Monitor

Private Capital Monitor 29/09

29th September 2023

WORTH A READ 

Europe  

CONSOLIDATE TO ACCUMULATE 

Speaking at the IPEM conference in Paris, Partners Group chief executive David Layton has predicted that the next 10 years will see the number of private equity firms operating in the industry reduce to just 100, from the 11,000+ that currently exist. The CEO based his prediction on the fact only the largest firms will be able to withstand the pressure of interest rates, regulation, and fundraising challenges. 

DECADE LOW FOR DECAYED FLOW 

Journalists at the Financial Times (FT) highlight the scarcity of global deal flow, noting it’s at a 10-year low with the worst third quarter for M&A since 2012. Following the post-pandemic “frenzy”, the past nine months have seen the number of deals worth $10 billion or more drop 42% compared to the same period last year. However, “a trio of potential blockbuster deals unveiled since the start of September”, which all comfortably sit about this $10 billion mark, could be a sign of a revival in the market.  

PE(RSISTING THROUGH THE) DROUGHT 

Chris Bryant, Bloomberg Columnist, observes that although it’s been widely documented that high interest rates and unfavourable economic conditions have hindered the private equity industry, firms’ ability to survive is exceeding expectations. Bryant contends that the talent for financial engineering possessed by “deep-pocketed owners” has bolstered the sector, thus averting the series of bankruptcies that many had feared. 

AN EYE FOR DETAIL 

The Financial Conduct Authority (FCA) is seeking to launch a review into valuations in private markets, according to the Financial Times. The review, which will begin by the end of the year, is a result of growing fears over the impact of higher interest rates on private markets. There is speculation that the review will review “disciplines and governance” over valuations, however this has not been confirmed by the FCA.  

United States  

GIVE US SOME CREDIT 

Private equity firms have begun to rely more heavily on strategies beyond traditional buyouts, particularly private credit, the FT writes. As interest rates go up, lending to companies has become more profitable—which means private credit will grow faster than private equity in the coming years, according to executives at the IPEM industry conference in Paris.  

IT’S NOT ME, IT’S YOU 

Private equity placement agents are being turned down – or even morally criticised – when pitching funds to US investors that strike deals in China, according to the FT’s Kaye Wiggins. With the Biden administration seeking bans on certain Chinese PE/VC investments and large firms splitting their US and China businesses, investors have proven to be wary of geopolitical conflicts and potential future sanctions.  

TOO MANY RULES  

Antitrust policies waged by Lina Khan and the Federal Trade Commission are threatening to stifle American business growth generated by private equity investment, writes Drew Maloney, President and CEO of the American Investment Council. Maloney argues that Khan’s pursuit of a “radical new antitrust theory” attempts to restrict the flow of business capital to the US without a clear economic objective. Private equity consistently delivers the highest returns of any asset class for public pensions, which benefits teachers and other public workers while providing small businesses with the capital needed to grow and operate.  

WALL OF MONEY 

Wells Fargo and Centerbridge team up on $5bn private credit fund 

The new fund is targeting $2.5bn of equity commitments, with roughly $2bn already contributed by Abu Dhabi’s sovereign wealth fund and the British Columbia pension fund. 

Temasek unit raises $3.3 billion in flagship fund investing in China 

Singapore state investment firm Temasek’s wholly owned unit True Light Capital has raised $3.3 billion in its flagship fund that invests in Greater China and has now closed it to new capital. 

Keensight Capital Raises $3 Billion for Growth Buyouts 

The European private equity firm has raised €2.8 billion ($3 billion) to invest in technology and health-care companies. According to the announcement, the fund was significantly oversubscribed. The firm typically invests in companies that generate revenues of €10 million to €400 million. Managing Partner Jean-Michel Beghin said the segment Keensight focuses on hasn’t been impacted much by the current environment. 

Värde Partners raises nearly $1.5bn for asset-based lending opportunities 

The global alternative investment firm raise for asset-based lending opportunities comes through The Värde Asset Lending Fund II and related accounts and co-investments. Värde currently manages $13bn in assets with teams in North America, Europe, and Asia Pacific focused on Corporate & Traded Credit, Real Estate, and Financial Services & Diversified Private Credit. 

MEDIA OF THE WEEK 

Adrian Mucalov, Partner and Head of Long-Life Infrastructure at Actis, discussed the impact of macro and micro conditions on the infrastructure asset class with Sam Turvey, Managing Partner at H/Advisors Maitland, during their conversation at IPEM. You can watch the full conversation here:  

Adrian MUCALOV, Partner, Head of Long Life Infrastructure, ACTIS 

DEAL CHART 

MOVERS AND SHAKERS 

• UBS has promoted one of its top investment bankers in France, Nicolas Paquet, to lead its alternative capital group in the country.  
• S64, an alternatives technology provider that specialises in products targeting the private wealth segment, has expanded into Australia and New Zealand with the appointment of former JPMorgan Asset Management boss David Hallifax. Hallifax joins as head of Australia and New Zealand in Melbourne. 
• General Atlantic has appointed Graves Tompkins as Chief Operating Officer. Tompkins is based in New York and has been at the firm for 15 years, joining in 2008 as managing director. 

HORSE’S MOUTH 

 “The longer central banks keep interest rates at these high levels, the more PE-owned companies will get into difficulties. But you can count on PE to find ways to turn crisis into financial opportunity.” – Chris Bryant, Bloomberg Columnist.  

“The supply-demand imbalance – between the small number of really great businesses and the significant dry powder within PE 
– is really keeping prices up.” – Flor Kassai, Partner, Inflexion. 

“Forewarned, forearmed; to be prepared is half the victory.” – Miguel de Cervantes, Author of Don Quixote, born on this day in 1547.