diversify their product In 2017, 22 first-time funds closed,

Private equity firms coming to market with debt vehicles in 2017

PRIVATE EQUITY FIRM PRIVATE CREDIT HEAD (PREVIOUS FIRM) DEBUT FUND SIZE

Thoma Bravo Jack Le Roy (Summit Partners) $750m

BC Partners Ted Goldthorpe (Apollo Global Management) $700m-plus

Capital Dynamics Jens Ernberg and Tom Hall (Credit Suisse Park View BDC) $500m

The Riverside Company David Dobies (NewStar Financial) $350m

The Sterling Group Sean Davenport (BNP Paribas) $200m

eQ Asset Management Anne Reikki (Finnish Industry Investment) $107.5m

Gryphon Investors — $100m

Bridgepoint David Walsh (Bank of Ireland) n/a

Francisco Partners Scott Eisenberg (GSO Capital Partners) n/a

Pantheon Capital Partners Keith Cox (Sun Trust Bank) n/a

Source: Private Equity International

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SECONDARIES Powering ahead

Fundraising and transaction volumes hit new highs The results are in: 2017 was the biggest- in the secondaries market in 2017, with deals ever year for private equity secondaries fundraising. expected to smash records again in 2018, write Twenty-six funds hit final close on a Rod James and Adam Le combined total of $38.3 billion, outstrip- ping the amount raised in previous high- point 2016 by a little over $5 billion. The mean size of a secondaries fund to hold a final close last year also hit a record $1.47 billion, above the previous year’s figure of $1.38 billion and the 2015 average of $1.12 billion. Deal volume also broke records in 2017, by hitting $58 billion, up 57 percent on the 2016 figure of $37 billion, according to Greenhill Cogent. Some familiar names sat at the top of the fundraising league table. The largest fund- raise was by Strategic Partners, which in January collected $7.5 billion for its Fund VII, followed by Goldman Sachs Asset Man- agement, which is understood to have held a $7.1 billion final close in July on its Vintage VII fund. NB Alternatives, Lexington Part- ners and AlpInvest were also represented in the top five with funds ranging in size from $2.5 billion to $6.5 billion. Ardian, Coller Capital and Lexington Partners are all expected to return to market in 2018, and with limited part- ners such as California Public Employees’ Retirement System expressing the desire to increase their exposure to the asset class, it will be a fascinating beauty contest between the three firms. “Four years ago a lot of LPs were saying, why should I add a lower IRR, lower mul- tiple quasi-fund of funds to my portfolio?” says Sunaina Sinha, managing partner of secondaries advisor Cebile Capital. “Today they see a shorter lifecycle, healthy return levels – lower or equivalent to other pri- vate equity strategies but with more ››

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New York • Boston • Menlo Park • London • Hong Kong • Santiago

www.lexingtonpartners.com KEY THEMES 2017

Barring a major ›› diversification – and higher realisation volumes in 2018,” says François Aguerre, economic shock, rates. That has been proven cycle in, cycle a partner with Coller Capital. out.” Noteworthy deals include Ardian and expect the While the long-term fundamentals are Mubadala’s $2.5 billion stapled deal and secondaries market strong, headline fundraising figures for PE what was regarded as a watershed moment to transact record secondaries are likely to show something for the blue-chip GP-led process when BC of a lull in 2018. The big three of Ardian, Partners, one of Europe’s biggest private volumes in 2018 Coller and Lexington won’t see the fruits equity houses, used a $1 billion staple to François Aguerre of their fundraising labour until 2019 at help raise its €7 billion 10th fund in Sep- the earliest. Two of the three largest sec- tember. ondaries funds in market going into 2018 So what’s in store for 2018? Here are are real estate, rather than private equity, Secondaries Investor’s predictions for the and there are no funds in market targeting coming year. more than Landmark Partners’ $4 billion, PEI data show. Secondaries firms may move into There is also some evidence that sec- primaries ondaries funds may be becoming victims of Diversification and specialisation will their own success. September’s H2 Liquid- continue. Firms may raise primary or co- ity Index, compiled by advisor and place- investment vehicles, while captive teams ment agent Rede Partners, found that high will spin out amid a rise in first-time pricing, driven in no small part by the huge fundraises, according to Shawn Schestag, amounts of money raised, is dampening LPs’ leader of the secondaries advisory unit at enthusiasm towards the asset class. Sixpoint Partners in New York. A report from placement agent Probitas Firms may even structure fundraises partners found 26 percent of LPs “are not with preferred and common LP commit- active in secondaries in any manner”, up ments, he adds. A RISING TIDE from 17 percent the year before. Managing director Kelly DePonte said A wider range of geographies Closed-ended private equity buoyant fundraising numbers were being Deals in far-flung places like Peru and secondaries fundraising driven more by the supply of brand-name Russia emerged in 2017. Transactions out- 2011-2017 ($bn) product in the market at the same time, side North America and Western Europe $bn No than a widespread demand for secondar- are likely to increase by 3 to 5 percentage ies exposure. points of total volume next year, according “Fundraising for secondaries is up again to Philip Tsai, global head of secondaries [for 2017] but that has really been driven market advisory at UBS in New York. by three well-regarded, long-lived manag- Volume is strong in the more estab- ers that a number of investors see as core lished markets, but buyers are always look- holdings,” he told PEI sister title Secondaries ing to push the envelope by finding new Investor. “I’m not sure interest [last year] areas to invest in with less competition, was truly widespread, and on the basis of Tsai adds. this survey it won’t be widespread in 2018.” While fundraising looks likely to pause Returns will start to diverge 2011 2012 2013 2014 2015 2016 2017 for breath in 2018, deal volume is predicted Secondaries funds have historically deliv-

