Issue 165 | May 2018 | privateequityinternational.com PEI 300 Guess who’s back on top? THE ORACLE SPEAKS David Rubenstein on the future of private capital SECONDARIES ROUNDTABLE Keeping LPs front and centre WHY PRIVATE EQUITY? The asset allocation special PLUS: the PEI Q1 Fundraising Report; IRRs vs money multiples; introducing the CEPRES model portfolio; Texas TRS goes Canadian; inside the PE retail blowouts; and much more… Equistone announced the successful final We are one of close of Fund VI at its €2.8bn hard cap in March 2018. Europe’s most Equistone has made three investments for Fund VI and will continue to source deals active mid-market and build value with management teams across our target markets. investors. www.equistonepe.com Evercore acted as the exclusive global placement agent for Equistone Partners Europe Fund VI. © EQUISTONE PARTNERS EUROPE LIMITED Authorised and regulated by The Financial Conduct Authority. PE International Ad May 2018.indd 1 18/04/2018 15:18 Riding high historically it’s been successful, but it needs to ISOBEL ISSN 1474–8800 | ISSUE 165 | MARKHAM work hard to avoid becoming a victim of that MAY 2018 EDITOR'S success. The signs are already there that this LETTER is starting to happen. Senior Editor, Private Equity Toby Mitchenall Tel: +44 207 566 5447 Sandra Robertson, chief investment officer [email protected] and chief executive of the UK’s £3 billion ($4.3 Americas Editor, Private Equity Marine Cole billion; €3.4 billion) Oxford University Endow- Tel: +1 212 633 1455 [email protected] ment Management, which manages assets on Editor, Private Equity International behalf of 32 investors, including the Univer- Isobel Markham Tel: +1 646 380 6194 [email protected] The PEI 300 is, without a doubt, Private Equity sity of Oxford, 25 colleges and six associated Asia Reporter International’s most hotly anticipated issue of charitable trusts, echoed many LPs this month Carmela Mendoza Tel: +852 2153 3148 the year, and the one people return to the most when she drew attention to the challenges of [email protected] after publication. I’m sure this iteration will accessing top-quartile managers who have the Reporters Rod James be no exception. luxury of selecting their LP base and limiting Tel: +44 207 566 5453 [email protected] The 2018 ranking is record-breaking. their fund size. Alex Lynn Tel: +44 207 566 5463 Between them, the 300 firms that make up Speaking at a panel discussion during the [email protected] our ranking have a five-year fundraising total Fiduciary Investors Symposium at the Uni- Contributors Dominic Diongson of almost $1.5 trillion, with the top 10 alone versity of Oxford, Robertson also questioned Andrew Hedlund Adam Le accounting for almost $400 billion. LPs allocating to the asset class on the basis of Victoria Robson This is cause for celebration. Limited part- past returns, making the assumption these will Senior Production Editor Mike Simlett Tel: +44 20 7566 5457 ner appetite for the asset class clearly isn’t abat- continue. As our analysis of the history of our [email protected] ing. As David Rubenstein tells us on p. 32, when ranking, from the earliest days of the PEI 50 Production and Design Manager Miriam Vysna you see enormous amounts of money going in 2007 shows (see p. 46), past performance Tel: +44 20 7566 5433 [email protected] into the asset class, you have to conclude inves- is no guarantee of future success. Head of Marketing Solutions, tors believe it represents a good opportunity. There will no doubt be some that say Nor- Private Equity Group Alistair Robinson Tel: +44 20 7566 5454 But our blockbuster PEI 300 also comes way’s decision – and the reticence of some [email protected] in a month in which private equity was dealt other investors to dive into the asset class – is Subscriptions and Reprints Andre Anderson, +1 646 545 6296 a significant blow. Norway’s finance ministry neither here nor there. After all, there’s clearly [email protected] decided to block its sovereign wealth fund – more than enough LP capital to go around. Jack Wharton, +44 203 8627492 [email protected] the largest in the world – from investing in But if the industry is to grow as much in the Sigi Fung, +852 2153 3140 [email protected] private equity, partly due to concerns over next decade as it’s done in the last, it must take For subscription information visit transparency on fees. heed of the concerns of potential future LPs. www.privateequityinternational.com. And Norway isn’t the only one with appre- After all, what are private equity funds without Director, Digital Product Development Amanda Janis hensions. Last month we shared views from their investors? Tel: +44 207 566 4270 [email protected] an industry conference in Edinburgh at which Editorial Director Philip Borel pension fund managers, trustees and advisors Enjoy the issue Tel: +44 207 566 5434 [email protected] cited hidden fees, liquidity issues and a lack Director of Research & Analytics of transparency over financial engineering Dan Gunner, [email protected] at portfolio companies as reasons why they Publishing Director Paul McLean, [email protected] were steering clear. This month, Sarah Smart Chief Executive of pensions administrator TPT Retirement Tim McLoughlin, [email protected] Managing Director — Americas Solutions looks at some of those concerns in Isobel Markham Colm Gilmore, [email protected] detail (p. 10). Managing Director — Asia Chris Petersen, [email protected] So what does all this mean? Well, that the e: [email protected] For more on this month’s cover art, see p. 67 industry can’t take anything for granted. Yes, may 2018 private equity international 1 CONTENTS PRIVATELY SPEAKING REGULARS 32 18 Regulation Watch: Mind the gap but it takes time to transition. Texas Blackstone reveals its pay by gender, TRS gets this the industry prepares for GDPR and the SEC scrutinises fees and expenses 24 Second Thoughts: Redefining direct secondaries 20 The Side Letter: Be careful; Verdane’s success raising its these staples look sharp debut buyout fund shows LPs will Why it is problematic to connect a back new strategies from proven GP-led secondaries deal to a primary managers fundraising 66 Data Room: 22 Life Less Limited: Looking north, Better than you think going direct Adopting the Canadian model is 68 Final Close possible for US pension plans, ALSO IN THIS ISSUE Guess who’s back on top? 4 Inside a giant GP-led 12 Left on the shelf As Carlyle is once again named the What is it like being the manager at Retail blowouts are making headlines, largest PE firm in the world, David the centre of one of the largest ever but many of the problems date from GP-led secondaries transactions? before the global financial crisis Rubenstein, the architect of its fundraising success, talks about the 8 Aussie cools 16 Capital gains future of private capital Archer Capital is the latest Australian Corporate venture capital has private equity firm to halt fundraising become a force to be reckoned with 10 Running on a ‘fad cycle’? 54 Secondaries Roundtable 36 PEI 300 UK public pensions have not been Prioritising the needs of LPs is more seduced into private equity’s growth important than ever 38 A reign supreme as successfully as some other investors. Sarah Smart, chairwoman 62 PEI Q1 Fundraising Report 39 PEI 300: 1-10 of TPT Retirement Solutions, suggests Average fund sizes reached a 10-year some reasons why high in the first quarter of 2018 40 A better performing PEI 300 41 All change at the top ASSET ALLOCATION SPECIAL 42 Sizing up the top 50 26 Easy does it 29 Good things, small packages Private equity is an increasingly Adams Street Partners has significantly 44 PEI 300: 11-100 common component of investment altered its allocation to the lower portfolios. So why are some investors end of the market in a bid to avoid 46 A decade of change still cautious? possible macro-economic headwinds 49 Who owns whom? 28 IRR: Infernal rate of rubbish? 30 Modelling it out Some performance measures are CEPRES has created a model 50 PEI 300: 101-200 better than others, but the battle for portfolio to allow us to analyse the supremacy rages on performance of the asset class 52 PEI 300: 201-300 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. 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