Happy Friday the 13th!
Well, what a week, huh? I opened up my email this morning to one single message overnight. I can’t recall that happening, considering all the pitches, press releases and various types of spam constantly clogging my inbox. Not sure how to interpret that.
Trillions of dollars of value evaporated in global markets in yesterday’s bloodbath and it’s unclear if the market has found its floor (though futures suggest a calmer morning on Wall Street today). Don’t know about you, but I plan on having a couple three beers after work today.
Before we get into the drama, let’s talk about an actual deal. Yes, a GP is preparing to bring a process to market! Seems like a reason to celebrate right now.
Thomas H. Lee Partners is preparing to shop Auction.com, an online market for bank-owned residential properties, Milana Vinn writes on PE Hub. Read it here.
Auction.com is an interesting asset to have on market right now, in that it’s a business that should thrive in a downturn. The company provides an online platform that allows individuals and investors to buy and sell bank-owned and foreclosed residential properties through desktop and mobile channels, Milana writes.
Drama: This week we’ve looked at the impacts of the coronavirus-related economic volatility on various aspects of private equity: dealmaking is grinding to a halt; PE firms have imposed travel restrictions, preventing professionals from meeting with management teams; and secondaries activity seems to be on hold as sellers hold off bringing processes to market and active processes pause for potential repricing.
Having talked with limited partners across the market this week, it appears fundraising is a more complicated picture right now.
The feeling is — keeping in mind it’s still early days — that new firms and new product launches from established firms will be the most impacted by the economic pain right now. LPs are retrenching and only considering their best, existing relationships as they look to reduce risk.
Feeding into this dynamic is current travel restrictions that are turning in-person fundraising pitches into video conferences, “that might be sufficient for long-term relationships, but not new ones,” according to an LP at a big public pension system.
Freezing of deal markets also is having an impact on fundraising (as it does in goods times as well). Many GPs planning to bring funds to market later this year had anticipated closing a few more deals before launching, but that schedule has been blown apart as M&A activity slows to a crawl.
Compounding the effect on fundraising is the idea that LPs are now considering the dreaded denominator effect. This is a phenomenon that reared its head during the global financial crisis — as the value of a system’s total fund drops with the public market crash, its illiquid exposure stays at the same level, driving up the percentage that illiquids like private equity represent in the portfolio. So if a public pension has a legislative allocation level of say, 10 percent of the total fund, that number will breach the limit as the value of the total fund drops.
Denominator is inevitably happening right now as public markets drop; the question is, will the decline be sustained or will markets come back up, in which case the effect will fade. What are you thinking out there? Has the denominator effect become a factor in your thinking? Reach me at email@example.com.
Summit Partners led a growth funding round in NinjaRMM, which provides remote monitoring and endpoint management solutions. Summit has a minority stake in the company. Read the news brief here on PE Hub.
OPTrust, a C$22 billion pension fund, realized a 24.7 percent net return from its private equity portfolio in 2019, writes Kirk Falconer on Buyouts. The pension has been moving more into direct investing, looking to create access to dealflow usually available only to larger institutional peers. Read it here.
Stay safe and have a great weekend, Hubsters. If you’re working from home or in the office, reach me with your thoughts, tips, gossip, whatever at firstname.lastname@example.org, on Twitter or find me on LinkedIn.