Monitor

Private Capital Monitor 01/03

07th March 2024

WORTH A READ

Europe

WILL THE BOOM GO BUST?

The Financial Times reports pension funds and large investors are reducing allocations to private credit due to concerns about rising interest rates, impacting the $1.7 trillion sector. As borrowing costs increase, investors fear potential defaults by companies unable to meet debt interest payments, despite the sector’s historically high returns.

HOW RICH?! NO IDEA…

Investors in private equity funds are increasingly looking at cash-based measures of performance amid challenges in traditional return metrics like internal rate of return (IRR). The article highlights how fluctuations in market conditions and timing of investments impact performance metrics, making it difficult for investors to accurately assess fund performance until capital is fully repaid.

PESSIMISM PETERING OUT

Despite a subdued stock market at the beginning of the year, optimism is growing in the City regarding potential takeover activity fuelled by low valuations of London-listed companies. Private equity firms are eyeing undervalued British firms for potential acquisitions, buoyed by premium offers seen in recent takeover attempts.

United States

PARTY IN THE USA?

According to private equity lobbyists, the industry is less than enthused about the Democrat and Republican candidates ahead of the 2024 presidential election, citing dissatisfaction with President Biden’s aggressive regulatory approach and President Trump’s populist behaviour. In a recent article, The Wall Street Journal Pro PE’s Chris Cumming noted that America is “well behind” the fundraising pace from the buyout industry compared with four years ago.

WHAT? LIKE IT’S HARD?

While the legal industry has escaped private equity’s growing influence due to American Bar Association Rule 5.4, which essentially declares that only lawyers can own law firms, Forbes’ Brandon Kochkodin questions if outside capital would compromise the independence of the industry. Although Arizona and Utah have already loosened restrictions around law firm ownership, Kevin Henderson, cofounder of SMB Law Group, acknowledged, “Bringing in PE money could create a conflict of interest,” but added, “I’d be remiss to say that concern is made up, but other professions have been able to make it work.”

DOCTOR’S NOTE REQUIRED

Bloomberg Law’s Andrew Oxford reports that proposed legislation in California aims to require private equity firms and hedge funds to receive approval from the state’s attorney general to buy health care facilities in the state. The bill’s author, Assembly Speaker Pro Tempore Jim Wood (D – CA 2) noted that the deals should be scrutinised more heavily so that patients better understand how competition, costs and their quality of care could be affected. However, Oxford added that some lawmakers believe that the measure would only make it harder for struggling health care systems to find buyers, and instead stifle deals that could ultimately keep facilities open.

WALL OF MONEY

EQT raises €22bn for private equity deals

European private equity group EQT has raised €22bn for the largest buyout fund in its 30-year history, following other marquee names in managing to raise substantial sums of money when many other firms are struggling.

Verdane closes Edda III on €1.1bn

Norwegian private equity firm Verdane has announced the final close of its newest fund Edda III at €1.1 billion, a number that more than doubles the size of its predecessor, and according to the firm is significantly past its target size.

Renovus completes $325m continuation fund for four portfolio companies

Philadelphia-based private equity firm Renovus Capital Partners has closed its first multi-asset $325m continuation fund (Renovus Continuation Fund), bringing its total capital across multiple investment vehicles to over $1.5bn.

DEAL CHART

MEDIA OF THE WEEK

Flawed valuations threaten $1.7 trillion private credit boom.

Watch the video here

MOVERS AND SHAKERS

• Keensight Capital have opened a new office in Singapore to help seek growth opportunities forits portfolio companies. The new office is their fourth globally and first in Asia.
• IPEM has announced its events for the next 18 months. Alongside its mainstay events in Paris (September) and Cannes (January 2025), IPEM will launch its first IPEM Wealth at Cannes, as well as expanding its presence into North America with an event in Chicago in April, and also one in China in November.
• Carlyle Group has hired Jeff Currie, the former Goldman Sachs global head of commodities research who predicted a mid-2000s boom in oil prices, to help the US private capital group invest behind big trends in energy markets.
• CD&R announced that Leslie Starr had been appointed as Operating Advisor to CD&R funds.

FROM THE HORSE’S MOUTH

“I would be cautious on the economy because it’s still early days, but people are now more comfortable with the uncertainties, and it just feels like things are more fluid.” – Kate Gribbon, Head of Financial Sponsor Coverage, Investec

[On his fund expanding into private credit:] “Everyone else has pulled back [but] it’s the right time to be putting more money to work.” – Steven Meier, Chief Investment Officer, New York City Employees Retirement Systems.

“Don’t keep forever on the public road, going only where others have gone. Leave the beaten track occasionally and dive into the woods. You’ll be certain to find something you have never seen before.” – Alexander Graham Bell, inventor of the telephone, born on 3^rd March 1847.