PE Key Trends Blog

A Cornucopia of Emerging Markets PE Funds

Apr 27, 2018 10:05:31 AM / by Robert Ientile posted in Private Equity Market, V2

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An International Monetary Fund World Economic Outlook report observes that emerging markets account for over 75 percent of today’s global growth, “nearly double the share of just two decades ago.” If you’re looking to participate in that growth the best way to do it is through private equity. Only a small portion of emerging markets expansion is captured through public equities. For example, there are relatively few stocks focused on fast growing consumer goods in developing economies. Indeed, the vast majority of rapidly expanding emerging markets companies are family-owned and in the private sector - precisely the businesses that PE managers successfully partner with. Though $61 billion was raised last year by emerging markets funds, the second highest amount on record, finding the best is difficult, given far-flung locations, the generally crowded fundraising market and the stretched resources of investors.

Palico’s Digital Marketplace Offers a Wealth of Emerging Markets Funds

Yet Palico offers a large variety of emerging market opportunities that can streamline the private equity investment process. Some two out of five primary and secondary investment opportunities among Palico’s listings are focused on the emerging markets of Asia, Africa, the Middle East and Latin America. Moreover, more than four out of five of those offerings are for funds of $250 million or less. They’re not only focused on dynamic family-run companies, but overwhelmingly on the more inefficiently priced small cap sectors of emerging markets. Primary and secondary emerging market opportunities also cover over 30 specialties, ranging from mezzanine finance in Mexico to impact investing in fast-growing Southeast Asian countries.

Don't think of it as a divorce. Think of it as a spinoff.

Emerging Market Listings Targeting Nearly $10 billion

Altogether, the aggregate capital targeted or raised by primary and secondary opportunities listed on Palico’s digital marketplace amounts to $9.8 billion. Among the fundraisings, the majority have already held at least a first close on capital commitments - demonstrating traction among investors. Some two out of five emerging market fundraisings on Palico represent first-time vehicles, the vast majority run by veteran, but hungry managers, eager to prove themselves as independent operators. This is in the context of recent evidence that the average first-time fund outperforms the average later-generation vehicle.

Helping LPs Find Investments, Palico’s Digital Marketplace Can Improve Returns

By bringing fundraisings and secondaries to desktops and smart devices, along with a wealth of information on those opportunities, Palico gives limited partners and their advisors more time to discover, analyze and invest in highly promising, frequently hard-to-find funds. Palico fits seamlessly with all channels of capital commitment, yet its digital marketplace makes fundraisings and secondaries - covering all strategies and regions - more accessible and affordable.

"With Palico, we essentially get a global marketing program, at scale, with no pressure on our resources. Palico is a great way to raise capital."

Daniel Ibri, Mindset Ventures, Sao Paolo, Brazil

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Smaller Funds Offer Better Returns & Downside Protection

Apr 13, 2018 10:00:39 AM / by Robert Ientile posted in Private Equity Market, V2

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Palico

With private equity fund sizes steadily increasing, anecdotal evidence from both investors and fund managers suggests that the lower mid-market and small cap sectors are less crowded than they once were - ironic at a time of record fundraising. Meanwhile, the marketplace for companies with annual revenues in excess of $50 million is more competitive than it’s ever been. And during a period of aggressive sideways expansion by large general partners into new strategies, we increasingly hear investors complain that they have little time to do anything more than re-up with existing relationships, most of which are focused on bigger market segments. Our message to all limited partners: using Palico avoids the ‘shoulda, woulda, coulda syndrome.’ Palico’s digital marketplace also easily and efficiently opens up a world of smaller and more specialized fundraisings to investors.

The Advantage of Scaling Up With a Fund Manager

Over time, of course, successful general partners running smaller funds tend to become larger general partners running bigger funds. A small, but significant subset of these managers experience the kind of explosion in demand over time and across fund generations that makes it difficult for investors to access their later, larger vehicles. This is yet another reason why limited partners - even the biggest - should maintain investment programs for smaller managers.

