Private Equity KeyTrends
February 12, 2013
A concise fortnightly distillation of key private equity news, with links to noteworthy PE articles and studies, edited by Palico – The Online Marketplace for Private Equity LPs, GPs and Advisers
IPOs ARE BACK, as the value of newly issued U.S. shares hits pre-financial crisis levels, and a European recovery builds. “In January, 76 companies sold shares in the U.S., including both IPOs and secondary offerings, raising a total of $18.2 billion” for “the best start to a year since January, 2008”, writes Reuters. Private equity owned companies earmarked for imminent U.S. initial public offerings include Blackstone’s Pinnacle Foods and TPG’s Taylor Morrison Home Corp. “There’s a level of confidence in the market that we haven’t seen in several years,” says Joe Reece, global head of equity capital markets at Credit Suisse. The Financial Times notes “real estate group LEG Immobilien has raised more than €1.3 billion in the second-largest German initial public offering in five years”, with 14 further IPOs planned for Europe’s stock markets this year. Pfizer’s animal health business, Zoetis, the biggest IPO since Facebook, raised more than $2.2 billion and soared nearly 20 percent on the New York Stock Exchange in its first day of trading, reports The New York Times DealBook.
EDUCATIONAL INSTITUTIONS ARE INCREASING INVESTMENT IN ALTERNATIVES, according to data from the highly regarded annual NACUBO-Commonfund Study of Endowments. Over the last three years, allocation to alternatives strategies has increased to 54 percent of assets-under-management from 52 percent, while allocations to all other assets are static or down. In the alternative category, allocations to hedge funds and similar investments fell slightly in 2012, while allocations to private equity and real estate funds increased. The only investments that produced average returns of 5 percent or better last year for the more than 800 institutions that take part in the study were private equity, venture capital and real estate.
CANADA’S SECOND LARGEST PENSION FUND WILL BUY MORE PRIVATE EQUITY, reports Bloomberg. Public “markets are a source of volatility” a situation that “will last quite some time,” says Michael Sabia, chief executive of the Caisse de Dépôt et Placement du Québec, which has $165 billion in assets-under-management. “We want to stabilize the performance of the organization.” With that in mind, Sabia intends to increase less-liquid investments like private equity, infrastructure and real estate to 30 percent of AUM by 2014, up from 25 percent today. Between $5 billion and $6 billion in new funds will flow annually to the targeted areas over the next two years, with a significant portion of that earmarked for emerging market strategies.
EMERGING MARKETS ACCOUNT FOR A GROWING SHARE OF PE FUNDRAISING, the latest data from the Emerging Markets Private Equity Association demonstrates. EM annual fundraising market share rose to a record 20 percent in 2012, almost double the level of six years ago.
ANNUITIES MAY BE “THE DEALS OF THE CENTURY” FOR GENERAL PARTNERS, declares an analyst cited by Bloomberg. Zachary Tracer and Miles Weiss explain how Apollo Global Management, Guggenheim Partners and other private equity managers are purchasing retirement annuity contracts at steep discount from insurers and using their long-term capital flow to boost fundraising and fees.
PRIVATE EQUITY FIRM APOLLO IS TOP OF THE CHARTS, as its shares rise 31 percent year-to-date, “the most among alternative-asset managers traded in the U.S.”, writes Bloomberg. Apollo reported Friday that its fourth quarter 2012 earnings more than doubled to $655.8 million from $302 million in the same period the year before, handily beating impressive earnings gains of 49 percent and 43 percent respectively for listed rivals KKR & Co. and Blackstone Group. U.S. private equity’s two other major listed firms, The Carlyle Group and Fortress Investment Group will respectively report fourth quarter results on February 21 and February 28.
THE SEC IS SEEKING “TO PROACTIVELY DETECT PROBLEMATIC CONDUCT” at private equity funds, says Bruce Karpati, chief of the enforcement division’s asset management unit. “We find some of the main industry stressors to be fundraising and capital overhang,” the Securities and Exchange Commission official notes in a transcript from a conference hosted by Private Equity International. The drop off in fundraising from the pre-financial crisis boom years, and today’s large amount of un-invested expiring dry powder means “many” private equity fund managers “are even now fighting for their survival,” Karpati observes. That “may lead some to cross the line into inappropriate behavior.” He also provides a warning on co-investment, stating “managers who offer co-investment opportunities only to certain favored clients may be violating their fiduciary duty to other clients who may also be interested in such opportunities.” Karpati strongly implies that GPs should expect more scrutiny from his agency. “All investment advisers need to be alert and prepared for exam inquiries,” he concludes.
DELL’S LARGEST OUTSIDE SHAREHOLDER WILL USE “ALL OPTIONS” TO OPPOSE SILVER LAKE. In an open letter, Southeastern Asset Management, beneficial owner of 8.5 percent of Dell shares, says it wants the company’s $24.4 billion sale to Silver Lake Partners scuttled because it undervalues the company. Other “take private” bids may run into similar potential roadblocks if, like the Dell deal, they are pitched at levels considerably below share prices hit during the credit bubble. Analysts cited by The New York Times DealBook believe the average share price Southeastern paid for Dell is nearly 50 percent higher than Silver Lake’s offer.
“CAPITAL DISTRIBUTIONS OUTPACED CONTRIBUTIONS” in 2012’s third quarter, according to Cambridge Associates’ U.S. Benchmark Commentary. It was the sixth time U.S. private equity investors have received net-cash out of the past eight quarters. Meanwhile, Palico estimates that GPs will release 10 percent or more of total capital committed to funds with investment periods expiring this year, based on un-invested dry powder reported by our members. This would mark the first time in PE’s brief history that expired unspent capital hits a double-digit percentage of committed capital. New limited partner freedom to invest expiring capital should improve fundraising prospects for some GPs.
VIDEO: THE WORLD ACCORDING TO CARLYLE. Interviewed by Privcap’s David Snow, The Carlyle Group’s chief operating officer, Glen Yougkin, says the mega-firm expects global growth will be “slow but steady” in 2013. Based on data from the 210 companies the firm owns worldwide, Youngkin says “China has really rebounded” and “South America and the rest of emerging markets are following suit”, while “Europe has stabilized” and the U.S. shows “reasonable, healthy growth”.
WONDERING WHICH U.S. STATE HAS THE MOST PENSION ASSETS? Pensions & Investments’ heat map of U.S. corporate retirement plans may prove particularly helpful if you’re a GP planning a roadshow.