Private equity secondaries fundraising to power ahead to another new high: “Bar- ered returns within a narrow range, with Number of funds closed ring a major economic shock, expect the LPs even complaining that they struggle to

Source: Private Equity International secondaries market to transact record tell funds apart. This is likely to change ››

76 private equity international annual review 2017

KEY THEMES 2017

›› in the next year as buyers’ strategies begin to diversify, according to Matt Jones, a STRONG SHOWING London-based partner in Pantheon’s global 5 largest secondaries funds raised in 2017 secondaries team. FUND MANAGER FUND NAME SIZE ($BN) “You now have people who are focused Blackstone Strategic Partners Strategic Partners Fund VII 7.5 on large diversified deals, and they may Goldman Sachs Asset Management Vintage VII 7.1 or may not apply leverage to those. Then you have people just focusing on tail-end AlpInvest Partners AlpInvest Secondaries Program VI (ASP VI) 6.5 positions, or GP restructurings, or small Lexington Partners Lexington Middle Market Investors IV 2.7 positions,” Jones says. “We’re seeing some NB Alternatives NB Secondary Opportunities Fund IV 2.5 players making more concentrated bets in Source: Secondaries Investor * Private equity secondaries only these deals, and some will work out and some will not work out.” through exposure to the manager’s various that funds of 2014-, 2015- and 2016-vin- funds and underlying assets. tage changed hands. This could have posi- GP interest transactions may become tive implications for GPs’ ability to price dealflow Younger-vintage assets will make life assets going into 2018, says Richard Hope, Funds of firms may be able to find exits easier for GPs a managing director in the fund investment for their investments via the secondaries According to data from Campbell Lutyens, team Europe at Hamilton Lane. market, according to a London-based part- 2006- and 2007-vintage funds accounted “With those funds which are over 10 ner at a law firm. Dyal Capital Partners, for around half of secondaries market vol- years old, many of the good assets have which acquires minority equity stakes in umes in 2016, a figure which dropped to been sold; the tail of the portfolio normally the management companies of private below 40 percent in 2017. At the same surprises to the upside, but it’s a question equity firms, and other firms using similar time, 2017 saw an appreciable increase in of how much it surprises,” he says. “For strategies could be attractive to secondaries the proportion of newer vintage funds to a 2010-vintage portfolio, the portfolio buyers due to the diversification they offer hit the market; in fact, it was the first year is more diversified, you can do your full underwrite, find out about their profitabil- ity and what revenue growth has been like. You get the opportunity to participate in more exits as the fund matures.”

European carry model will drive GP-led deals European-style carried interest, which is calculated based on capital being returned from all investments, as opposed to the US deal-by-deal model, means GPs have more of an economic incentive to restructure their funds, according to one legal source. Fear of a market-destabilising event over which GPs have no control means European managers are also more incentivised than their US counterparts to sell off remain- ing assets in a bundle and lock in value for the purposes of the carry waterfall. Expect more brand-name European GP-led deals Yuan guns: 2018 is expected to be a significant year for the renminbi-denominated secondaries market in 2018.

78 private equity international annual review 2017 When everyone is going left, look to the right for exits TR Capital

Asian Secondary Private Equity Specialist

We see Lumpy dealmaking to continue in Asia its Asia private equity team, a deal that, if [renminbi] The Asian story in 2017 was one of con- successful, would be worth more than $1 tinuity. Deals in the region accounted for billion and set just the right tone for the being a more around 6 percent of global volume, very year ahead. active part of the market similar to last year, according to data from and institutional investors Greenhill Cogent, and only one Asia-Pacific- A significant year for dedicated fund hit final close, the $200 mil- the yuan-denominated market starting to enter as both lion TR Capital III. The yuan primary market is nascent, so it’s sellers and buyers At the same time, it was the location no surprise that its equivalent secondaries of one of the biggest secondaries deals of market is small and shallow. Most stakes Michael Hu 2017. Warburg Pincus’s sale of a $1.2 bil- in the secondaries market are offloaded lion strip of Asian assets from its 11th fund by ultra-high-net-worth individuals and made up a sizeable chunk of the estimated a general lack of quality assets has kept $3 billion-$4 billion of transactions to take institutional investors largely on the side- place in Asia-Pacific last year. lines. While opinion is split on what 2018 Predictions for deal value in Asia in 2018 holds for the market, there’s no shortage among those Secondaries Investor spoke to of optimism. range from $3 billion to $5 billion – around “That market has been difficult to play 10 percent of the global total and more in given the small ticket sizes,” says Michael or less in line what we’ve seen in recent Hu, a vice-president at Greenhill. “Going years. Activity is likely to remain sporadic, forward, probably starting next year, we see with one or two big deals making up a large [renminbi] being a more active part of the proportion of value. November saw Stand- market and institutional investors starting ard Chartered revive its plan to spin out to enter as both sellers and buyers.” n

