jan. 4, 2017 - bloomberg l.p. · private equity jan. 4, 2017 3 spinouts expected to continue apace...
TRANSCRIPT
Wednesday
Jan. 4, 2017
Jan. 4, 2017
Introduction
Private Equity 2 Jan. 4, 2017
Introduction
After a Strong 2016, 2017 Brings Uncertainty and Opportunities for Private FundsBy Ainslie Chandler, Bloomberg Briefs Editor In 2016, the private equity fundraising market seemed to shrug off ongoing global political and market volatility. Private funds secured the highest amount in more than six years, with $685 billion raised for the 1,656 funds that closed during the year, according to data compiled by Bloomberg. Those numbers were up 8 percent and 23 percent, respectively, on the 2015 figures, the data show.
However, there are signs that the fundraising environment could weaken in 2017. While 1,708 private funds started raising money in 2015, only 1,389 were launched in 2016, a drop of 23 percent, according to the Bloomberg data.
Venture capital fundraising followed a similar pattern. At 472, the number of funds closing was 25 percent higher than the 2015 figure and the total amount raised up close to 18 percent to $73 billion, according to data compiled by Bloomberg. However, the number of funds launched during the year dropped 11.5 percent to 479.
Some senior executives interviewed by Bloomberg Briefs expressed concerns about the potential negative impacts of political uncertainty in the U.S. and in Europe on the fundraising and investing market in 2017. Others wondered whether the high prices paid for assets in recent years could pose problems for
general partners and their investors.Despite the potential for a somewhat weaker fundraising
environment and some reasons for caution, the overall outlook for 2017 is far from doom and gloom: Uncertainty and volatility in global markets can leave asset prices dislocated and create investment opportunities for astute buyers.
Some of the senior executives we interviewed pointed to buying opportunities in the energy market after a volatile few years for oil prices. Others suggested that the market will continue to see a wave of senior investment executives leaving major firms to set up their own shop, as succession issues are brought to the fore, giving investors the chance to potentially get in on the ground floor at the Next Big Thing, reaping stronger returns along the way.
In this special report, we look at the highlights in the past year, from fundraising to the biggest fund closes, and the happenings in the funds-of-funds market. We also talk to 12 experienced investors and intermediaries tasked with choosing funds or raising funds about their experiences in 2016 and what lies ahead for 2017.
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Private Equity 3 Jan. 4, 2017
Spinouts Expected to Continue Apace as Investors Seek Exposure to Smaller FundsAs the new year begins, Bloomberg Briefs spoke to investors, general partners and intermediaries about what happened in 2016 and what to expect in the year ahead. Below are excerpted interviews with 12 of them, which were conducted by phone and e-mail in December 2016.
— Compiled by Ainslie Chandler and Dana Pardini, Bloomberg Briefs
Vijoy Chattergy, Chief Investment Officer, The Hawaiian Employees' Retirement System of the State of Hawaii. pension fund had $14 billion in assets and a 5.8 percent allocation to private equity at June 30, 2016.
Q: What was the main story of 2016? Institutional investors are trying to put a lot of money to work in the private market space. At some point, you have A:
to wonder if it's too much. Institutional investors are under a lot of pressure to generate returns. Bonds are still very low in terms of the total return and public equities are more volatile. Private markets have done really well in the last five to 10 years, and so people gravitate there. They need to be disciplined and focused over a long term for this particular
type of asset class or they may not get what they think they're trying to get.
Q: What do you think is the most interesting new fund or investments structure that you saw in 2016? There are some interesting financing opportunities and efforts in alternative energy. They are different structures: some are A:
impacted by government regulations others are just new opportunities, but that's potentially leads to some interesting investments.
Q: How do you think a Donald Trump administration might affect the alternative energy sector? It'll have an impact, it'll take time to play out. It probably means there will be less opportunity than there might have been in a Clinton A:
administration, but I don’t think it's necessarily going to mean the opportunity for green energy or alternative types of power generation will disappear, we may just all have to move to California.
Q: What is one thing that you may have done differently? We maybe would have looked at mid- or small-buyouts a little bit more closely. We are little underrepresented this year. In terms of A:
trying to build a diversified portfolio, one year doesn’t necessarily make a portfolio, but this year we were a little more in the large and mega buyout space. I'm hopeful that it was just this particular year. Another thing is we would have paid a little more attention to some of the changes going on in Japan in the private equity space. We're starting to see deals where some of these large folks like KKR are doing some interesting buyouts like spinouts from large Japanese conglomerates, and through strategic buying they're able to pair those sort of spinouts to European related groups. That may continue, and I would have liked to have been in that sooner.
