H/Advisors Private Capital Wrap-up | 1st November 2024
WORTH A READ
United States
According to a new study by The LCap Group, private equity firms’ gender imbalances may have an impact on the gender makeup of leadership at their portfolio companies. Forbes’ Kim Elsesser reports that PE-backed companies often see a significant drop in female leadership as firms tend to replace existing leadership with mostly male managers. While LCap reports that this trend is “particularly concerning,” the firm also notes that “one explanation for this could be businesses seeking leaders with prior private equity experience during turbulent conditions.”
Alternative asset managers are swimming in cash, according to a survey from recruitment firm Jensen Partners. WSJ Pro Private Equity’s Isaac Taylor reports that average total compensation among this elite group rose roughly 35% (to $1.4 million) last year, compared with 2022. While the demand for certain skills such as fundraising and managing businesses has contributed to this boost, Heather Hammond, global head of private-equity at Russell Reynolds Associates pointed out that the “biggest drivers of private-capital demand right now have been the hiring of credit professionals at scale, whether it’s in origination roles or whether it’s in underwriting and investment roles.”
According to Bloomberg’s Ryan Gould and David Carnevali, private equity firms are on a spending spree, having struck almost $85 billion in deals this year – the second-highest year-to-date total since 2010. This spending boost is driven by the trillions of dollars in dry powder sitting in private equity funds, and is contributing to the recovery of the broader M&A market. On this trend, Brian Link, co-head of North American M&A at Citigroup, added, “Private equity sponsors are actively looking to deploy more capital as they sit on record dry powder. With the backdrop of tempering inflation and falling interest rates, we do see the pressure to deploy capital driving an accelerating level of sponsor acquisitions going into 2025.”
Europe
Senior debt fundraising surged in the first half of 2024, jumping to 66 percent of the total capital raised for private credit strategies versus 40 percent through 2022 and 2023, according to Private Debt Investor data. In all, around $72 billion was raised for senior debt in the first six months of this year, a significant jump on the $46 billion raised in the same period of 2023. However, the market still faces several challenges sourced by fierce competition, market bifurcation, and mid-size managers struggling to distinguish themselves. Looking ahead, experts suggest that success will depend on managers' ability to differentiate themselves through specialised strategies, strong origination capabilities, and disciplined underwriting.
The Financial Times Lex column suggests that a thinning of private equity firms is coming, with the possibility that some firms may have already raised their last funds without realising it. This is because, unlike hedge funds, PE funds lock in investors for 7-10 years, meaning that deals made under zero interest rate periods are now looking troublesome. Despite funds claiming their unique abilities, many middle-market firms appear very similar, causing growing scepticism about PE firm’s ability to consistently deliver 20% returns. In fact, even established firms such as Carlyle and Apollo are struggling to raise capital, as major investors become more selective, favouring fewer managers with broader capabilities.
The UK’s private equity sector has narrowly avoided a steep tax increase on carried interest, a key incentive structure, after the government’s autumn budget announcement. From April 2025, carried interest will be taxed at 32%, up from 28%, rising to the mid-30s by April 2026. James McCredie, a partner specialising in tax at law firm Macfarlanes, described the outcome as a win-win situation to Private Equity International. He believes "a lot of investment managers will see this as a fair compromise". Nonetheless, concerns persist, particularly regarding the UK's competitiveness following the decision to remove the non-domiciled status.
WALL OF MONEY
Blackstone amassed $22 billion of capital, including anticipated leverage, for a new direct lending fund targeting institutional investors.
Nautic Partners, a leading middle-market private equity firm focused on the healthcare, industrials, and services sectors, has held the final closing of Nautic Partners XI, oversubscribed at its hard cap of $4.5 billion.
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Adams Street Partners, a Chicago-based firm, closed its latest broad-based private market funds, on $1.1 billion. Secondaries will account for approximately 25%, a spokesperson confirmed.
Norwegian private equity firm Verdane’s climate impact fund Idun II, has closed on €700 million, after just five months. It will make investments in businesses that contribute to decarbonisation.
MEDIA OF THE WEEK
In a live-recorded episode of Merryn Talks Money, hosts Merryn Somerset Webb and John Stepek are joined in London by Bloomberg Head of Economics and Government Stephanie Flanders and former UK Office for Budget Responsibility (OBR) Chief of Staff Andy King to discuss the first budget presented by Chancellor of the Exchequer Rachel Reeves. King cites OBR predictions for sluggish growth and reveals his back-of-the-envelope test for estimating whether the ultra-wealthy will actually leave as a result of the new budget.
You can listen here.
DEAL CHART
MOVERS AND SHAKERS
Akin Gump has hired Elina Alperovich as a partner for private equity transactions in New York. She previously worked at Greenberg Traurig and Apollo Global Management.
General Atlantic is opening its first office in the Middle East. General Atlantic aims for the office to “build on the momentum of a growing entrepreneurial ecosystem and help build the next generation of market leading companies from the Middle East,” chief executive officer Bill Ford said to Bloomberg.
Mayer Brown has hired Sheel Patel as a partner and head of the firm’s private credit practice in New York. He joins from King & Spalding.
Axcel has opened its first office in Germany, marking the firm’s first step outside the Nordics.
FROM THE HORSES MOUTH
"The announcement on carried interest recognises that a tax treatment which reflects the long-term, risk-based nature of private capital investments is necessary to ensure that this important UK sector can continue to flourish in an increasingly competitive international environment." – Michael Moore, chief executive of the British Private Equity and Venture Capital Association
“There are two types of managers that can raise senior debt funds at the moment: the mega funds providing an index exposure and the mid-cap specialists that offer a true premium.” – Nicolas Nedelec, private debt partner at Eurazeo
“All of us technology companies need to create some tools that help diminish the volume of fake news. We must try to squeeze this without stepping on freedom of speech and of the press, but we must also help the reader.”– Tim Cook, CEO of Apple, born on 1 November 1960