annual review 2017 private equity international 79 KEY THEMES 2017

US GROWTH Going supersize

Predicting what will Murray Devine. The average debt multiple the coming 12 months, according to our LP happen in 2018 is tough, hit 7.2x EBITDA, a full turn and a half Perspectives survey – private equity remains above 2016’s average and on pace to top popular with investors, which has made but one thing is almost any other year in the last decade. 2017 a good year for first-time managers. certain: more money is Elevated valuations are affecting deal “Due to the relatively strong perfor- likely to flow into private activity; US private equity activity is on pace mance of many first-time fund managers, equity. By Isobel Markham to decline by almost 10 percent this year, institutional investors, particularly those and Marine Cole according to PitchBook. It should come as with increased private equity allocations, no surprise that North American investors seem to have taken greater interest, a trend responding to PEI’s annual LP Perspectives that will likely continue into 2018,” said Private equity saw several records broken 2018 Survey cited extreme market valua- Shukie Grossman, co-chair of the invest- last year, with the largest fund ever raised, tions as their number one concern, closely ment funds practice group at Gibson Dunn. the most money raised and highest valua- followed by the increasing availability of While more managers equals more tion multiples in a decade. It should come leverage in alternative investment markets. choice for investors, this does not come as no surprise that North America – still Andrew Olinick, co-head of 3i Group’s without its challenges. For Hamilton Lane, the largest private equity market by some North America private equity team and 2017 is on track to be a record year for the distance – led the way. the global head of business and technol- number of private placement memoranda More than $156 billion was raised to ogy services, said that with assets “priced received at around 800. Combined with invest in North America, compared with to perfection”, maintaining discipline in faster fundraisings, this can make it difficult $138 billion in 2016 and $110 billion in competitive auction processes is key. for LPs to keep up, said Gildea. 2015, according to PEI data. “Given high valuations, we are seeing “It’s putting a lot of pressure on LPs to “It has been a very, very favourable an increasing number of auctions that do be able to make those timely decisions to market for general partners raising funds. not complete,” he said, adding that this can commit to the hardest-to-access manag- The average time to close has come well present opportunities. ers,” he said. down,” said Brian Gildea, managing director Despite concerns that too much dry “All investors like having choice, but it in the co-investment team at asset manager powder and high purchase prices will drive also means more implications on perfor- Hamilton Lane. “Managers that have done down returns – 39 percent of North Ameri- mance. If you choose to go into one strategy well with their prior funds and have proven can LPs are less confident about returns in over another, you’re going to have a different track records have been able to fundraise portfolio outcome”. on that basis.” People talked POLITICAL UNCERTAINTY FAST FUNDRAISING a lot about the So what are the prospects for 2018? As the Data from EY show the average time private denominator economic cycle approaches its peak, it can equity buyout funds are on the road has be challenging to predict what will happen. been going down since 2013. effect when the market With a stock market bull run that is still Of the funds reviewed by Hamilton plummeted during the going strong more than eight years after its Lane in the 2016-17 period, 72 percent global financial crisis start, it’s no wonder some may start to get were oversubscribed and 45 percent held nervous about the direction of the economy ‘one-and-done’ final closes, compared with but in a year when public and the private equity market. 50 percent and 20 percent respectively in equity markets went However, at least until signs of a slow- 2013-14. In the first half of the year valua- up so much, it’s still down appear, funds will continue to be fur- tions in US private equity transactions as a nished with capital and limited partners multiple of EBITDA hit new highs at 13.7x, very powerful will still be eager to send more money to according to a report from valuation firm Stewart Kohl the asset class.

80 private equity international annual review 2017 NORTH AMERICA

happen, but you can’t predict it will happen SCALING NEW HEIGHTS in 2018.” In a year of global fundraising records, North America led the way STRESS TESTING

$bn No GPs are conscious that a downturn is coming and have been running more down- side cases and stress testing of portfolio companies. The need for more caution may be wise, but it comes as LPs are still strug- gling to stay on target for their allocation to private equity and generally want greater exposure to the asset class. “People talked a lot about the denomi- nator effect when the market plummeted

2010 2011 2012 2013 2014 2015 2016 2017 during the global financial crisis but in a Capital raised Number of funds closed year when public equity markets went up so Source: Private Equity International much, it’s still very powerful,” said Stewart Kohl, co-chief executive of The Riverside THE BIG VISTA Company. “This is driving the need for more Largest North America-focused funds closed in 2017 private equity exposure.” The embrace of private markets in gen- FUND NAME HEAD OFFICE FUND MANAGER SIZE ($BN) eral by LPs is nothing new but it was on full Vista Equity Partners VI United States Vista Equity Partners 10.6 display in 2017. With high distributions in Clayton, Dubilier & Rice X United States Clayton, Dubilier & Rice 9.4 private equity added to growth in stocks Bain Capital Fund XII United States Bain Capital 9.4 and the projection that returns in public Onex Partners V Canada Onex 7.2 markets will go down in the next decade or EnCap Energy Capital Fund XI United States EnCap Investments 7.0 so, 2018 is likely to see even more money

New Mountain Partners V United States New Mountain Capital 6.2 flowing into private equity.

GTCR Fund XII United States GTCR 5.3 “I think there’s an evolving change in

Genstar Capital Partners VIII United States Genstar Capital 4.0 perception of the private markets as being a permanent part of the capital market land- Veritas Capital Fund VI United States Veritas Capital 3.6 scape and an alternative to companies seek- Olympus Growth Fund VII United States Olympus Partners 3.0 ing access to public market capital,” said Greg Source: Private Equity International Stento, a managing director at HarbourVest. “The business is definitely cyclical and landscape in 2018 will look similar to “For some investors, their allocation to it’s been a pretty good run for private activity in 2017, unless there is a major private markets is higher than public mar- equity,” said Brian Conway, the chairman geopolitical shock such as hostilities kets. It very well may be that we’re going and a managing partner at TA Associates, breaking out between the US and the to see other investors beginning to rethink which focuses on growth investing. “There’s North Korean regime or a significant their asset allocation around the perma- more political uncertainty than we’ve had terrorist event. nency of private markets. We’re still in the in a long time, but who knows when it will “The easy thing to predict is that eve- early innings of investors repositioning their end. If you call the end of the cycle, you’re rything is going to crack, rates are going equity allocations and maybe 2018 will be probably wrong by two or three years.” to go up and the equity market is going a year where investors move further along He anticipates that the private equity to start to contract and eventually it will that path.” n annual review 2017 private equity international 81 KEY THEMES 2017