Q: What is your biggest worry for the year ahead? What am I not worried about? It's just all over the place. The serious answer is really that the concern is that we have a major A:
market correction in 2017 whether it's because we run up too fast or something happens in oil or the EU starts to break up and it creates a cascade. I don’t know how dramatic a financial crisis but something that causes a selloff in growth markets. We just don’t know, it feels like something could happen or things could continue to grow, but that would be the worry.
Q: How do you think a Trump administration will affect the private equity market?A: It's really hard to tell. I'm sure it'll have an effect — whether it's positive or negative is hard to tell. I don’t think his policies or his pronouncements are as clearly defined. He's obviously brought Steve Schwarzman and some other folks into these committees, he's friendly, and so it may be very good for private markets. I don’t think anyone's going to be locked up!
Q: What's your surprise prediction for 2017?Donald Trump stops tweeting. This is a little bit out there, but surprise prediction is that the core EU finally goes its own way. I don’t A:
want to see that happen. I hope that between the refugee crisis and the election and the populism in Europe that we're able to continue to move on, and through any banking issues and currencies, that the EU holds it together. The world needs the EU to be health
Potential For Major Market Correction a Concern
More Q&As continued on next page…
Source: HIERS
Vijoy Chattergy
Private Equity 4 Jan. 4, 2017
Jeff Eaton, partner and global head of origination, Eaton, founded in 1983, is a global placement Eaton Partners. agency which was acquired by Stifel Financial Corp. in November 2015.
Q: What has been the biggest story of 2016?A: We closed six funds that were oversubscribed, five of those were first-time funds. That's a signal that the market is pretty good if you are a differentiated manager that checks enough of the boxes for LPs.
Q: Is there anything you are worried about in 2017?A: We've got to be careful where we pick our spots. We're pretty bullish on certain things in Europe but given all the
noise that's going on around the elections and referendums, there is some reason to wonder whether euro-denominated funds are going to have a tough time raising money. At the same time, we are in the process of taking on a sterling-denominated fund. We think the Sterling is good value and that Brexit may not have as big of a negative impact as people thought.
Q: Do you think the election of Donald Trump as U.S. president will have an impact on the private equity market?A: If the stock market continues to behave as it is, that's good for private equity fundraising as a whole because the denominator effect will be positive. We are looking to over-allocate to infrastructure and real assets strategies, given his talk of infrastructure spending.
Q: Any surprise forecast for 2017?A: If you would take a glass half empty view, you would say that it's been a bullish last couple of years for alternative fundraising and we are bound to have some kind of event that turns it around. And the Blue Devils will win the National Championship again.
Q: Is there anything you would have done differently in 2016?A: If anything, we could have had a couple of more U.S. mid-market buyout funds. There was a lot of money flowing to that space.
Trump Bump in Stock Market Could Help PE Through Denominator Effect
Kelly DePonte, Managing Director, . Probitas is a global placement agency and funds advisory firm Probitas Partnersthat has raised more than $55 billion with 77 different fund managers.
Q: What was the biggest story or theme of 2016?A: The Trump election. Even though it was late in the year and he does not have many specifics out in terms of his economic platform, there are a lot of GPs who are looking at this as a positive event because they are figuring there is going to be a decline in regulation and that will have a positive impact on their portfolio companies or companies they plan to buy. That's reflected in the surge in the stock market.
Q: Is there a new investment structure or fund type that stood out this year? The newest sector in private equity is private debt, which is continuing to grow and show strength. People are saying that might A:
start to rival private equity as far as fundraising is concerned. It's far from that now but it's certainly grown very quickly over the past three or four years.
Q: What is your biggest worry for 2017? A: Public markets. We’re at a high and the market has been strong for a while now. But there are areas of weakness in the economy. Retail is hurting, global markets are even more troubled than the U.S. market. Across private equity cycles, one of the driving factors has been what is going on in the public markets. When you have a big fall off it brings in the denominator effect and the amount of money that people have to invest in private equity.
Q: How do you expect a Trump administration to affect the market?Trump has not fleshed out plans, he is still putting together his cabinet. I do know it's not going to be the same across the board. A:
There is a feeling that the oil industry will do better because Trump will take actions that will make it easier to drill in the U.S. The flipside of that is that Trump has spoken about changing Obamacare. And that's caused a bit of anxiety for health care companies.
