This is Chris, on for Wire Wednesday. How is the week looking? Where’s the vaunted summer slowdown, doesn’t seem to have happened yet …
Scoop: Partners Group will announce today it is hiring Ben Breier, former CEO of Kindred Healthcare, who led the $1.4 billion sale of the healthcare provider to health insurer Humana, TPG and Welsh, Carson, Anderson & Stowe, writes Aaron Weitzman on PE Hub today. Breier chatted with Aaron about how he’ll bring his experience to bear at the new role. Read it here on PE Hub.
New Era: Let’s talk about a slowdown. It’s been what, a decade (?), of relentless strength in private equity fundraising. There are signs that could be changing.
Start with secondaries: There has been a slowing of pace in the private equity secondaries market, which is probably not the most surprising thing you’ll hear today. As the public markets continue to get shaken by volatility, with doom-laden pronouncements of an impending recession and the ubiquitous warnings to “strap in” on many prognosticators’ lips, pricing uncertainty rules the day in secondaries, especially for LP portfolio sales.
We’ve seen this for some time, but back in April deal activity hadn’t really slowed, especially when considering the glut of GP-led processes on the market. There are still a ton of deals, either in market or waiting in the wings, but LP portfolio sales are slowing, and now it appears some will wait until later this summer, or even September, to launch. And GP-led deals, especially big ones, are getting tougher to syndicate.
I’m also hearing about tense negotiations around the terms of continuation funds. Where GPs have been easily winning premium terms, these days that is no longer a given, as I understand it. Negotiations are tougher, premium terms on CVs are not simply handed over by the interested parties.
If LPs’ liquidity outlet through secondaries gets jammed up for some period of time, especially now with many firms out seeking capital and distributions drying up, that could help to slow primary fundraising overall. Without fresh capital coming in, LPs won’t be as quick to re-up. Even some of the strongest performing funds will likely take longer than they anticipated to raise new funds in this market, sources have said.
Some LPs are expressing frustration at the relentless pace of fundraising and the quick turnaround of some managers bringing new funds back to market shortly after closing the prior fund.
As one LP related it to me: if I give you a check for $500 million or $1 billion to invest over three or four years, and you come back to me a year later, you’ve killed my allocation. How am I going to trust you with that size of commitment again?
“The big problem with our industry is the greed factor,” the LP said. “Everyone is pushing the envelope so much, so far and so fast.”
It’s a lot and it could be the signs of a shift in the industry, away from the incessant go-forward mentality that has persisted since, what? 2010 – at least since the easy money policies that became the rule of the land after the GFC. Belt tightening, recession … heck, slower fundraising (!!), we could be moving into a new epoch in PE land.