EUROPEAN MARKET Winds of change The French presidential A NEW DAWN? election and Britain’s impending exit from the Fundraising fell slightly in a year of upheaval for Europe

EU come amid worries $bn No about a possible bear market, writes Alex Lynn

It’s fair to say that 2017 was a year of signifi- cant transformation for Europe. The French presidential election, Angela Merkel’s strug- gle to form a parliamentary coalition and the triggering of Article 50, which started the negotiations for the UK to exit the EU, 2010 2011 2012 2013 2014 2015 2016 2017 contributed to a tumultuous year on the continent. Capital raised Number of funds closed European private equity has also been Source: Private Equity International no stranger to the winds of change over the past 12 months. Fundraising for Europe-focused private equity vehicles totalled $47 billion in 2017, down from $55 billion in 2016, according to or fall through after Catalonia voted for proportion of a single fund. This, in com- PEI data. The largest purely Europe-focused independence in the latter half of the year. bination with a trend towards fewer man- fund to close was Bridgepoint Europe VI The threat of independence also appears ager relationships, has seen investors drawn which was oversubscribed at €5.5 billion, to have affected UK private equity. In towards larger funds in order to maintain but CVC Capital Partners broke records in November one European general partner their allocation while not violating their June with the closing of its seventh flagship with partial exposure told PEI that “Brexit mandate, Guen said. buyout fund on €16 billion which is focused is stifling our business”. The firm said it would “It’s not that easy to find those [smaller] on Europe and North America. seek discussions with the British Business funds in Europe now,” he noted. The average European buy-and-builds also hit Bank in the hopes of filling a gap left by the European fund size had reached $534.28 record levels during the first half of the European Investment Fund, with the latter million as of 1 January, up from $532 mil- year, according to data from European mid- reportedly more cautious of supporting UK- lion last year, PEI data show. market firm Silverfleet Capital. focused funds since last year’s referendum. While the region’s political uncertainty The two independence events have had THE GRASS IS ALWAYS GREENER does not appear to have significantly dented “slowing effects”, Wright noted. European firms also faced stiff competi- appetite for European private equity, indi- A move from limited partners to tion from abroad this year. Strictly US- vidual markets have not fared as well. reduce their general partner relationships based firms had invested €1.3 billion into has resulted in a concentration of capital European companies as of September, INDEPENDENT STREAK in European funds, according to Mounir exceeding the €1.1 billion total for 2016, Tim Wright, head of European private Guen, chief executive of MVision Private according to data from S&P Global Market equity at law firm DLA Piper, told Private Equity Advisers. Intelligence. Equity International he saw a number of Many LPs carry self-imposed rules The growing demand for European overseas investments in Spain put on hold dictating that they not exceed a certain assets has been particularly noticeable

82 private equity international annual review 2017 EUROPE

“There’s going to be the ongoing circus BRIDGING THE GAP of Brexit next year,” Turtle notes. “France, Largest Europe-focused funds closed in 2017 Spain and Italy have been harder to raise money in but we’re likely to see a rebound FUND NAME HEAD OFFICE FUND MANAGER SIZE ($BN) of continental Europe in contrast with [the Bridgepoint Europe VI United Kingdom Bridgepoint 6.6 UK].” French private equity firms had a 30 HgCapital 8 United Kingdom HgCapital 3.4 percent rise in fundraising during the first Vitruvian Investment Partnership III United Kingdom Vitruvian Partners 2.9 half of 2017, according to research from Waterland Private Equity Waterland Private Equity Fund VII Netherlands 2.4 Investments the French private equity association and EQT Mid Market Europe Sweden EQT 1.9 Grant Thornton. GPs raised €8.1 billion in

Chequers Capital XVII France Chequers Capital 1.3 H1 2017, up from €6.2 billion the same period of the previous year. Apax France IX France Apax Partners MidMarket 1.2