Q: Do you have a surprise prediction for 2017? A: The market does feel toppy for me. I worry about some sort of reversal. It could be triggered by weaknesses in Italian banks, there is still weakness in Greece, now subprime mortgages are rebounding in the U.S., as are subprime car loans. You've got political tensions between the U.S. and China. The interesting thing is that if you have a decline in public markets and public equity fundraising, it comes along with a decline in purchase price multiples. And for those people who have dry powder, it's a good time to invest.
Private Debt Fundraising Could Eventually Rival Private Equity in Scale
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Source: Jason Lewis Photography
Jeff Eaton
Source: Probitas Partners
Kelly DePonte
Private Equity 5 Jan. 4, 2017
Jeremy Wolfson, Chief Investment Officer, . The Los Los Angeles Water and Power Employees' Retirement PlanAngeles pension system had $10.9 billion in total assets, with a 5 percent private equity target allocation, at June 30, 2016.
Q: What was the main story of 2016?A: “Lower for longer” was the main theme approaching the U.S. presidential election.
Slow but positive U.S. GDP growth for the first half of 2016, accompanied by low interest rates and Treasury yields, with the Federal Reserve on hold. The year began with extreme equity volatility in January through mid-February and sub-$30 oil prices. This was followed by a recovery and then another volatility spike in June following the Brexit vote.
Rising commodity prices and slower than expected interest rate increases, helped support outperformance in the Emerging Markets. Although the Federal Reserve kept rates at the lower bound, they did signal a shift in policy. Other developed markets Central Banks, the ECB and the Bank of Japan, continued to pump liquidity into the system. Long-term U.S. Treasuries, EMD, investment grade corporates and high yield all outperformed, along with EM equities and U.S. small cap. Japanese and European equities lagged going into June. Private equity and real estate also performed well, however, there is always a lag in reporting and investors must also consider the long-term nature of these investments.
The big surprise was the U.S. Presidential election. The markets were mostly positioned for a Clinton win, and as the polls reported the likelihood of a Trump Presidency, U.S. equity futures pointed to an 850 point decline at the open. As we all know now, that didn’t happen, and the “Trump” rally has pushed equity prices to all-time highs and rates on U.S. Treasuries, have risen quickly, over 50 basis points on the 10-year Treasury note, for example. Third-quarter 2016 GDP came in slightly higher than expected, 3.2 percent versus 3.0 percent, however, still expecting modest overall GDP growth for the 2016 year overall.
Q: What is your biggest worry for the year ahead?A: There are always several issues that keep me up at night. One is that the markets are beginning to price-in several increases from the Federal Reserve for 2017 as a result of promises made by President-elect Trump for material fiscal stimulus. If this scenario doesn’t play out, or if protectionist trade policies create global trade wars, which is of lower probability, it could result in short-term market reversals. Also, a continuation of the slowdown in China and a faster than expected devaluation of their currency.
Although the probability of these outcomes might be low and the resilience of the global economy and markets may dampen the impact, investors should still be mindful of potential disruptions. Of course, dislocations in the markets can also lead to opportunities.
Q: What is your surprise prediction for 2017?A: The biggest surprise for 2017 would be if there were no surprises. I don’t say that to avoid the question. Tail risk and volatility will increase, it already has, and we will have a new President who is unconventional and somewhat unpredictable. Markets like predictability, so we’ll have to wait and see if there is a smooth transition and if the administration’s agenda is focused on implementing pro-growth fiscal stimulus without creating extreme inflation, unsustainable deficits, and/or global trade related challenges.
The Biggest Surprise for 2017? No Surprises
Continued on next page…
Source: LADWP
Jeremy Wolfson
Private Equity 6 Jan. 4, 2017
Mark Benedetti, Co-Head, Ardian has $60 billion of assets under management or advisement, including Ardian USA. $36 million in primary and secondary funds-of-funds and $13 billion of direct funds.
Q: What would you say is the most interesting new fund, investment category or investment structure that you saw in 2016?
One new category that has definitely popped up is some of these direct funds. We found that there are more and A: more investors who are saying "if I find a good buyout asset, I'd love to be invested in it for more than just a five-year period," especially groups like U.S. pension plans who have a very long horizon, and so a whole new crop of funds have popped up to take advantage of that market where they're raising capital dedicated to that space. So, a lower return, instead of maybe the 15 percent to 20 percent of the typical buyout fund, the target is more like 10 percent to 15
percent, or something around there. But it's not infrastructure assets, these are still really buyout assets with just a longer-term horizon. And we've seen about six or seven funds that are dedicated to such investing pop up this year.
