Monitor

2023 Recap: Private Capital Monitor 22/12

22nd December 2023

2023 Recap (Europe)

With things moving fast in the world of finance, it’s easy to forget some of the stories that dominated headlines over the last year. As we approach the end of 2023, it seems a fitting time for us to look back at the narratives, events and themes that have shaped the private capital landscape over the past 12 months. From the seismic collapse of Silicon Valley Bank that sparked fears of a global financial collapse, to increased scrutiny on private asset valuations by regulators, it’s been a transformative period for the industry. But with volatility comes opportunity — the months ahead will determine who can nimbly ride out aftershocks as emerging dynamics reshape markets, and there is a quiet confidence in the sector that 2024 will be better than 2023.

Thank you to all those who’ve kept up with our private capital monitor. We will return in January with a recap from the US and an overview of what has transpired in the first week of 2023.

Happy holidays and a joyful new year from H/Advisors.

Q1 Jan – March

• Silicon Valley Bank was shut down by the California Department of Financial Protection following a run on the bank. This left venture capital and private equity firms exposed and rushing to save the capital behind many of their portfolio companies [link].
• As a part of a $10bn IPO, TPG restructured its finances to offer stockholders a claim on performance fees, marking a paradigm shift in the way listed buyout firms can operate [link].
• The SEC announced its move to compel hedge funds and private equity groups to disclose quarterly performance and fees charged to investors [link].

Q2 April – June

• The dislocation in the market saw an increase in public-to-private transactions. Global private equity take-private deals totalled $18.57 billion from April through June 21, down 82% compared with the full 2022 second quarter, Preqin Ltd. data shows [link].
• Regulatory burdens and low-interest rates opened the door for firms like Apollo and Blackstone to offer credit and fill the void left by banks [link].

Q3 June – September

• An upheaval in talent. Tim Franks, the head of KKR & Co’s private equity business in the UK and Ireland, decided to quit just months after the firm closed it latest European buyout fund with $8bn in capital commitments [link] and Guy Hands, one of Britain’s most prominent financiers, announced he will step down as the boss of Terra Firma Capital Partners, the buyout firm he set up more than 20 years ago [link].
• CVC Capital Partners raised €26bn ($29bn) for the largest private equity fund in history, defying a broader fundraising drought that has left many struggling to raise capital [link].
• Q3 saw two key moves to increase regulation in private capital. A tightening of rules on leverage for private credit funds [link] was agreed by member states and European parliament, and the FCA warned there will be a sweeping review of private market valuations [link].

Q4 September – Present

• Growing tensions and weakening trust between the US and China led to the introduction of a bipartisan bill that, if passed, will require private equity firms to make public how much they invest in China and other countries of concern [link].
• Private equity groups found themselves increasingly being scrutinised over their tactics for returning capital. The surge in the use of margin loans and net asset value financing has led to investors demanding disclosure about the costs and risks [link].
• Higher rates and the regional banking turmoil earlier this year have spurred a growing conviction that private credit will bloom. Some fear it will cause a bubble as seen in the financial crisis, while others are more confident. “Debanking” is at its early infancy, believes Marc Rowan, chief executive of Apollo [link].

WORTH A READ

United States

STORMY SKIES AHEAD

2023 was a challenging year for private capital firms and 2024 is not expected to be much better, reports Reuters. With private capital fundraising at five-year lows and higher borrowing costs, firms may need to exit portfolio companies to ensure they can return cash to investors and may opt to consolidate with larger firms.

MONEY, MONEY, MONEY

Rising inflation means that more than 24 million Americans are now accredited investors who can invest in private equity and venture capital funds. While some argue that private investments should be available to a broader pool of investors due to strong performance, others are concerned about the limited transparency associated with private markets.

BIGGER SLICE OF THE PIE

CalPERS is now planning to allocate 5% of its assets to private credit plans in search of higher returns and more secure, company-backed debt, with other major pension funds following suit, according to Bloomberg. However, some financial watchdogs note the risk of investing in a sector which has not yet weathered a long-term downturn.

Europe

FC(PL)A(Y ON)

In an attempt to boost London’s IPO market, the UK’s Financial Conduct Authority (FCA) has relaxed rules to enhance London’s appeal for IPO’s, eliminating mandatory shareholder votes for major transactions such as mergers. The FCA is progressing with the implementation of a consolidated tape in bonds and derivatives to increase transparency and lower data costs in the fixed income market.

STUCK IN THE MIDDLE WITH YOU

Bloomberg focuses on the hiring of placement agents in Europe and the Middle East by big-name firms, such as EQT and TPG to access new capital, as institutional investors remain reluctant to commit.

BACK TO THE FUTURE

Bloomberg brings an aura of nostalgia, noting that the current surge in private credit echoes the financial landscape of the 1980s when high-yield debt, popularised by Michael Milken and Drexel Burnham Lambert, fuelled a boom in leveraged buyout.

WALL OF MONEY

Tikehau Capital launches second aerospace PE strategy

The second vintage of its aerospace strategy is targeting €800 million and has been launched in collaboration with Bpifrance, Airbus, Safran, Sassault Aviation and Thales. The fund will support the growth, modernisation and ownership transfer of SMEs within the sector.

Paris-based VC firm Singular raises $435 million for its second fund

Singular launched in 2020 and has since raised north of €600m, placing it up there with some of France’s biggest investors, despite having a team of just over 10.

BlackRock’s Valentine Andrews hails ‘one of our best fundraising years ever’

Despite a challenging global infrastructure fundraising landscape, BlackRock achieved one of its best-ever fundraising years, according to Anne Valentine Andrews, the global head of infrastructure and real estate. Approximately $7 billion was raised across various infrastructure strategies, with the most recent achievement being a $1 billion first close for the BlackRock Evergreen Infrastructure Partners vehicle last month.

MEDIA OF THE WEEK

https://www.youtube.com/watch?v=CbqqAAgN-dI

Inspired by the success of Taylor Swift’s #ErasTour, Steve Schwarzman and Jon Gray decide to take Blackstone on the road for “The Alternatives Era” Tour.

DEAL CHART

MOVERS AND SHAKERS

• Christian Lucas, a senior European dealmaker at Silver Lake, has been named a managing partner at the US tech-focused private equity group.
• Paul Weiss has hired Clifford Chance London-based private equity partners Chris Sullivan and Taner Hassan.

FROM THE HORSE’S MOUTH

“[The challenges of the last twelve months] will drive some consolidation in the industry and we will also probably see some more exits from portfolio companies, more deal activity in 2024 to show good returns to the LPs,” – Anthony Diamandakis, Global Head, Global Asset Managers, Citi.

“It’s a combination of banks vacating that space and pensions looking for yields. Wider spreads and regular cash distributions with investor protections in the event of bankruptcy have made private credit attractive.” – Michael Shackelford, CEO of New Mexico’s pension system.

“Public opinion shapes our destinies and guides the progress of human affairs.” – Frank Kellogg, US Secretary of State, born on this day in 1856.