Core Equity Holdings fund I Belgium Core Equity Holdings 1.2 GO WEST Alpha Private Equity Fund 7 France Alpha Associés Conseil 1.1 Even with the shifting political sands, the Egeria Private Equity Fund V Netherlands Egeria 1.0 well-developed European private equity Source: Private Equity International market is proving an attractive destination for LP capital and, say some, will become among healthcare and technology funds, becoming more attracted to less cyclical more attractive destination for managers Stewart Licudi, head of European finan- sectors such as healthcare and strategies from other regions to expand their fran- cial sponsors coverage at investment bank with debt or assets underpinning them, as chises through acquisition. William Blair, told PEI in September. Funds the bull market gets long in the tooth.” “We are starting to see Asian GPs – with deep knowledge of a sector are less GPs are already mobilising. CVC Capital mainly from China where there are some likely to be concerned by a lack of familiar- Partners has had around a fourfold increase huge firms – setting up teams in Europe ity with new markets. in healthcare opportunities taken to its and the US,” Dréan says. “I think if you are a specialist healthcare investment committee since the beginning Chinese companies have already shown fund, even if you sit in the US, clearly you of 2017, head of European healthcare Cath- growing interest in European financial ser- understand that your exciting markets are rin Petty told PEI in October. vices. In September Beijing-based invest- global and therefore you’re not necessarily Others are tapping into this shifting ment group Legend Holdings announced going to find everything you need within LP demand with the introduction of new plans to acquire an 89.9 percent stake in the borders of the US,” Licudi said. “There’s products. Capital Dynamics is understood Banque Internationale à Luxembourg. a scarcity value to the asset.” to be targeting a first close in Q2 for its In 2016 Chinese technology and invest- Fears of a bear market, declining UK debut lending fund after launching a credit ment group Cocoon Networks launched a appeal and acquisitions from Asia are arm last year. £500 million ($670 million; €564 million) expected to dominate the continent in London-based venture capital fund target- 2018. CONTINENTAL DRIFT ing UK and European start-ups. There is plenty of talk of the next The Brexit referendum had a tangible Asian GPs setting up teams in Europe and downturn. Such concerns have already seen impact on demand for UK assets in 2016, the US is likely to amplify considerably over investors flock to distressed debt funds in before a resurgence in 2017. With Brexit the next few years given the size and ambi- anticipation of a sinking market. negotiations an ongoing – and increasingly tions of the largest Asian funds, Dréan says. “Fears of the bull market ending will difficult – task, limited partners could turn “I wouldn’t be surprised if we see a only increase in 2018,” says Adam Turtle, to mainland fund managers in a bid to mini- mega-firm from China acquire a group or founding partner of placement agent and mise their exposure to uncertainty in the groups in either the US or Europe over the advisory firm Rede Partners. “LPs are UK. coming year.” n annual review 2017 private equity international 83 KEY THEMES 2017

ASIA FUNDRAISING Picking up speed The year delivered strong exits for GPs, increased dealflow in Japan, South Korea and Australia, and a rise in fundraising, says Carmela Mendoza

Asia-Pacific saw a year of strong private equity fundraising and cross-border trans- actions in 2017, particularly in developed countries. According to PEI data, 74 Asia-Pacific- SET FAIR $bn No focused funds raised $38 billion in 2017, compared with 77 funds and $32 billion Asia-Pacific in the previous year. KKR amassed $9.3 saw impressive billion for the region’s largest-ever private fundraising equity fund, with most of the capital to be levels in 2017 deployed in corporate carve-outs in devel- oped Asia. The Carlyle Group, Blackstone, Morgan Stanley Private Equity and TPG are also in market with their multibillion Asia-focused 2010 2011 2012 2013 2014 2015 2016 2017 vehicles. Capital raised Number of funds closed Jie Gong, a partner at Pantheon, Source: Private Equity International observed an increase in specialist funds. “We have seen a pick up in healthcare funds STRONG WINDS this year,” she said. “Generally speaking the market is moving towards further speciali- Largest Asia-focused funds closed in 2017 sation, a reinforcement of what has started about three years ago.” FUND NAME HEAD OFFICE FUND MANAGER SIZE ($BN) On the deal front, market sentiment has KKR Asian Fund III United States KKR 9.3 shifted, and pan-Asian funds have stepped Affinity Asia Pacific Fund V Hong Kong Affinity Equity Partners 6.0 up investment activity in Japan, South Asia Alternatives Capital Partners V United States Asia Alternatives Management 1.8

Korea and Australia. KKR struck more CITIC Capital China Partners III Hong Kong CITIC Capital 1.6 than $6 billion worth of deals in Japan this Axiom Asia Private Capital Fund IV Singapore Axiom Asia Private Capital 1.0 year. Bain Capital made headlines with its Quadrant Private Equity No. 6 Australia Quadrant Private Equity 0.9 record-breaking $18 billion acquisition of Kedaara Capital Fund II LLP India Kedaara Capital 0.8 Toshiba’s memory chip unit. Polaris Private Equity Fund IV Japan Polaris Capital Group 0.7 TPG re-entered South Korea with its Integral Fund III Japan Integral Corporation 0.6 $437 million investment in Kakao Mobility. And Australia saw big-ticket transactions ChrysCapital VII India ChrysCapital 0.6 with Carlyle and Pacific Equity Partners’ Source: Private Equity International