Q: What is your biggest worry for 2017?First of all, there's definitely a market sentiment out there that we're really at the end of a cycle and about to enter another one. So A:
there's a real sentiment that people are looking for a reason to call it a downturn, and that kind of attitude can be contagious and cause something. So I think the real risk would be some kind of black swan event. Could be anything — could be a war, could be a natural disaster — that could spark that kind of fear and that concern. It's hard to predict but if you look at the private equity market today versus where it was back in 2007 - 2008, before the last major downturn, it was a much different market environment. The average portfolio that we would see in the secondary market back in '06, '07 had a net debt EBIDTA that was something like five, six or seven times — so, quite high. We're like one and a half and two turns lower than that on average in the portfolios we see today. That means that a lot of these portfolios are much more de-risked if we do enter a downturn. So I think they'll be much more able to withstand a downturn, if we have one.
Q: How do you think a Trump administration might affect the private equity market?A: Trump's major impact on the markets, and therefore on the private equity markets, are mostly to do with uncertainty. Initially, when we found out he won, the markets were really volatile, but what you find is that in periods of significant and sustained volatility, people put a pause on anything that they were doing that was more strategic. It doesn’t mean they're going to scrap their plans to do it, but if you're a group that was thinking of selling their portfolio of private equity funds as a way to go and jump into the direct investment investing category and compete with the GPs, well if the markets are off by 10 percent or 15 percent over the course of a week, or two weeks, or two months, you're probably going to wait to push the button. It's more pronounced in some sectors than others. I think there was some general uncertainty that kind of went away after he gave his opening address in the morning. But there are some parts of the market that will be more impacted, like healthcare is one where we have to see what happens with Obamacare.
Q: What is your surprise prediction for 2017?A: We had done some deals in the past that were $1.8 billion to $2.4 billion; I think that you're going to have a deal next year that could exceed that and could be the largest secondary deal that has been done. Second, the deal flow in the infrastructure secondary market is going to grow double digits.
Secondaries Market Could See Size Record Broken
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Source: Ardian USA
Mark Benedetti
Private Equity 7 Jan. 4, 2017
Alicia Cooney, managing director and co-founder of the global private placement agency. Monument Group, Monument Group has raised a total of $86 billion in capital since the company's inception in 1994.
Q: What was the biggest story or theme in private equity in 2016?A: I am not really sure you can pick one. The obvious one is the elections in the U.S.; in Europe it was Brexit; in China, it was the lower growth environment. The last would be the is there an inflection in venture capital returns that people haven't factored in yet.
Q: What are you expecting for 2017? The biggest question is with the U.S. economy — are we going to see lower corporate tax rates, what are we going A:
to see in the fixed income environment, which I think really factors into how our economy and our dollar will be. The global musical chairs in terms where people will put their capital. And I think we are going to get some signals within the next quarter that will further define the direction for people's portfolios from a country allocations standpoint. And that is one of my biggest concerns.
Q: Is there anything you would have done differently this year?A: I would say that I think we should be working harder than we have — and we have been working hard at it — to find more spinouts and emerging managers in the U.S. lower-middle market buyout funds. We've done well in that regard but I think that people have been more willing to place bets either in the buyout area or the growth area in the lower-middle market with newer groups — if people are credible, they value-add, they have a track record together. Going into the year, I would have thought that investors would have been a little more conservative or risk averse to some of those groups. But all of the ones I was aware of are all up and running. I don't think it's going away any time soon. We have to do our homework like a prospective investor would to understand drivers of their return, not leverage, timing or luck.
Q: Is there a new fund structure or innovation that you saw in 2016 that was particularly interesting? A: We're seeing a little bit more talk of evergreen funds. I think the push is coming from the GPs, but they are funds that people are sufficiently interested in that they would go along with it.
Q: Do you have a surprise prediction for 2017?A: Don't think the Patriots will win the Super Bowl, but I don't think too many people are worried about that. I don't think Melania Trump will go to the White House. All I can say is that nothing would surprise me after 2016.
We Should Have Focused More on Small-Cap Spinouts
Ethan Vogelhut, Executive Director, Adveq has over $6.5 billion in assets, as of November Adveq Management AG.30, 2016.