Small Funds and Specialist Funds May do Best in a Downturn

A particularly interesting academic paper that came out late last year indicates that PE-owned companies do better than non-PE-backed firms of similar size, purpose and profitability during downturns - a topic with plenty of relevance for fund managers and investors, given a near-record run of uninterrupted economic growth in the world’s major economies. In light of today’s record purchase price multiples, smaller funds, frequently specialists in uncrowded niches, or purchasers in the relatively neglected lower end of the buyout market, may do better than their larger counterparts in a downturn. Yet another reason why limited partners should consider smaller funds today.

Alternative PE - From the Four Corners of the Earth - is Palico’s Speciality

Helping smaller, harder-to-find funds standout is Palico’s speciality. Fund offerings with an investment focus covering 179 of the world’s 195 countries are listed on Palico, with more than four out of five vehicles focused on investing in the particularly inefficient small cap and lower mid-market corporate sectors. Additionally, two out of five operate in specialist sectors including agriculture, credit, timber, mining, water, shipping and intellectual property; and another two out of five focus on newer regions for private equity investment in Asia, the Middle East, Africa, and Latin America. A majority of secondaries sold on Palico involve funds that raised $250 million or less from investors. Some 80 percent of transacted secondaries are for stakes worth $10 million or less - what we call ‘small secondaries.’

$227 Million Invested via Palico

In 2017 limited partners invested $227 million in primary fundraisings and secondaries via Palico’s digital marketplace, overwhelmingly in smaller and more specialized funds. As average fund size grows amidst a record number of fundraisings, Palico’s digital marketplace helps primary fundraisings and small secondary offerings standout. Palico is making private equity ‘alternative’ again.

"Palico’s marketplace is a particularly valuable means of discovery in an industry where traditional fundraising frequently falls short."

Tom Clausen, Capvent

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Taking the Road Less Traveled Improves PE Returns

Mar 9, 2018 9:31:14 AM / by Robert Ientile posted in Private Equity Market, V2

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Palico

With fund-size records quickly achieved, only to be quickly broken in recent months, and as the average fund becomes ever-bigger (the typical PE vehicle has nearly doubled in size in the last six years to $1.3 billion), many private equity professionals expect their returns to shrink somewhat, increasing the appeal of the proverbial ‘road less traveled’ in our industry - investing in funds in uncrowded specialities and in the relatively neglected lower end of the buyout market.

The Emergence of Barbell Investing - Big Funds for Beta and Small for Alpha

Indeed, larger funds competing against each other for assets are likely to have a tougher time producing the kind of outsize returns for which private equity is justly celebrated. Today’s behemoths do, however, offer the opportunity to put exceptionally large amounts of money to work in one go, an advantage at a time when investors are loath to let capital earmarked for PE investment lie fallow in exceptionally low yielding investments. Given the simultaneous popularity of large and small funds, a barbell investing style is rapidly developing, with limited partners looking to commit large sums to big funds, but seeking a bigger bang for their buck by investing lesser amounts in those smaller, frequently sector-focused funds and emerging managers found on the road less traveled - what Palico dubs alternative PE.

Bringing Alternative Private Equity to Investors

In today’s mature private equity fund market, where a record 3,129 funds are seeking capital - some 42 percent more than just five years ago - it can be hard for limited partners to find the time to source and evaluate smaller managers. In fact, LPs these days actually find little time to do anything more than re-up with existing relationships, given the aggressive sideways expansion of large general partners into new strategies. Yet Palico’s digital marketplace brings a rich choice of promising smaller and specialized managers to the desktops of over 1,500 limited partner firms in every region of the world. Palico provides over-taxed LPs an efficient means to evaluate, analyze and invest in new GP relationships.