84 private equity international annual review 2017 ASIA-PACIFIC

$900 million acquisition of iNova Pharma- networks and a chance to collaborate with is no longer buying out big chaebols with ceuticals, as well as Queensland Investment like-minded investors. taxpayers’ money; instead it is encouraging Corporation and Pagoda Investments which The Canadian pension funds and Singa- self-reform via a market-oriented approach, purchased Icon Cancer Care for more than pore’s GIC and Temasek, plus China Invest- offering fresh investment opportunities for $750 million. ment Corporation remain at the forefront private equity. “It’s important to note that the GDP of direct investing in the region. growth in Asia’s main economies remains 4. FUNDS WILL GET LARGER healthy,” says Mingchen Xia, a managing 2. TECHNOLOGY DEALS WILL PICK UP Large funds getting larger will drive Asia director at Hamilton Lane. “And in this type Of huge interest to private equity firms in fundraising statistics. The Asia market has of environment, it’s easier to make deals Asia is how disruptive technology is chang- been resilient through China’s economic because the outlook and expectation of sell- ing businesses and consumption patterns, slowdown, demonetisation in India and ers and buyers is positive, it’s fairly easy to especially in China. Technology as an invest- even political scandal in Korea. A lot of capi- reach an agreement on price. We’ve also ment theme will continue to attract huge tal is being returned relative to money being seen faster investment pace, which itself amounts of capital in 2018 mostly in ven- drawn, resulting in new investors entering is a driver of fundraising.” ture and growth capital. the asset class, such as North Asian insurers, It was also a strong year for exits, driven Xia expects the number of unicorns in Indian financial institutions and Chinese by the stronger IPO markets in the US and China to keep growing next year in line government-backed funds. Veteran LPs will Hong Kong as well as robust activity in with the trend in the US. also continue to increase relative allocations trade sales. “We’ve observed the unicorns tend to as they gravitate towards private equity’s Xia adds that Hong Kong’s IPO market stay private a longer time than before. These promise of double-digit returns. has particularly opened up to technology five to 10-year old companies tradition- companies from China. “The retail investors ally would have listed by now but there’s so 5. CHINA BUYOUTS WILL RISE have come back, partially driven by Stock much capital raised from private markets. The country’s private equity market today Connect, which allows international and Private equity funds, venture funds, insur- offers a lot of potential in control buyout mainland Chinese investors to trade securi- ance companies and even government funds opportunities as the economy is transition- ties in each other’s markets.” want exposure to these companies earlier ing from a planned to a market economy. In 2018, Asia private equity insiders and participate in financing. That’s a first It is also being transformed by disruptive expect larger pools of capital coming to in history.” technology, thereby forcing businesses to market, growth in shadow capital and an adopt to newer consumption patterns and increase in China technology deals. 3. CORPORATE CARVE-OUTS WILL technologies. Here are five predictions for 2018: DRIVE JAPAN AND KOREA DEALFLOW Doug Coulter, partner at LGT Capital Private equity will only get bigger in Japan Partners, notes: “The rise of more buyouts 1. SHADOW CAPITAL IS HERE TO STAY and Korea as underlying economic trends, in China is a long-term trend that we like From sovereign wealth funds to family corporate governance awareness and grow- for 2018 and beyond. And these are growth offices, more investors will engage in direct ing reception to the asset class boost deal- buyouts with generally less leverage than investments in 2018. LPs are getting sav- flow. the four to six turns you see in western vier and deploying capital directly because Japan’s corporate governance code, markets.” of the cost advantage and the potential for which took effect in 2015, continues to That provides more capacity for GPs higher returns. push large conglomerates to think about to do dividend recaps down the road and A September report from UBS and how to increase returns and make core also gives managers more flexibility, Coul- Campden Wealth also revealed global family businesses more competitive. ter adds. “If economies turn and businesses offices plan to expand their co-investment Meanwhile in Korea, the government’s don’t grow as strongly as expected, obvi- efforts in the next year, driven by access view on chaebols, or family-run conglom- ously having less bank debt is better than to qualified prospects through trusted erates, is steadily shifting. The government more.” n annual review 2017 private equity international 85 KEY THEMES 2017

EMERGING MARKETS Asia powers ahead Emerging markets fundraising is showing signs of bouncing back with Asia leading the way

Fundraising for private equity strategies in Increase in funds raised compared with previous year emerging markets climbed 15.6 percent in decrease in funds raised 2017 to hit $45.3 billion, the highest since compared with previous year 2014, according to EMPEA. Emerging Asia Source: EMPEA was the star performer with fundraising surging to $39.8 billion, up from $32.1 billion in 2016. “EMPEA’s year-end data illustrate that private capital in many emerging markets regained momentum in 2017,” said Jeff Schlapinski, EMPEA’s research director. “Even with EM regions globally at differ- ent stages of the fundraising and capital deployment cycles, the strong performance of public equities was broadly positive as fund managers took to exchanges to gener- ate liquidity for their investors.” MEXICO Private capital in emerging Asia has 2016 2017 benefited from the growing interest of global limited partners moving into the $438m $565m region with large-scale commitments, 4 funds 8 funds EMPEA says. Among the countries show- ing increased private equity fundraising was India where 40 private equity funds took in $3.8 billion, up 19 percent on 2016 levels. The big growth was in pan-Asia vehicles, BRAZIL with KKR Asian Fund III accounting for 2016 2017 $9 billion of the total. Consumer services led all other sectors $151m $1.1bn for investment in 2017. After a subdued 6 funds 6 funds 2016, there was rebound in public market exits in 2017, with Latin America and CEE/CIS standing out. n

TOTAL FUNDS RAISED IN EMERGING MARKETS LATIN AMERICA 2016 2017 2016 2017 $39.2bn $45.3bn $2.1bn $2.8bn 224 funds 208 funds 23 funds 26 funds

86 private equity international annual review 2017 EMERGING MARKETS

CEE & CIS EMERGING ASIA 2016 2017 2016 2017 $1.1bn $1.8bn $32.1bn $39.8bn 13 funds 19 funds 151 funds 141 funds

TURKEY 2016 2017 $824m $25m 5 funds 1 fund

CHINA 2016 2017 $20.8bn $11.8bn 62 funds 44 funds

INDIA 2016 2017 $3.2bn $3.8bn 36 funds 40 funds SOUTH AFRICA 2016 2017 $312m $87m 4 funds 1 fund N/A

SUB-SAHARAN AFRICA MENA 2016 2017 2016 2017 $1.5bn $724m $197m $454m 19 funds 14 funds 14 funds 9 funds

annual review 2017 private equity international 87 AND FINALLY...