Q: What was the main story of 2016?A: The presidential election and Brexit were the key stories of the year. Both dominated the headlines and were major surprises to “conventional wisdom” and all present risks and opportunities for investors as we try to figure out what will change and what will stay the same in our markets and countries.
Q: What is the one thing you would have done differently?A: I would have backed a few more emerging managers. There are a number of promising up-and-coming managers that are highly motivated, hungry and creative, but there are only so many that you can put into a portfolio.
Q: What is your biggest worry for the year ahead?A: I worry that GPs will lose discipline driven by overhang pressure and competition from strategic acquirers. Prices and competition for deals are near or at all-time highs, and we sense a deal environment suffering from a severe case of “fear of missing out,” which could lead to poor investment decisions.
Q: What is your surprise prediction for 2017?A: I predict there will be a record number of acquisitions of GP stakes, which has become a more acceptable investment style. Most likely there will also be a record number of new firms joining in to participate in this strategy as well.
GP Discipline a Concern Amid Overhang of Dry Powder
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Source: Monument Group
Alicia Cooney
Source: Adveq
Ethan Vogelhut
Private Equity 8 Jan. 4, 2017
William Charlton, Managing Director and Head of Global Research and Analytics, Pavilion Alternatives Group. Pavilion advises more than $60 billion of alternative assets as of March 31, 2016.
Q: What was the main story in private equity in 2016?A: The consistent performance of PE over the past several years has led many LPs to increase allocations to the sector and this has led other institutional investors to establish new allocations. These allocations, combined with the re-investment of strong distribution streams, have resulted in a very active fundraising market. Many quality fund managers are aware of these dynamics and are capitalizing by returning to the markets earlier than expected while also increasing their fund sizes. Managers that have taken advantage of deep exit markets are not having any problem
hitting the hard caps even with their larger fund sizes. The ability of managers to raise quickly does create a situation in which existing investors have limited ability to increase their commitment levels and there is little-to-no capacity for new investors unless they have pre-positioned an allocation. The high LP interest in funds also gives GPs an upper hand in negotiating terms. One area that had decidedly moved in LPs’ favor is a growing focus on increased transparency around fees, expenses, and allocations. Q: What is the most interesting new investment category or investment structure that you saw in 2016?A: By far the most interesting category has been the incredible explosion of private credit vehicles. The demand for private credit is being driven by the changing regulatory environment as well as the quest for yield to improve the performance of LPs’ long-suffering fixed income portfolios. While this has caused a massive increase in the number of opportunities to evaluate, it is worth a note of caution. The challenge is finding those managers with a proven track record through a full economic cycle.
Q: What is one thing you would have done differently in 2016?A: Energy investments were hit very hard in 2014 and 2015, and that pain continued into early 2016 with oil prices falling into the $20s. However, for those that moved into energy in the first quarter of 2016 either through distressed debt or equity, returns have been very strong. We, and our clients, were fairly negative at the beginning of 2016. Looking back, increasing the exposure at that point would have been a good idea. Q: How do you think the election of Donald Trump as president will affect the PE industry?A: Trump’s win has introduced significant uncertainty as to the economic future of the country. If Trump adopts business-friendly policies and decreases the regulatory burden, this may result in a return to a more normal growth economy. Alternatively, Trump could pursue raising tariffs and initiate a trade war which could result in decreases across all economies. Which Trump will govern? If the election campaign was indicative, all of them. With that said, barring a trade war, private equity managers have consistently generated good returns in a middling economy, so it will be interesting to see how private equity fares in a solid economy.
Increasing Energy Exposure in Early 2016 Would Have Been a `Good' Idea
Jason Freedman, partner, international firm practices law across more than a dozen industry . TheRopes & Graysectors.
Q: Which part of the market are you seeing the most fundraising growth in? There is a lot in the credit space and there are a lot of emerging markets funds.A:
Q: What has been the biggest trend in private equity this year? There was, and continues to be, some degree of uncertainty about the election and Brexit, and waiting to see how A:
that shapes up, that was a big theme of this year. Looking at the U.S. in 2017, what a new administration means for the economic environment and the particular sectors are that PE sponsors are interested in is something that people are
keen on understanding.
Q: Do you have any concerns about 2017? No concerns, just continue to hope there is more certainty. Investors like certainty, particularly private equity investors In the last A:
weeks or months there seems to be more certainty. These are very smart investment professionals — they are very good at finding creative ways to find returns. What's key to that is understanding the rules of the game.
