– Coming Soon: “The Great Uncorking” of the IPO Pipeline
– PE Fundraising is Set for its Second Best Year Ever
– Calpers’ Semi Annual Report is Out
– Alaska Permanent Builds Co-Investment
– Post-Brexit Vote, It’s “Life as Normal” for 3i
– PE KeyTrends Quick Question Results
“THE GREAT UNCORKING” OF THE BACKED-UP TECH IPO PIPELINE is imminent, declares Bloomberg. “Only four U.S. tech startups financed by venture capital firms have gone public” this year versus “a recent peak” of over 50 in 2014. Now, “some of the brightest minds in the tech world are predicting” a major increase in initial public offerings from VC-backed startups “by the latter half” of 2017. Some companies “will go public by choice,” but others “will go public by force, as financial backers demand a way to cash out their investments.” Many tech startups are “essentially on an IPO shot clock because of onerous financial penalties if they go public after a certain date.” Bloomberg warns that the result may be some “brutal valuation comedowns” for companies that “can’t wait to go public at the right moment.” Time will tell.
PE FUNDRAISING IS SET FOR IT’S SECOND BEST YEAR EVER, writes Real Deals in its coverage of data from Palico showing that by the end of July private equity funds secured $309 billion in investor commitments. Palico observes that at the current pace, $531 billion will be raised by PE funds in 2016, a post-financial crisis record, and a sum exceeded only by the $557 billion collected in 2008. Even though distributions are dropping, PE fundraising “is set to carry on apace as investors seek returns in a period of low interest rates and sluggish economic growth,” notes Real Deals.
CALPERS’ SEMI ANNUAL PE PERFORMANCE REPORT IS OUT. The widely anticipated document from the California Public Employees’ Retirement System, the largest U.S. pension fund, contains a wealth of information on both industry trends and the group’s portfolio. The report reveals that purchase price multiples and average debt multiples have declined modestly from previous peaks, but remain considerably higher than historic averages. The pension fund’s one-year PE return of 1.7 percent through the end of 2016’s second quarter – down from the previous period’s 5.5 percent gain – outperformed both private and public equity benchmarks. But deteriorating values for energy funds are cited as an important drag on performance at Calpers and across the industry. Over 10 years, Calpers’ secondaries portfolio – funds bought from other investors – outperformed primary PE fund investments, with the two segments registering annualized returns of 10.9 percent and 10.2 percent respectively. Co-investment and direct investment notched the worst 10-year annual gain at just 1.8 percent. Separate accounts, a small but rapidly growing part of Calpers $26 billion PE portfolio, topped one-year performance with an average return of 12.9 percent.
ALASKA PERMANENT FUND BUILDS CO-INVESTMENT. In an enlightening WSJ Pro Private Equity profile, the bellwether PE investor reveals that it expects co-investments and direct investments to become “as important as external fund investments,” though chief investment officer Russell Read observes that “this won’t happen overnight.” The $54.2 billion state fund has 6.8 percent of its assets – $3.7 billion – invested in PE, with about a fifth already in co-investments and direct investments. Over the past three years, Alaska Permanent has joined many investors in reducing their “heavy dependence on funds of funds,” and now decides on its own how to invest in PE. To improve the fund’s ability to compete for direct investments with GPs, Alaska Permanent is also looking to form partnerships with other investors. Growing numbers of investors are exploring this idea as a means of increasing direct investment, which bypasses managers and their fees.
POST-BREXIT VOTE, IT’S “LIFE AS NORMAL” FOR 3i, Britain’s largest listed private equity firm. So says 3i chief executive Simon Borrows, speaking to City A.M: “We had a very busy first quarter, and realization and investment activity has continued” beyond the UK’s June 23rd vote to leave the European Union. “Now the referendum’s out of the way, now that we have a new Tory government with a particular sense of purpose, and the stock markets have performed well and results have been reasonable, I think it bodes well for increased activity in the autumn.” 3i’s public market investors agree. They’ve bid the group’s share price up 12.7 percent since Brexit vote eve.