Palico’s Listings

Four out of five fund managers raising capital on Palico are seeking $250 million or less, intending to focus on relatively neglected and potentially attractively priced small cap assets; three out of five qualify as emerging managers, i.e. those raising their first or second fund - though most have previous experience at larger funds; two out of five operate in specialist sectors including agriculture, credit, timber, mining, water, shipping and intellectual property; and another two out of five focus on newer regions for private equity investment in Asia, the Middle East, Africa, and Latin America. Listings in Palico’s secondary market are dominated by small secondaries - stakes of $10 million or less in funds that have finished fundraising and are already investing. Palico is making private equity ‘alternative’ again, even as the overall industry matures. In 2017 limited partners invested $227 million in primary fundraisings and secondaries via Palico’s digital marketplace, overwhelmingly in smaller and more specialized funds.

"Palico’s marketplace is a particularly valuable means of discovery in an industry where traditional fundraising frequently falls short."

Tom Clausen, Capvent
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First-Time Fundraising the Right Way

Dec 8, 2017 9:43:33 AM / by Robert Ientile posted in Private Equity Market, V2

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Palico

Palico estimates that a record 770 first-time private equity funds - the inaugural iterations of their line - are currently seeking capital from investors. That’s a 50 percent increase over the 513 first-time funds seeking capital a year ago and 48 percent more than the previous all-time high of 520 in 2008.

The Favorable Environment for First-Time Fundraising

The mostly newly minted firms behind first-time funds - despite their inexperience as independent managers - are doing well, capturing 8 percent of total fundraising in 2017 - the most since 2011. This renaissance is largely explained by the weakening of top quartile persistence (one study indicates that just 12 percent of top-performing private equity managers now have back-to-back top-quartile funds versus 28 percent prior to 2004) and new evidence that the average first-time fund outperforms the average later-generation vehicle.

Less Reliable Top-Quartile Persistence

A recently concluded study by Massachusetts Institute of Technology economist Antoinette Schoar indicates that only 12 percent of top-performing private equity managers now have back-to-back top-quartile funds, versus 28 percent prior to 2004 and 31 percent before 1999. This helps explain a variety of trends, including the expansion of limited partner staffs, the increasing willingness of LPs to invest in first-time funds, the popularity of investing in less crowded specialty niches, and the growing use of digital tools like Palico’s marketplace - a means of streamlining complex PE fund selection. Put simply, less reliable top-quartile persistence puts a premium on selection skill, increased resources, and digital innovation.

Zeroing-In on the Right Investors is Key for First-Timers

Still, first-time fundraising is no cakewalk. Roughly half of all private equity investors simply won’t consider first-generation funds, since there is no independent track record to assess. This makes it essential for first-time fund managers to zero-in on investors predisposed to investing in maiden vehicles.

First-Time Managers Frequently Find Commitments on Palico

Palico is a particularly effective fundraising channel for first-time funds and a prized marketplace for investors looking to commit to inaugural funds. One-third of the capital raised on Palico since its launch five years ago has gone to first-timers (and slightly more than 50 percent has been raised by first or second generation funds). Over two-fifths of current investable fundraisings on Palico are for first-time vehicles covering buyouts, growth, venture capital, real assets, turnaround, credit and other strategies. In aggregate, these first-time funds are currently targeting $11.3 billion and have raised 13 percent of that sum, or $1.5 billion.

Palico Democratizes Private Equity Investment

Palico is a classic disruptor: it cuts costs and speeds up private equity commitment for all types of limited partners and general partners - small, medium and big, operating on their own or with the help of advisors - anywhere in the world. Today, Palico’s marketplace for investable primary and secondary opportunities unites over 3,000 LPs with over 5,000 GPs. Join them to see how digital streamlines fundraisings and secondaries.

"It’s great to push a button and see everything that’s out there. Palico helps me do my job better."

Sabina Eder, Bank Austria
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Inbox Overflow Changes PE Fund Selection

Nov 30, 2017 6:19:48 PM / by Robert Ientile posted in Private Equity Market, V2

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Palico

Covering potential private equity investments is a time consuming, sometimes painful experience for limited partners. The sponsors of an all-time high of 3,040 private equity fundraisings - a global patchwork focusing on everything from buyouts to credit - are jostling today to stand out, targeting a record $1 trillion from investors.

