– 70% of PE Investors Plan Higher PE Allocations
– UK Dealmaking on Ice, at Least for The Short-Term
– Q2 PE-Backed Purchase Value in the US Drops Modestly year-on-year
– Large GPs to Deliver More Transparency
– Summer Reading: Silicon Valley’s Dark Underside
– PE KeyTrends Quick Question Results
SOME 70 PERCENT OF LPs PLAN TO INCREASE THEIR ALLOCATION TO PE relative to other assets in 2016, notes Real Deals’ coverage of Palico’s Summer 2016 Global Private Equity Compass. The bi-annual survey of 179 managers and 106 PE investors compares and contrasts the views of both groups across a wide range of topics. Among the survey’s highlights: approximately 80 percent of both investors and managers say LPs are committing more money to fewer GPs since the financial crisis; most investors say LP investing alliances and mergers improve returns, while a majority of managers disagree; more managers than investors believe co-investment is slowing deployment from classic PE funds; 56 percent of investors say they are shortening decision making processes in order to take advantage of co-investment, direct investment and the purchase of second-hand private equity fund stakes; and a slim majority of managers, with the exception of buyout and venture capital managers (for the moment), charge for co-investment.
“UK PE DEALMAKING IS ON ICE FOR THE SUMMER,” declares Financial News after canvassing the opinions of a range of mostly London-based private equity managers. UK PE-backed purchases “dropped 92 percent to just $1.64 billion” in the first half of 2016, “with the Brexit vote likely to further depress activity.” But in Palico’s Global PE Compass – described above – a slim but significant majority of global investors and managers see no negative impact on broader European PE investing in “the medium to long-term” as a result of Brexit. A separate PE Data Snapshot issued by Palico on the Compass’ Brexit question further breaks down attitudes by investor and fund manager type and concludes that while deal volumes in the UK and Europe may remain depressed for several quarters, the evidence points to much better pricing for buyers.
THE VALUE OF PE-BACKED PURCHASES IS HOLDING UP WELL IN THE US, private equity’s largest marketplace, reports WSJ Pro Private Equity. Majority and minority investments made by private equity firms in the US amounted to $30.12 billion in the second quarter of 2016, down modestly from the $32.73 billion registered in the same period last year. Moreover, Q2 value is up an exceptionally strong 75 percent from the $17.26 billion registered in 2016’s first quarter. Compared to the same period last year, volume in the latest quarter was weighted towards larger transactions worth $1 billion or more.
LARGE BELLWETHER FIRMS ARE SET TO DELIVER MORE TRANSPARENCY, writes WSJ Pro Private Equity, with others likely to follow suit. Within a year, four of PE’s largest managers, Carlyle, KKR, Silver Lake and TPG plan to meet the relatively exacting standards of a new fee and cost disclosure template designed by the Institutional Limited Partners Association, the main trade body for PE investors. “Because the template seeks a significant level of detail, including how much in monitoring and transaction fees portfolio companies bear for each quarter,” the firms are devoting significant resources to the effort. The US Securities and Exchange Commission has criticized – as well as fined – PE managers for not revealing what it considers enough fee information to investors. The use of the ILPA template by industry icons heralds what’s likely to become a major trend, “after decades of wide latitude on fee reporting.” Broad usage will also help attract individuals to PE investing.
HERE’S SOME SUMMER READING ON SILICON VALLEY’S DARK UNDERSIDE. According to Andrew Ross Sorkin, the founder of the New York Times DealBook daily financial report, the “most fun business book” of the year is a tell-all recounting of the experiences of former Silicon Valley venture capitalist and startup entrepreneur Antonio Garcia Martinez – it tops Sorkin’s list of books to bring to the beach. In addition to being “filled with insights about Silicon Valley,” what Martinez colorfully but salaciously calls ‘the tech whorehouse,’ the book, Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley, has “score-settling anecdotes that will occasionally make you laugh out loud,” writes Sorkin. “Clearly there will be people who hate this book – which is probably one of the things that makes it such a great read.”