– The World’s 50 Largest PE Investors
– VC Investments Approach Dot-Com Levels
– Calstrs to Hone Skills in Less Mainstream PE
– PE Borrowing is Weak for Second Quarter in a Row
– China’s IPO Ban: Trouble and Opportunity
PEI RANKS AND PROFILES THE WORLD’S 50 LARGEST PE INVESTORS over the last five years. Topping Private Equity International’s list of limited partners is the Canada Pension Plan Investment Board, widely regarded as one of the most innovative investors in PE. CPPIB’s $28 billion in PE investments since 2010 is a whopping 43 percent more than the amount deployed by second-place AlpInvest, the Dutch fund-of-funds group owned by Carlyle, and 50 percent more than the investments of third-place Hamilton Lane, the U.S.-based fund-of-funds group. The rest of the top ten in descending order are HarbourVest Partners, Washington State Investment Board, Goldman Sachs, the California Public Employees’ Retirement System, Pantheon, La Caisse de Dépôt et Placement de Québec and the Teacher Retirement System of Texas. PEI’s “LP50” have invested a total of $381 billion in PE since 2010, with 71 percent of the total coming from U.S.-based investors, though that would come down considerably if Sovereign Wealth Funds – which rarely reveal their PE investments – had been included in the study.
VC INVESTMENTS “ARE APPROACHING LEVELS LAST SEEN IN THE DOT-COM ERA,” writes the Wall Street Journal, with venture capitalists significantly increasing their bets on “U.S.-based technology and health-care companies in the second quarter” of 2015. Some $19.19 billion was invested in such companies in Q2 – 24 percent more than in the same period last year and nearly equal to the $19.72 billion invested in 2000’s fourth quarter. Yet in terms of transaction numbers, the deal pace remains considerably below the peaks achieved during the dot-com bubble. “That is because large amounts of money are now going to substantial companies such as Uber Technologies and Airbnb that find private markets more attractive than public ones.” Today’s “hot” investment market also “hasn’t triggered a rush into venture funds like that seen during the dot-com bubble.” In 2000, at the top of the bubble, “venture firms rounded up about $85 billion.” So far this year, VC fundraising amounts to some $21.52 billion.
BELLWETHER CALSTRS SEEKS INVESTMENTS IN LESS COMPETITIVE PE NICHES as it struggles to reinvest a “torrent of cash distributions” from private equity funds, notes Dow Jones’ LBO Wire. “Capital distributions for 2015’s second quarter “exceeded capital commitments across buyout, venture capital, expansion capital and mezzanine” private equity strategies at Calstrs, the second-largest public pension fund in the United States. Calstrs isn’t the only investor “that has seen lots of cash infusions” as PE fund managers take advantage “of rich valuations to exit holdings.” But rather than reinvest all that money into the same high-valuation sectors, Calstrs will be “honing its skills in ‘less mainstream sectors’ such as debt, special situations, energy and emerging markets, where there might be less money chasing deals.” Watch for others to similarly hone their skills.
PRIVATE EQUITY BORROWING IS “WEAK” FOR A SECOND QUARTER as mergers & acquisitions volume hits new records, reports Reuters. “Borrowing by U.S. PE firms of $93.3 billion” in the second quarter of 2015 is “down 16.3 percent from $109.1 billion a year earlier,” as “sponsors battle cash-rich corporate buyers” and struggle with leveraged lending guidance from regulators restricting banks’ ability to underwrite highly leveraged loans. Posits Reuters: “Although PE firms are facing challenging times, middle market lending could be a bright spot due to smaller deal sizes and alternative lenders’ growing ability to provide capital.” Such loans “are easier to execute because non-bank lenders are not subject to regulatory constraints and can provide capital on smaller deals, even if they are highly leveraged and exceed regulators’ guidelines of six times debt” to cashflow. Of course, more plentiful credit in the middle market may not make much of a difference when it comes to uptake, given record high purchase price multiples and eager corporate buyers.
CHINA’S IPO BAN IS TROUBLE FOR SOME, BUT IT MAY ALSO BE AN OPPORTUNITY. Reuters observes that China’s move this month to shutdown initial public offerings “to contain a stock market meltdown could endanger nearly $32 billion worth of deals announced this year by Chinese companies.” The companies, often “backed” by “buyout and venture capital firms” were “planning to drop their listings on U.S. exchanges and return home.” Many “want to proceed,” given valuations that are still higher in China than in the U.S., even after the recent market slide. Yet “most of the deals are non-binding, and without committed financing in place” they are “likely to collapse,” harming both the companies and their private equity backers. Still, for private equity, the trouble in China’s stock markets is far from just doom and gloom. The longer the IPO market remains shut, the greater are the chances that PE firms can provide attractively priced equity and debt to companies that would otherwise have opted to go public.