– 2014 Fundraising is Likely to Match or Surpass 2013’s Post-Crisis Record
– Oil’s Slump May Herald 2015 Increase in PE-Backed Investment
– U.S. Banks Have an Extra Two Years to Sell PE Fund Stakes
– This may be the Year for PE to Invest in Mining
– A Landmark Investment Partnership may Spark Similar Deals
2014 FUNDRAISING IS “ON TRACK” TO AT LEAST MATCH THE POST-CRISIS RECORD, writes Pensions & Investments. Citing data provider Preqin, P&I notes that the private equity fundraising market “had a total of $486 billion in capital commitments as of December 31, well on track to match the $531 billion in capital raised in 2013. Preqin estimates the 2014 figure will increase 10-20 percent as more information becomes available.” According to a wide number of data providers – including Preqin – 2013 marked a five-year, post-financial crisis high for private equity fundraising.
OIL’S SLUMP MAY HERALD A BIG INCREASE IN 2015 PE-BACKED PURCHASES, if Howard Marks, chairman and founder of private equity fund manager Oaktree Capital, is right. In the latest of his widely read investment notes, Marks, who often secures control of companies through distressed debt purchases, says that thanks to the rapid decline in the price of oil, “high levels of confidence, complacency and composure on the part of investors have in good measure given way to disarray and doubt, making many markets much more to our liking.” “We knew great buying opportunities wouldn’t arrive until a negative ‘igniter’ caused the tide to go out…the current oil crisis is an example of something with the potential to grow into that role.” Oaktree is certainly looking to acquire more aggressively in 2015. “For the last 3.5 years Oaktree’s mantra has been ‘move forward, but with caution.’ For the first time in that span, with the arrival of some disarray and heightened risk aversion, events tell us it’s appropriate to drop some of our caution and substitute a degree of aggressiveness.”
U.S. BANKS HAVE AN EXTRA TWO YEARS TO SELL PE FUND STAKES. Bloomberg writes that banks will get “a reprieve from the Volcker Rule that will let them hold onto billions of dollars in private equity and hedge fund investments for at least two more years.” The Federal Reserve granted the delay “after banks said selling the stakes quickly might force them to accept discount prices.” By pushing the deadline out to 2017, the Fed is granting “back-to-back single-year extensions, as authorized” by the Volcker Rule, which was passed by Congress in 2010 and designed to limit risky proprietary investments by banks. “The Fed said it will also consider whether to provide further extensions.” It has authority to provide “an additional five-year delay for funds that would be the most difficult to sell.”
IN 2015 THE STARS ALIGN FOR PRIVATE EQUITY INVESTMENTS IN MINING. “Tumbling commodity prices are aggravating the problems of cash-strapped mining groups and could spur a rebound in dealmaking,” writes the Financial Times. “The S&P Global Mining Index has fallen each year since 2011” while in 2014 “the value of mergers and acquisitions in mining fell for the third consecutive year to $48 billion, its lowest level” in ten years. Bankers tell the FT that PE fund managers could “deploy money to take advantage of valuations close to a cyclical low.” Notes Stephen Davy, head of EMEA metals and mining at Credit Suisse: “If ever there was a time when PE funds could get deals done in mining, it must be now. There has been no [public] equity capital for mining for two years, valuations have been crushed, there are many assets for sale and there are limited strategic buyers for those assets. It’s as close to a perfect storm as I think we’ll see for PE.”
A LANDMARK INVESTMENT PARTNERSHIP MAY SPARK SIMILAR DEALS among investors in PE funds. In a story in The Wall Street Journal, Edmund Truell, chairman of the London Pension Fund Authority and a founder of private equity fund manager Duke Street Capital, confirms that the LPFA is partnering with Lancashire County Pension Fund to “jointly manage liabilities and invest assets through a new investment company.” “The goal is to cut costs” and “improve returns” through greater investment firepower and deeper resources. The two pension plans intend to “partner with more pension funds” to boost assets from $15.7 billion to some $63 billion “in the next two or three years.” There has been considerable talk about using such partnerships as a way to improve returns, particularly in resource-intense private equity investing, where growing complexity, diversity of choice and a de-facto two-tier market favoring the largest investors have made it more difficult for many accredited investors in recent years to systematically identify and take stakes in the most promising opportunities. This deal may prove a catalyst for others.