Sense of Certainty Will Be Key to Dealmaking in 2017
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Source: Pavilion
William Charlton
Source: Ropes & Gray
Jason Freedman
Private Equity 9 Jan. 4, 2017
Eric Zoller, founder and partner, . Sixpoint is a U.S. and Hong Kong-based placement agency and Sixpoint Partnersadvisory firm. The firm focuses on funds between $200 million and $2 billion in size.
Q: What is the biggest theme of 2016?A: Some years are full of exits or volatility but I think people are going to look back at 2016 and say it was a pivot year, as compared to the prior five years. Deal volume was down, the number of deals were down relative to 2015 and I think overall fundraising will be flat to down or only mildly up. The reasons for it are that there was some volatility early in the year, the IPO market almost completely shut at one point, so that limited the amount of exits. Valuations have reached
a peak, so that has been a driver of deals slowing. The lack of exits its causing a lack of distributions back to investors, which affects the amount of money being recycled back into the market. The other driver has been the uncertainty surrounding the election, which we are now getting some clarity on. So as we head into 2017, it will be a very different environment.
Q: What is your outlook for 2017? It depends on which Trump administration shows up. But I think we are going to see increased growth, a better regulatory A:
environment and an improved interest rate environment. But I don't think the impact of that will flow through to the market for a couple of years. I don't know that everyone is going to act on those changes unless those changes are going to be made on a bipartisan basis.
Q: What is your surprise prediction for 2017?A: We are going to see a lot of spinouts and succession stories. There's been a lot of new types of capital solutions offered into the market, groups like the Dyals of the world. I think that private equity seeding is something a lot more people are talking about. There is a lot more flexible capital in the market because of the amount of capital creation that has taken place in the past few years.
Q: What is the most interesting new fund type or strategy you have seen in the market in 2016? There has been a lot more discussion around longer-term and permanent capital. Permanent capital has always been the holy grail A:
of the private equity market. There's not an explosion but definitely an appetite for longer-term capital on the part of LPs.
Outlook Depends on
Which Trump
Administration
Shows
Up
Fraser Van Rensburg, Managing Partner, Asante is a global advisory and private placements Asante Capital Group. group based in London and New York. It has raised more than $10 billion for firms since it was established in 2010.
Q: What was the main story in PE in 2016? Brexit. It has caused uncertainty for the world's second largest PE market — with a fall in growth and weakened A:
pound. The risk going forward is that other EU countries exit, causing a collapse of the EU system.
Q: What is the most interesting new investment category or investment structure you saw in 2016?A: Life settlements — the purchasing of life insurance policies from holders who require liquidity and no longer need them for personal/other reasons.
Q: What is your biggest worry for the year ahead? Rising interest rates and slowing growth — which combined with heady equity prices will make it harder for PE investors to make A:
money.
Q: What is one thing you would have done differently in 2016?A: Would have done more energy — it’s a great time to be investing.
Q: How do you think the election of Donald Trump as president will affect the PE industry?A: Likely to be a positive — he is pro-business — but very hard to tell.
Q: What is your surprise prediction for 2017?A: Argentina becomes a very attractive market for PE investment.
`Great' Time to Invest in Energy
Continued on next page…
Source: Sixpoint
Eric Zoller
Source: Asante Capital
Fraser Van Rensburg
Private Equity 10 Jan. 4, 2017
Jeff Diehl, Managing Partner and Head of Investments, investment management firm. Adams Adams Street Partners, Street manages over $27 billion of assets internationally.
Q: What is the one thing you would have done differently in 2016?A: We wish we had launched our private credit business sooner, as we see significant opportunity in this area. Banks have structurally retrenched from lending money to mid-market companies, so we see a significant supply/demand imbalance in his market. Many buyout sponsors have asked us if we lend directly to companies and several clients have asked us the same thing. The platform we’re developing at Adams Street Partners has the flexibility to lend money to private equity sponsor-backed deals up and down the debt stack, across industries, and across geographies.
Q: What is your biggest worry for the year ahead?A: We expect increased interest from investors in the private equity asset class, given strong recent returns coupled with low expected returns from traditional liquid asset classes. New commitments to our asset class are essential given that most of our industry operates on closed end funds that have a specific life. However, we hope investors don’t become over-exuberant and flood our asset class with too much capital all at once as this could cause industry returns to erode.
