GPs consider benefits/drawbacks of long-dated PE, Top 5 factors to consider before the next downturn
Happy Friday!
Hope your week went well. What’s been happening?
Long-term: What do you think about long-dated private equity? I’ve talked to LPs who aren’t buying the sales pitch they’ve heard from managers of such funds. A couple LPs over the years have made the point to me that traditional private equity funds instill discipline in managers, forcing them to abide by a set time frame — at most 10 years of a fund’s life but, more realistically, three to five years holding an investment.
The idea of the long hold is that certain companies need more time for a manager to grow and maximize value. This is especially true for utilities, which are “lower risk, lower reward, predictable,” TPG Chief Investment Officer Jonathan Coslet told the CalPERS board at a recent meeting. Our LP watchdog Dietrich Knauth tuned in to a recording of the meeting and wrote about it here.
“If done right, it’s going to be, this is a utility and I want to lock in the utility, and I don’t want to create the friction cost of having my manager have to resell the utility,” Coslet said.
CalPERS’s board heard from several experts on long-dated private equity. The board is considering launching two direct private funds: one called Horizon fund, focused on large “core economy” companies, and one called Innovation, focusing on late-stage investments in life sciences, healthcare and tech.
Ex-Treasury Secretary Jacob Lew, who is a partner at Lindsay Goldberg, said the firm has had discussions about forming such funds.
“Candidly it’s something I would love to have because it’s a useful investment vehicle,” Lew said. “I think it’s easier to think through than it is to execute, and I give a lot of credit to the folks here who are thinking about a way to develop that space.”
Secondaries: Another secondaries intermediary chimed in on deal volume in 2018. Greenhill Cogent, usually considered the leading adviser when it comes to traditional LP portfolios, estimated total secondary volume last year at $74 billion, up from $58 billion in 2017.
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