H/Advisors Private Capital Wrap-Up 15 November 2024
WORTH A READ
Europe
The FCA is probing how private markets firms value their assets, aiming to keep risks in check as the sector booms, according to a survey seen by Financial News. The regulator is asking firms about their valuation practices, governance processes, and use of leverage and NAV financing. The FCA wants details on asset classes, exits, and transfers between funds. The oversight comes as regulators globally try to prevent the private markets from overheating into a bubble, while also recognising their potential to improve returns for savers.
The private capital industry is pushing for changes to UK pension regulations to allow more defined contribution (DC) funds to invest in illiquid private assets, according to an in-depth feature from FT Adviser. They want to adjust "permitted links" rules, either excluding default DC funds or making certain private structures "conditional permitted links." This could enable 20% allocations to private markets versus the current 5% target. However, there are concerns about illiquidity in retail-focused DC plans and ensuring appropriate liquidity for members.
Bloomberg reports that private equity firms are increasingly utilising net asset value (NAV) loans to borrow against their portfolios. These loans allow firms to avoid booking losses on asset sales whilst waiting for better market conditions. Banks, including Nomura and Goldman Sachs, are now financing funds that provide these loans, indicating a growing acceptance of this financial strategy. The NAV lending market is part of a larger fund finance ecosystem, projected to reach £240 billion in the next two years. Whilst proponents argue that NAV loans offer flexibility and prevent forced asset sales, critics warn about the potential for excessive leverage and systemic risks in the financial system.
United States
As the Trump Administration heads back to the Oval Office, asset managers are forecasting a deal boom due to anticipated tax cuts and regulatory easing. According to WSJ Pro Private Equity’s Maria Armental, firms are continuing to deploy large amounts of capital and expect record dealmaking years on the horizon with billions of dollars in new investments and fundraising. This sentiment has been repeated by top executives on recent earnings calls, including Blackstone’s CEO Stephen Schwarzman who told investors in October that “we’re now advancing towards the stage in the cycle that is always the most fun.”
Private equity is eager to attract wealthy individual investors according to a study by Bain & Co. WSJ Pro Private Equity’s Rod James, however, reports that registered investment advisors – typically the “critical link” to these desired clients – are less convinced about the benefits of private equity to their clients’ portfolios. One hurdle, James notes, is the high fees that firms charge as well as the minimum capital commitment required to invest. Alternatively, some RIAs are on board, including Carey Freimuth, chief investment officer of Kuttin Wealth Management, who noted alternative investments can deliver "huge benefit for clients who've maxed out their exposure to the public markets.”
With the IPO market still slow to recover, VC firms and startups are turning to private equity to create liquidity as they face increasing pressure from investors itching to extract returns. This has been especially evident in the technology sector which, according to Pitchbook, made up almost a third of PE deal value in the third quarter. According to the WSJ’s Steven Rosenbush, a private equity exit is often not as lucrative or satisfying as celebrating a successful IPO, and that such measured realism seems counter to the tech world’s “go-big-or-go-home mentality.” However, there is a silver lining – the lack of other exit opportunities may discourage companies and investors from further contributing to overfunded startups and endemic valuation bubbles.
WALL OF MONEY
AshGrove Capital, a pan-European lender based in London, has closed its second fund at a hard cap of €650m. The private credit firm has more than doubled up on its €300m debut fund and surpassed its target of €500m.
CVC Capital Partners is preparing to launch its next generation of infrastructure funds and a private wealth offering in 2025, it said in its latest quarterly market update. The buyout giant announced it is making “final preparations” for the launch of its latest vintage of infrastructure funds. Its maiden private equity evergreen offering for wealth clients is also expected to be available from the first half of 2025, the group added.
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DE Shaw & Co, one of the world’s largest hedge fund firms with over $60bn in assets, has raised $1bn for its latest private credit-focused fund, Alkali VI, which will invest in corporate and structured debt as well as synthetic securitisations.
MEDIA OF THE WEEK
This year’s COP has been notably controversial, with critics labelling it the "finance COP" due to its emphasis on financial solutions for climate change. An insightful conversation from Bloomberg Live, hosted by Natasha White, explores the challenges and opportunities in mobilizing private capital for climate action. The discussion features André Abadie, Managing Director at JPMorgan's Center for Carbon Transition; Marisa Drew, Chief Sustainability Officer at Standard Chartered; and Karen Fang, Managing Director and Global Head of Sustainable Finance at Bank of America. These experts share their perspectives on how the financial sector can play a pivotal role in driving sustainability and addressing the funding gaps that hinder global climate goals.
Watch the video here.
DEAL CHART
MOVERS AND SHAKERS
Mayfair Equity Partners has created a chief technology officer role with the appointment of Josko Grljevic, based in London.
Paris-headquartered firm Quadrille Capital has opened an office in New York. A spokesperson for the firm said its new outpost was intended to facilitate deal sourcing, exits and strategic initiatives with its East Coast network.
Citadel, the hedge fund founded by billionaire Ken Griffin, has hired Elliott Investment Management partner Nabeel Bhanji in one of the industry’s top defections this year.
Deutsche Bank has fired 111 senior managers in its retail and private wealth unit as the division implements deep cost cuts to meet stretching 2025 targets.
FROM THE HORSES MOUTH
"The Financial Conduct Authority should now make targeted changes to the relevant regulations so that investor access is not unduly restricted and to encourage more LTAFs to come to market (and drive scale)." – BVCA, publishing in their pensions and private capital expert panel interim report
“NAV is here to stay. Especially where banks are concerned, there’s a significant amount of relationship involved in these fund-level deals. No one wants to be enforcing in this world.” –Richard Fletcher, a partner at law firm Macfarlanes
“I believe passionately that everyone has a particular God-given ability.” – King Charles III, born on 14th November 1948