PICK OF THE YEAR The final word Our favourite stories from PEI’s Final Close section this year include some right royal secondaries investments and why private equity loves magic mushrooms

Queen Elizabeth the second(aries) The locust’s

For her seven decades on the throne, million files, primarily from the servers of redemption Queen Elizabeth II has hovered above the offshore services provider Appleby, repre- fray. While some of her nearest and dearest sented a rare blip, at least in the eyes of Locusts may not be the private equity bête have faced public derision, allegations of some media. noire they once were. Since 2004 the mere adultery or become notorious for gaffes, The papers revealed that the Queen, mention of the winged insect has struck the queen has for the most part remained through her private portfolio the Duchy fear – or at least mild annoyance – into the solid, apolitical – admirably beige. of Lancaster, had invested $7.5 million in heart of private equity professionals every- The Paradise Papers, a leak of 13.4 Dover Street VI, HarbourVest Partners‘ where. Franz Müntefering, of Germany’s $750 million, 2005-vintage flagship sec- social democratic party, coined the phrase, ondaries fund. accusing financial investors of “sucking off It was not her choice of fund that was substance and let companies die once they the issue, nor the size of her commitment, have eaten them bare”. The label stuck. but the fact that the vehicle she invested Perhaps, however, it has now finally been in was registered in the Cayman Islands. put to bed. One firm has definitely not let Overnight, Her Maj was dropped onto the insect’s reputation get in the way of a the front-line of the battle between onshore potential value-creation opportunity. and offshore, avoidance and evasion, the Aqua-Spark, an investment fund focused letter of the law versus its spirit. on sustainable aquaculture, teamed up with Like the queen, Final Close likes to think Dutch responsible investment heavyweight of itself as beige and apolitical. But if we Rabobank to back “leading insect company” took one thing from this, it is an apprecia- Protix, which has acquired locust breeder tion of her sophistication. Queen Elizabeth Fair Insects. Insects are exceptionally good II understands the importance of J-curve at taking “end-of-life” organic waste and by Joel Rouse/ Ministry ofWikimedia Commons Joel Rouse/ Defence via : by Source Pretty in pink: we are pleased to announce mitigation. Queen Elizabeth II is a second- extracting valuable nutrients. Perhaps the Queen Elizabeth II is a secondaries investor aries investor. n industry should reclaim the nickname. n A different drum Looking at documents from Oregon portfolio, which includes asset classes such Close must raise one point of difference. State Treasury’s September meeting, it as infrastructure and real estate. These are Throughout its inglorious musical his- appears that its chief investment officer like the bass and keyboard, occasionally tory, it hasn’t met a single ‘low-risk’ drum- John Skjervem has an unusual way of look- spectacular but more consistent in their mer, happy to do the basics in an under- ing at its holdings: the rock band analogy. returns, taking a back seat to the six-string stated manner. In fact, “uncorrelated” is apt, To him, equities and private equity are shredders. given that the average drummer, possessed like the lead and rhythm guitar, at the fore- Then there is fixed income – the drums: by the demon of rock ’n roll, often appears front, taking the biggest risk but (hope- uncorrelated to equities, low risk but offer- to be playing a different song to the rest of fully) generating the best returns. ing a steady, consistent rhythm of returns. the group. Maybe early stage venture capital Then you have the alternatives While this analogy stands up well, Final is a more apt comparison? n

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Shroom at the top

Back in the day, when all this was fields and the sun always shone, Final Close would go hiking in the beautiful British countryside armed with three pieces of advice: don’t annoy the cows, always close the gates and definitely, definitely, don’t touch the wild mushrooms. Given that the UK is home to at least 50 varieties of poisonous mushroom, some of which can kill within hours, this is clearly sound advice. But Final Close, as a naive young ’un, had no idea that this was not the only reason it was ordered to give the fungi a wide berth. The UK has a bountiful harvest of psil- High times: private equity is starting to see things differently ocybin – or magic – mushrooms, a tiny bite of which can make the eater lose all to assess the therapeutic benefits of magic Labs, an Oakland-based start-up that has sense of time, see colours and shapes and, mushrooms. developed the pot smokers’ equivalent of on a bad day, hide under the covers and From early next year, 400 patients from a breathalyser. not emerge until the bad men have gone eight European countries will start a three- Private equity firms are reportedly away. Like many other types of drug, magic month course of psilocybin to see if it can already in conversations with Compass, mushrooms are illegal in Britain, though help fight treatment-resistant depression. which has £4 million in seed capital from they might not be for long. If successful, it could lead to the kind of backers including Christian Angermayer, According to a story in the Financial fever provoked by the legalisation of mari- chief executive of family office Apeiron Times, British start-up Compass Pathways juana in some US states, which saw manag- Investment Group. Final Close, for its part, is set to launch the largest ever clinical trial ers like Benchmark Capital invest in Hound will be sticking to ale. n

A friendly rivalry For Final Close US public pensions are CalSTRS, or as board member JJ Jelincic among the toughest nuts to crack. Just get- described them “a little fund across the ting an investment officer on the phone is river”. hard enough, never mind convincing them And in private equity the gap was even to give you a hot tip or a colourful opinion. wider – 17.2 percent for CalSTRS versus However, Christopher Ailman, CIO 13.9 percent for CalPERS. “They’re obvi- of California State Teachers’ Retirement ously doing something different and obvi- System, is more colourful than most. And he chose a good meeting to attend ously the results are better,” a CalPERS He turned up at neighbour California – the CalPERS investment committee was board member lamented. Public Employees’ Retirement System’s given a grilling by its board as to why in the A tweet summed up Ailman’s mood with August board meeting in Sacramento with last fiscal year it was outperformed 13.4 an élan and pithiness that Final Close could a band of interns in tow. percent to 11.2 percent by cross-town rival not hope to match. Take it away Chris… n annual review 2017 private equity international 89 AND FINALLY...