Q: How do you think a Trump administration will affect the private equity market?A: We expect to see fiscal stimulus and a reduction in regulation, which will likely increase confidence of business leaders to invest in both capital and human capital to drive growth. This should be very positive for private equity-backed companies and deal activity. We expect these measures to cause the dollar to strengthen meaningfully which could put pressure on the financial systems of developing economies, while helping them become more competitive in medium-term export markets.
Q: What is your surprise prediction for 2017?A: I’ll make two predictions. First, absent an unforeseen market dislocation, I would expect to see four or more interest rate increases by the U.S. Fed in 2017. Second, I expect secondary market transaction volume to grow to between $40-50 billion in annual transaction volume after only hitting $30 billion in 2016.
Secondary Market Transaction Volume Could Hit $40-$50 Billion
Fundraising Timeline
Source: Adams Street
Jeff Diehl
Private Equity 11 Jan. 4, 2017
Fundraising Timeline
Fundraising Trends
Private Equity 12 Jan. 4, 2017
Fundraising Trends
By Ainslie Chandler and Dana Pardini, Bloomberg Briefs, and Josh Kruse, Bloomberg Data Analyst
Compiled from SEC Filings, Bloomberg and other press reports about funds with private equity structures. Non-Bloomberg reports have not been verified. These
figures reflect data available at time of publication.
Rankings: PE
Most Funds Closed in at Least Six Years
The number of private funds closed (1,656), and total amount raised ($685 billion), during 2016 was the highest in at least six years, according to data compiled by Bloomberg. However, the number of funds launched dropped by 23 percent to 1,389, the lowest in six years, the data show, indicating that the fundraising market could be losing some momentum.
VC Launches Slumped in 2016
Like in the broader private funds market, fundraising for venture capital pools remained strong, with the number of funds closed up 25 percent and the total amount raised up 18 percent on the 2015 figure, according to data compiled by Bloomberg. However, the number of funds launched during the year slumped by 11.5 percent to 479.
Secondary Funds Most Likely to Beat Target
Funds that invest in second-hand positions in other funds were the strongest performers in terms of hitting their fundraising goals in 2016, with more than 80 percent of funds monitored by Bloomberg meeting or exceeding their targets. Fund of funds were the least likely, with fewer than 45 percent meeting or exceeding their targets, the data compiled by Bloomberg show.
Total Raised for Funds of Funds Dips Sharply
The amount raised for funds-of-funds dipped by one-third in 2016, to $32 billion from $45 billion in 2015, according to data compiled for Bloomberg. The number of funds launched during the year also dipped, by almost 28 percent to 79, the data show, indicating a weaker year of fundraising could be ahead for the asset class, which has suffered amid an increased focus by investors on fees paid to external managers.
Private Equity 13 Jan. 4, 2017
Biggest Private Capital Funds Raised in 2016
RANK FUND GENERAL PARTNER SIZE ($B) STRATEGY REGION
1st Brookfield Infrastructure Fund III LP Brookfield Asset Management In 14 Real Assets Global
2nd Ardian Secondary Fund VII LP Ardian SAS 14 Secondary Global
3rd Advent International GPE VIII LP Advent International Corp 13 Buyout Global
4th KKR Americas Fund XII LP KKR & Co LP 10.8 Buyout North America
5th Global Infrastructure Partners III LP Global Infrastructure Partners 10.8 Real Assets Global
6th Green Equity Investors VII LP Leonard Green & Partners LP 9.6 Buyout North America
7th Apax IX LP Apax Partners LLP 9 Buyout Global
8th Permira VI LP Permira Holdings LLP 8.2 Buyout Global
9th Blackstone Real Estate Partners Europe V LP Blackstone Group LP/The 7.9 Real Estate Europe
10th Ares Corporate Opportunities Fund V LP Ares Management LP 7.9 Buyout Global
11th Sixth Cinven Fund LP Cinven Group Ltd 7.6 Buyout Europe