Limited Partners are Inundated with Fundraising Proposals

One of the biggest private equity investors, Hamilton Lane, is on pace to receive an unprecedented 800-plus private placement memorandums in 2017. It’s the fourth annual record-breaker in a row for fundraising proposals, and not just at Hamilton Lane. All investors it seems, from the smallest to the biggest, face the challenge of how to effectively vet today’s daunting variety of PE investment options.

Less Reliable Top-Quartile Persistence

A recently concluded study by Massachusetts Institute of Technology economist Antoinette Schoar indicates that only 12 percent of top-performing private equity managers now have back-to-back top-quartile funds, versus 28 percent prior to 2004 and 31 percent before 1999. This helps explain a variety of trends, including the expansion of limited partner staffs, the increasing willingness of LPs to invest in first-time funds, the popularity of investing in less crowded specialty niches, and the growing use of digital tools like Palico’s marketplace - a means of streamlining complex PE fund selection. Put simply, less reliable top-quartile persistence puts a premium on selection skill, increased resources, and digital innovation.

LPs Recognize the Need for External Tools

Indeed, the latest investor survey from Coller Capital - a widely followed indicator of investor sentiment - shows that limited partners believe they are failing to keep up with new private equity opportunities. Virtually half of North American LPs, nearly two thirds of European LPs and over two fifths of Asia-Pacific LPs say their organizations aren’t changing fast enough to take full advantage of PE opportunities. And three out of four of the world’s LPs believe they could significantly improve their PE programs through better use of “external data sources,” a catchall category that includes everything from third party software and cloud applications to digital marketplaces like Palico that bring the data rooms of investable primary and secondary opportunities to the desktops and smart devices of LPs.

Helping LPs Find Investments, Palico’s Marketplace Can Improve Returns

Not enough LPs realize just how much third party resources like Palico’s digital marketplace can help them. Among investors in the Coller survey who say they are under-using third party resources, three quarters believe they could improve portfolio management through these tools. Yet only one third share the conviction that they could register higher PE returns. We believe that as PE investment options grow, LPs who neglect digital marketplaces like Palico miss out on some of the best investment opportunities, and thus the potential to further improve their returns. Palico fits seamlessly with all channels of capital commitment, yet it is altering PE with a digital marketplace that makes fundraisings and secondaries - covering all strategies and regions - more accessible and affordable.

"We secured several commitments using Palico and the standout element was the remarkable efficiency of the digital marketplace."

Brett Hickey, Star Mountain Capital
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GPs Drag Their Feet, but Cows Hoof It to Digital

Nov 17, 2017 9:52:30 AM / by Robert Ientile posted in Private Equity Market, V2

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Palico

If cows are connected to the internet to increase productivity, you have to wonder why private equity general partners aren’t.

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HNWIs & Their Representatives - FOs, RIAs, Private Banks - Rapidly Increase Market Share, Palico Reflects This

Apr 21, 2017 10:12:59 AM / by Robert Ientile posted in Private Equity Market, V2

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High net worth individuals and their representatives, including family offices, registered investment advisers and private banks, account for 31.8 percent of the 2,826 accredited investors from over 80 countries looking for private equity fundraisings, secondaries and co-investments on Palico. That they account for almost a third of investors on Palico isn’t surprising. Data from the U.S. Securities and Exchange Commission indicates that HNWIs are growing their share of private equity investment faster than any other type of investor.

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Palico Global Private Equity Compass

Feb 16, 2017 1:51:16 PM / by Robert Ientile posted in Private Equity Market, V2

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Download Palico's Global Private Equity Compass, Summer 2016

Palico is proud to present its second Global Private Equity Compass as part of its ongoing commitment to enhance the Palico PE Fund Marketplace by offering valuable data.

The Compass is a survey of 179 general partners and 106 limited partners that contrasts and compares their PE investing experience, opinions and expectations.