Financial muscle Naming a new strategy or firm can always be naming its newest strategy – its impact tricky. One can come up with a nifty Latinate investment business – went with the pithy creation, only to find that some cosmetics title of ‘Double Impact’, seemingly unper- business has already nabbed it. Or worse still, turbed by the fact that the name was already you come up against a very 1990s stumbling taken by a 1991-action thriller starring Jean PEI Fortune block: the domain name is already taken. Claude Van Damme. Van Damme, known as Respect is due, then, to the team at Bain “The Muscles from Brussels”, plays a set of which, when faced with the challenge of twin brothers, separated at birth but reu- Teller nited 25 years later to avenge their parents’ murder. Importantly from a legal perspective, Our creative bods at PEI there is little similarity between the two came up with an origami brands, so the potential for consumers to be misled is minimal. For one thing, while ‘chatterbox’ fortune teller the movie gets a paltry return from crit- to show you what to do if ics – 14 percent, according to review site there is another GFC Rotten Tomatoes, the Bain unit is gunning for returns in line with its flagship buyout funds. With this in mind, perhaps they Whisper it quietly, but some believe we should have chosen another Van Damme could be looking down the barrel of another : Daniel Colin/Flickr Source Van Damme: unlikely impact pioneer classic, this one from 1993: Hard Target. n economic crash. So would should you do if there is there is another global financial Lay-ups and start-ups crisis? Don’t panic. Help is at hand courtesy of this handly little origami cut-out-and- Final Close had always thought the demands fold finger fortune teller. of modern sport were such that athletes had to retire, or at least semi-retire, before To make: simply cut it out and with the pursuing other lines of interest like golf, fortune teller face up in front of you, fold commentating or releasing their own brand back the corners to leave just the predic- of something-or-other. tions showing. With the predictions face up, Yet Kevin Durant, or the Durantula, fold back each corner one by one towards manages to keep his fingers (or should that the centre so the numbers are displayed be legs?) in a lot of pies while being one and the predictions are covered. Fold in of the world’s best basketball players. As half then into quarters. Place your thumbs well as being an eight-time NBA All-Star, and index fingers under the PEI logos to he has dallied with video-blogging, acting, Commons) Allison (Creative : Keith Source pinch and make the opposite corners come Durant dunk: the Durantula in his previous role philanthropy and, for the purposes of all as ‘small forward’ at Oklahoma City Thunder together. assembled, venture capital. Back in September 2016 Durant Early stage technology investor Cer- To play: choose a colour and spell out invested an undisclosed sum in Acorns, an raCap Ventures announced in August that the letters in the colour by opening your app that helps users keep track of their daily Durant had expanded “his foray into start- fingers alternately with each letter. Then expenditure. In June he announced he was ups” by investing in its analytics, cybersecu- choose a number and open the flap to see committing $2 million to a software start- rity and healthcare-focused business. what you should do if faced with another up called Slyce, co-founded by his Golden As Final Close spends – literally – tens of financial crisis. State Warriors teammate Stephen Curry minutes trying to correctly format a chart or – another person with more time on his get the text to wrap in an Excel spreadsheet And if you can’t follow the instructions, just hands than we imagined. cell, it can only salute these supermen. n ask an 8-year-old! n

90 private equity international annual review 2017 PREDICTIONS

It’s here: GFC mark II! What should you do? 2 1 ‘Pivot’ to become a special sits investor (you always were one, right?) Check your LPs are well are Check your LPs provider may well be…) provider

8 capitalised (your sub line 3

Call up the secondaries Highlight your operational buyer and ready credentials. If you don’t have the spin-out! them, hire them ASAP

Fast-track that succession Give thanks for how plan. It’s time to give cov-lite your portfolio the next gen a go company’s loans are

push into EMs/Venture/Credit

[delete as appropriate] 7 4 Rethink that bold

Take comfort in your comfort Take sweet 0% hurdle rate sweet 0% hurdle 5 6

annual review 2017 private equity international 91 AND FINALLY...

BEST QUOTES Soundbites of the year

Fund managers and investors had plenty “If too many people to say about private equity in 2017 try to get in that door, there’s going to be a problem” Princeton University professor John Mulvey warns of the dangers of too many investors moving into “If you believe that private equity returns are going “We are a small to be lower, then group of people I do believe fees and can move should be lower” “We are going very fast” BlackRock chief executive into the era of Jonathan Bullock, Laurence Fink offers his chief operating officer thoughts on private private markets” of SoftBank Group, says the equity fees TPG co-founder $100bn fund can be James Coulter says very nimble fast-growing companies are choosing to stay private for longer “Selling one’s business to private equity used to be the last resort. With “You can’t have “At this point the low interest rate a successful transition I’m not essential” environment, different if you are helicoptering Blackstone founder Japanese companies are Stephen Schwarzman over the people. We talks about change willing to work with funds” don’t want to be at the firm Masamichi Yoshizawa of the Longreach Group at the PEI Global helicopter parents” Investor Forum Tokyo 2017 Carlyle co-founder David Rubenstein talks succession on Bloomberg Television

“The proverbial elephant – 2006 and “I always thought 2007 deals – has “Not to sound the rules were now largely passed scalding and I don’t pretty clear that you through the snake” mean it that way but weren’t supposed to Bain & Co global head of just do your homework” defraud people” private equity Hugh MacArthur CalPERS Paul Mouchakkaa Joseph Smith, partner, on today’s exit market offers guidance to firms aspiring Schulte Roth & Zabel to manage capital for the pension fund

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