Private Equity KeyTrends #25 – January 22, 2014

THE “SURGE IN PRIVATE EQUITY DISPOSALS WILL RUN ANOTHER YEAR,” declares a Financial Times story. Last year’s pickup “in disposals by PE firms is still in its early stages,” the FT writes, citing analysis by professional services firm Deloitte and Listed Private Equity, a trade body. Deloitte and LPEQ found that listed private equity funds-of-funds, considered a proxy for the whole PE industry, “are still sitting on unusually mature underlying portfolios.” The average hold time for portfolio companies held via listed funds-of-funds was 7.2 years in September, compared with six years in 2010. “The pick-up in corporate mergers and acquisitions and initial public offering activity is likely to have a big impact“ by shortening hold periods for PE funds, says Steve Lebus, chairman of LPEQ. “It bodes well for the next 12 months and probably beyond that.”


“IN THE WORLD OF PRIVATE EQUITY, IT MAY HELP TO BE BIG,” observes The New York Times DealBook. Of the $169 billion raised by 145 buyout funds last year, $85 billion went to megafunds,” more than 50 percent of the total. In 2012 the biggest funds received only “$30 billion, about 32 percent of the total.” According to a range of data providers, increasing capital concentration is a multiyear phenomenon. Investor tendency to go with easier-to-research, bigger funds is most pronounced in emerging markets, in part because of the great distance between these countries and traditional PE money centers. The most recent evidence of this comes from Private Equity International. PEI estimates that ten Asia-focused PE funds raised $19.7 billion, or 70 percent of the $27.6 billion committed to the region in 2013. That compares with fundraising market-share for the ten biggest Asia-focused funds of 43.7 percent in 2012, 32.9 percent in 2011, and 31.7 percent in 2010.


ASIAN PE INVESTORS ARE “UNINSPIRED” BY CHINA’S “IPO THAW,” writes the Financial Times. Regulators shut down China’s initial public offering market for more than a year before opening it this month under tougher oversight than in the past. “However, PE managers now realize that their companies are at the end of a queue of 700-plus IPO hopefuls in China.” “The industry saw just 20 IPOs raise $2.8 billion across Asia in 2013, but there were 166 trade sales worth $31.5 billion.” That represents a shift from pre-shutdown years, when most companies were sold via IPO. Reuters provides a behind the scenes look at what went into “the biggest ever private equity sale via M&A in Asia.” Announced Monday, the $5.8 billion sale of South Korea’s Oriental Brewery to Anheuser-Busch InBev will net three times the price current owner KKR & Co. originally paid.


A PREMIUM FOR THIS PE PORTFOLIO WOULD BE GOOD NEWS FOR SECONDARY SELLERS. J.P. Morgan Chase announced late last year that it would be selling PE portfolio investments held through its private equity arm, One Equity Partners. Now, The Wall Street Journal reports that the bank “wants bids at least equal to the net asset value of One Equity’s portfolio, which was about $5.4 billion as of September 30.” The deal would be the largest secondaries transaction ever. If the stakes are sold at par or better the transaction will also generate plenty of positive momentum for secondary sales. With secondary funds and the secondary pockets of funds-of-funds holding some $55 billion in uncommitted capital, a number of market observers are predicting record secondary volume in 2014.


“REINVESTING RECORD NET CASH IS AN OPPORTUNITY AND A TEST FOR PE INVESTORS,” writes Antoine Drean in Forbes. The founder of Palico notes that “faced with record cash flows from realized PE investments and rising stock markets,” many investors can’t maintain percentage allocations to private equity without seeing their portfolios turn into “the equivalent of broad private equity indexes.” Yet “while investors are cutting percentage allocations to PE, simultaneously, in an effort to invest as much as they can in the asset class, they are becoming more imaginative,” notably by “rolling out ambitious emerging manager programs where they not only back new fund managers, but also take the initiative in setting them up.”


EARLY-STAGE VENTURE CAPITAL FUNDS CLIMB IN POPULARITY, as The Wall Street Journal reports that 205 of these vehicles successfully closed fundraisings last year, “the most since the end of the tech bubble in 2001, when 199 closed.” While early-stage firms “raked in $9.37 billion, a 51 percent jump from 2012,” their 2001 equivalents raised $22.47 billion. The relatively small sum raised in 2013 versus 2001 should be a reassuring sign for those worrying that a new tech bubble is developing. The popularity of early-stage investing comes as tech companies take advantage of the internet cloud and greater internet use to lower costs and acquire users at unprecedented speed.



  • As GPs increasingly invest in non-control stakes, 57 percent of KeyTrends respondents say fund managers should be compensated less for these stakes than for control investments.

  • Almost 75 percent of KeyTrends respondents believe investment returns from Sub-Saharan Africa will live up to today’s high expectations.

  • 71 percent of KeyTrends respondents think the conditions are in place for a significant increase in private equity-backed purchases in 2014.

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