Palico members get free access to the survey. Non-members can register for their free membership to get the report.

Palico Global PE Compass, Summer 2016

Survey Contents

• LP-GP fundraising expectations
• LP-GP views on acquisition pricing
• LP-GP views on Brexit
• Impact of more going to fewer GPs
• LP-GP views on fund restructuring
• LP-GP views on LP alliances/mergers
• LP-GP views on co-investment
• LPs increasing allocations

• LPs & one-stop shopping
• LPs on non-fund PE appeal
• LPs on the secondary market
• LPs on distributions & net cash
• GPs on ‘buy-and-build’
• GPs on debt, investments & exits
• SWFs & small funds
• VCs on valuations & regions

ABOUT PALICO - Palico is the first global online marketplace for the private equity fund community, covering primaries, secondaries, and co-investments. Since establishing itself as a fintech pioneer in 2012, over 30,000 professionals representing Limited Partners, General Partners, and Service Providers in 110 countries have joined Palico. LPs and GPs discover investment opportunities and engage each other in a secure environment where accredited investors can efficiently exchange restricted information before deciding whether to take the conversation further. All members have access to Palico’s growing assortment of PE tools for building their networks, refining investment hypotheses, analyzing opportunities, and finding new leads. These include the Fund Screener, the GP/People Screener, Fund Performance Data, a personalized PE news service, and the companion Palico News app. Palico is based in Paris and brings together a multinational team with backgrounds in private equity and developing web-based businesses. Investors can join Palico at www.palico.com.

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Palico Global Private Equity Compass, Fall 2015

Oct 22, 2015 4:43:22 PM / by Robert Ientile posted in Private Equity Market, V2

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Download Palico's Global Private Equity Compass, Fall 2015

Palico's Global Private Equity Compass is a survey of 159 general partners and 92 limited partners that contrasts and compares their PE investing experience, opinions and expectations.

Palico members get free access to the survey. Non-members can register for their free membership to get the report.

Palico Global PE Compass, Fall 2015

Survey Contents

• LP-GP return expectations
• LP-GP views on acquisition pricing
• The euro and PE investing
• Leverage & regulation
• LP-GP views on fund restructuring
• 2015 LP-GP fundraising forecasts
• Adequacy of LP resources
• LPs & first-time funds

• Shadow capital forecasts
• LPs & classic 10-year funds
• Capital deployment pace
• Impact of high deal prices
• GPs, HNWIs & retail
• GP merger expectations
• GP specialization
• Activists & ‘take privates’

ABOUT PALICO - Palico is the first global online marketplace for the private equity fund community, covering primaries, secondaries, and co-investments. Since establishing itself as a fintech pioneer in 2012, over 20,000 professionals representing Limited Partners, General Partners, and Service Providers in 90 countries have joined Palico. LPs and GPs discover investment opportunities and engage each other in a secure environment where accredited investors can efficiently exchange restricted information before deciding whether to take the conversation further. All members have access to Palico’s growing assortment of PE tools for building their networks, refining investment hypotheses, analyzing opportunities, and finding new leads. These include the Fund Screener, the GP/People Screener, Fund Performance Data, a personalized PE news service, and the companion Palico News app. Palico has offices in New York and Paris and brings together a multinational team with backgrounds in private equity and developing web-based businesses. Palico LLC is a member of FINRA in the United States. Investors can join Palico at www.palico.com.

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Suffering from PE Regulatory Vertigo? For relief, try Palico.

Oct 22, 2013 5:40:33 PM / by Robert Ientile posted in Private Equity Market, V2

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Private equity general partners and limited partners have been hit by waves of complex and often contradictory regulatory reform in recent years.  Last month’s lifting of the 80-year-old ban forbidding mass solicitation in the United States for private equity funds, and the implementation in July of the European Union’s Alternative Investment Fund Managers Directive -  seen by many as diametrically opposed to the U.S. reform - are the most emblematic of these changes.  We think they underline the value of an online private equity fund marketplace like Palico.

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