– The World’s Biggest Fundraisers
– Blackstone Holds Largest First Close Ever
– PE Fund Managers Say It’s Tough Competing for Assets
– PE Shies Away from Europe because of AIFMD
– A Guide to Co-Investment
THE TOP 300 PRIVATE EQUITY FUNDRAISERS IN THE WORLD are ranked by Private Equity International. PEI’s annual ranking of fund managers, based on the amount of capital raised over five years, shows that U.S.-based managers easily dominate the field. Carlyle leads with $31.9 billion raised between 2010 and 2014, followed closely by TPG and Kohlberg Kravis Roberts. The only non-U.S. based firm among the top ten, London-based CVC, is in 6th place, the same spot as last year, with $21.2 billion raised. Notable among the top ten are two firms focused on non-traditional PE: Energy specialist EnCap, which moved up to 7th place from 11th last year and emerging markets specialist Advent International, at 8th place, up from 10th in 2015. The smallest group on the list is Cartesian Capital Group, a global emerging markets specialist which attracted $908 million in five years.
BLACKSTONE HOLDS THE BIGGEST FIRST CLOSE IN THE HISTORY OF PE, after just seven months fundraising, reports Bloomberg. Some $17 billion has been committed to Blackstone Capital Partners VII, which will continue to gather capital. “Blackstone targeted $16 billion for the pool and set a maximum at $17.5 billion.” Previously, Blackstone, which manages $310 billion in assets, took two years to gather $21.7 billion for Blackstone Capital Partners V, which completed fundraising in 2007 to become the largest PE fund ever. That pool is valued at 1.9 times cost and returned 9 percent a year after fees.” Record distributions from realized PE investments are driving one of the best fundraising markets ever, particularly for large groups.
M&A OPTIMISM CLASHES WITH PE PESSIMISM AT ANNUAL MILKEN CONFERENCE. Among the mergers and acquisition bankers attending the Milken Institute Global Conference – arguably the most prestigious yearly gathering in global finance – “animal spirits ran unanimously high,” reports Reuters. That is hardly surprising given record levels of dealmaking, but it’s in sharp contrast to the attitude of private equity fund managers, who exhibited a “cautious tone.” In particular, they complained of the difficulties competing with strategic corporate buyers, who because of greater synergies are able to pay more on average for acquisitions than private equity. One common sentiment among the buyout barons was resignation. “TPG’s Jim Coulter said PE simply would have to play the hand it was dealt,” which in his opinion, “was a pair of sixes.” Reuters conclusion: “Those are lousy cards against corporate buyers playing so aggressively.” Money called for new PE investments, expressed as a percentage of committed but uninvested buyout capital, fell to a 30 percent annualized rate in 2015’s first quarter. That’s the slowest pace since 2009.
PRIVATE EQUITY FIRMS “SHY AWAY” FROM EUROPE BECAUSE OF AIFMD, says the Financial Times. In a story that zeros in on the region’s most regulatory-friendly market for private equity, the United Kingdom, the FT writes that “552 alternative managers have registered with the national private placement regime since its introduction in July.” Yet “many more houses that were previously active in the U.K., particularly from the U.S., have pulled back from the market rather than signing up to the placement regime, which was introduced to make the U.K. compliant with the European Union’s Alternative Investment Fund Managers Directive.” Says Richard Cross, an executive at regulatory consultancy Bovill, “many U.S. managers are either completely stopping their marketing activity in the U.K. because of the directive or they are relying on reverse enquiries from institutional investors, in which case they do not need to register.” PE managers are “deterred by the ‘painful job’ of having to report on their investment strategy, assets, leverage and principal markets.” Others are “put off by a need to file an annual report to investors that outlines the remuneration of fund managers and senior staff.”
HERE’S A HOW-TO GUIDE FOR CO-INVESTMENT. Despite a number of reports showing that co-investment has historically underperformed traditional private equity fund investment, Cambridge Associates says – done correctly – co-investment is more lucrative than classic fund stakes. Out of over 100 buyout co-investments Cambridge studied, “nearly half outpaced the sponsoring GP’s fund.” Because “implementation is trickier than it may seem at first glance,” the 29-page report aims to “frame the opportunities and common pitfalls of co-investment.” Among its recommendations: investors should only invest in deals where they have thoroughly due-diligenced the fund manager – “investors will likely need to rely heavily on the GP’s due diligence” of investments; “focus on investments within each fund manager’s stated strategy or ‘strike zone’ to avoid adverse selection;” and finally, don’t ignore the macro – “investors should be extra careful in frothy pricing environments.”