12th Thoma Bravo Fund XII LP Thoma Bravo LLC 7.6 Buyout North America
13th Highbridge Principal Strategies-Mezzanine Partners III LP HPS Investment Partners LLC 6.6 Debt Global
14th Strategic Partners Fund VII LP Blackstone Group LP/The 6.5 Secondary Global
15th GSO Capital Opportunities Fund III LP Blackstone Group LP/The 6.5 Debt Global
16th Lone Star Real Estate Fund V US LP Lone Star Global Acquisitions 5.9 Real Estate Global
17th Vista Equity Partners Fund VI LP Vista Equity Partners LLC 5.8 Buyout North America
18th Lone Star Fund X US LP Lone Star Global Acquisitions 5.6 Debt North America
19th Berkshire Fund IX LP Berkshire Partners LLC 5.5 Buyout North America
20th Ardian LBO Fund VI SLP Ardian SAS 4.9 Buyout Europe
21st Blackstone Real Estate Debt Strategies III LP Blackstone Group LP/The 4.8 Debt Global
22nd Dover Street IX LP HarbourVest Partners LLC 4.8 Secondary Global
23rd Fondo Atlante Quaestio Capital Management SG 4.6 Debt Europe
24th West Street Capital Partners VII LP Goldman Sachs Group Inc/The 4.5 Buyout Global
25th Macquarie European Infrastructure Fund 5 LP Macquarie Group Ltd 4.4 Real Assets Europe
26th BC European Capital X LP BC Partners Holdings Ltd 4.4 Buyout Europe
27th MBK Partners IV MBK Partners Ltd 4.1 Buyout Asia Pacific
28th Brookfield Capital Partners IV LP Brookfield Asset Management In 4 Buyout North America
29th Antin Infrastructure Partners III LP Antin Infrastructure Partners 3.8 Real Assets Europe
30th Carlyle Global Partners LP Carlyle Group LP/The 3.6 Buyout North America
Rankings: PE
Rankings: VC
Private Equity 14 Jan. 4, 2017
Biggest Venture Capital Funds Raised in 2016
RANK FUND GENERAL PARTNER SIZE ($M) STRATEGY REGION
1st Technology Crossover Ventures IX LP Technology Crossover Ventures 2,500 Venture Global
2nd Andreessen Horowitz Fund V LP Andreessen Horowitz 1,500 Venture North America
3rd Founders Fund VI LP Founders Fund Management LLC/T 1,300 Venture North America
4th Norwest Venture Partners XIII LP Wells Fargo & Co 1,200 Venture Global
5th Greylock 15 LP Greylock Partners 1,000 Venture Global
6th IDG China Capital Fund III IDG Ventures Inc 1,000 Venture Asia Pacific
7th Sapphire Ventures Fund III LP SAP SE 1,000 Venture Global
8th MF Venture Private Investments Infinity LP Medici Firma Venture 950 Venture Global
9th Sequoia Capital India V LP Sequoia Capital Operations LLC 920 Venture Asia Pacific
10th GGV Capital VI GGV Capital 900 Venture Global
11th General Catalyst Group VIII LP General Catalyst Partners LLC 845 Venture North America
12th Cocoon Networks Fund I Cocoon Networks Ltd 748 Venture Europe
13th Lightspeed Venture Partners XI LP Lightspeed Management Co LLC 715 Venture Global
14th Thrive Capital Partners V LP Thrive Capital Management LLC 700 Venture North America
15th Battery Ventures XI LP Battery Ventures LP 650 Venture Global
16th Sofinnova Venture Partners X LP Sofinnova Ventures Inc 650 Venture Global
17th Qiming Venture Partners V LP Qiming Weichuang Venture Capit 648 Venture Asia Pacific
18th EQT Venture Fund EQT Partners AB 617 Venture Europe
19th Third Rock Ventures IV LP Third Rock Ventures LLC 616 Venture North America
20th Bain Capital Venture Fund 2016 LP Bain Capital LP 604 Venture North America
21st Index Ventures VIII LP Index Ventures SA 550 Venture Global
22nd BMW i Ventures Fund II Bayerische Motoren Werke AG 545 Venture North America
23rd Longitude Venture Partners III LP Longitude Capital Management C 525 Venture North America
24th Column Group III LP Column Group LLC/The 510 Venture North America
25th Lightspeed Venture Partners Select Fund II LP Lightspeed Management Co LLC 500 Venture North America
26th DCM Ventures China Fund II LP Doll Capital Management Inc 500 Venture Global
27th Matrix Partners China IV LP Matrix Partners 500 Venture Asia Pacific
28th Accel XIII LP Accel Partners LP 500 Venture North America
29th Accel London V LP Accel Partners LP 500 Venture Europe
30th Foundry Group Next LP Foundry Group LLC/Delaware 500 Venture North America
Rankings: VC
Private Equity 15 Jan. 4, 2017
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