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Highlights:

– European Fundraising at an Eight-Year High
– Softbank Vision Fund Closes on Colossal $93 Billion
– The Ultra Mega Fund in Blackstone’s Future
– SWFs are Increasingly Competing with VC Firms
– Record Dry Powder for the Secondary Market
– PE KeyTrends Quick Question Results



EUROPEAN FUNDRAISING HIT AN EIGHT YEAR HIGH IN 2016,
reports the Financial Times, citing an annual study from Invest Europe, the main trade group for the private equity industry in Europe. Moreover, the €74.5 billion raised represents a 37 percent year-on-year increase. “Over 40 percent of capital raised by European PE last year came from investors outside Europe,” says Michael Collins, chief executive of Invest Europe. Meanwhile, Real Deals, citing activity in Palico’s marketplace, notes that five of the 10 most popular funds in the secondary market over the last six months have Europe as their investment focus. “With the euro relatively weak against the dollar on a historic basis, many investors clearly believe that the best [private equity] bargains are in Europe,” Palico notes.

THE FINANCIAL TIMES

INVEST EUROPE

REAL DEALS



SOFTBANK’S RECORD-SETTING FUND HOLDS A FIRST CLOSE ON $93 BILLION,
reports Private Equity International. The SoftBank Vision Fund, “already four times larger than the largest-ever private equity fund,” will buy minority and majority stakes in private and public tech companies encompassing everything from small startups to large, established, multi-billion dollar companies. It aims to invest in every region of the globe and in every facet of technology, “from the ‘internet of things’ to computational biology to technology infrastructure.” The fund, aiming for a final close on $100 billion within six months, is likely to contribute to an increase in the number of ‘unicorns’ – private companies worth $1 billion or more – and should add to the time such companies remain private before seeking a stock market listing.

PRIVATE EQUITY INTERNATIONAL



AN ULTRA MEGA FUND MAY ALSO BE IN BLACKSTONE’S FUTURE.
Softbank is not the only group looking to completely overshadow standing fund sizes; Blackstone is aiming to similarly outsize competitors. Blackstone has secured a $20 billion commitment from Saudi Arabia’s Public Investment Fund. Complemented by further fundraising, it will grow into a $40 billion vehicle with the capacity to make over $100 billion in leveraged infrastructure investments, according to the Wall Street Journal. The fund would be 2.5 times the size of Global Infrastructure Partners III – the largest ever private equity infrastructure fund when it closed in January. Watch for other large PE groups to significantly increase their fundraising ambitions in all areas of private equity. As they do, it’s likely to make fundraising tougher for smaller private equity managers.

THE WALL STREET JOURNAL



SWFs ARE INCREASINGLY COMPETING WITH VENTURE CAPITAL FIRMS,
says Reuters, joining the ranks of other investors – notably public asset managers like Fidelity, T. Rowe Price and Wellington – who also only recently began investing significant sums directly into startups. Sovereign wealth funds pumped $12.4 billion into 12 U.S. startups last year, up from four investments in 2012 worth $202 million. With SWFs like Singapore’s Temasek recently opening a startup-focused office in San Francisco and Malaysia’s Khazanah starting a similar operation in London, this looks like the beginning of a long-lasting investment trend. “SWFs are willing to put small stakes in a lot of companies with the expectation that one or two might become outsize successes,” says Nikhil Salvi, a manager at research and analytics firm Aranca. Given significant investments by non-traditional investors, valuations in the startup sector are unlikely to fall from near historic highs, even if VC firms find them a bit rich.

REUTERS



OVER $100 BILLION IS EARMARKED FOR PRIVATE EQUITY SECONDARIES
by specialists, funds-of-funds and in-house institutional investor teams, writes Palico founder Antoine Drean in Forbes. That record amount of dry powder makes it highly likely that transaction volume in the secondary market for closed PE funds in 2017 will surpass the all-time high of $40 billion achieved in 2015. Average sale prices in the secondary market have held above 90 percent of net asset value for four years now, indicating a fundamental sea change between the low volume, illiquid market of the early naughts and today. As a relatively painless way to actively manage portfolios for sellers, and a low risk means to diversify investments and generate quick cash returns for buyers, “the secondary market has bright days ahead of it,” concludes Drean.

FORBES


AND NOW THE RESULTS OF SOME OF OUR RECENT KEYTRENDS QUICK QUESTIONS:

  • 47 percent of LPs say they will compromise on potential performance in order to put an exceptionally large amount of money to work.
  • 50 percent of responding LPs are either invested in a secondary fund or interested in committing to one.
  • 53 percent of respondents believe a significant number of large U.S. public pension funds will embark on direct PE investment programs in the next five years.