PE HUB Wire Highlights, 8.6.18


AlpInvest leads secondary process for ex-Clinton adviser’s investment firm; Golub sells stake to Dyal Capital; Vista Equity considers Tibco sale

It’s Monday, Hubsters.

U.S. private equity managers are being challenged over a $400 billion fee haul, the Financial Times is reporting. PE funds raised about $2 trillion in new cash between 2006 to the end of 2015, the FT said, citing an analysis from the Oxford Saïd Business School. On average the funds launched during this 10-year period performed in line with the S&P 500 and delivered annualized returns, including dividends, of 8.6 percent from January 2006 to the end of March 2018.

Investors paid about $400 billion for returns that were “mild at best,” according to Ludovic Phalippou, a Saïd finance professor. Most of the funds — the FT says 9 of 10 of the PE funds — beat the 8 percent annual return “hurdle” that allows the managers to claim performance fees, which amounted to about $200 billion. PE managers also received another $200 billion in management and other expenses.

Phalippou said the exact total of fees and expenses paid by investors is unclear because “a lot of effort is spent by private equity managers to ensure this information remains as secret as the recipe for Coca-Cola.”

The AIC disputed the data and said the median annualized return over the past 10 years from PE was 8.6 percent (net of fees), which is higher than the median 6.1 percent return produced by public equity by the same pension schemes, the story said. Private equity outperforms the public markets, the AIC said.

Sponsor-to-sponsor: Last week’s PitchBook data has produced more interesting facts. Exit values dropped 33 percent to $29.2 billion but about half, or 51 percent, came from sales to other private equity sponsors, Private Equity News reports. About 47 percent was due to deals to corporate buyers while IPOs accounted for 3 percent, the story said, citing PitchBook data. While it’s not necessarily bad for PE firms, LPs have been vocal about sponsor-to-sponsor deals. Some large LPs sometimes find the same company passed between several funds they invest in, with fees and carry payments extracted at each, the story said.

Now, Hubsters, I have in the past asked several executives about the rise in sponsor-to-sponsor deals. I’ve been told by GPs that it’s not bad, that “money is money.” What do you think? Should we be alarmed by this trend? Why or why not? Email me your thoughts at [email protected]

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