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Top three highlights from Buyouts East

We’ve had a terrific turnout for our Buyouts East conference in Cambridge, which runs today and tomorrow. For those who weren’t able to make it, here are the highlights so far:

1. “Everyone wants to be a middle market lender.”

So says Ron Kahn, managing director of Lincoln International, who moderated a panel on the state of the debt markets. And why not? An 8 percent return, which is a common target for mid-market lenders, is “a very attractive” return right now for investors, Kahn said.

CLOs in particular have “been on a tear” in raising money, said panelist Brad Charchut of Sankaty Advisors.

Kahn also made the trenchant observation that banks, while pulling back as direct lenders, play a significant behind-the-scenes-role in mid-market lending. “Banks are huge, huge lenders to BDCs and credit opportunity funds,” said Kahn. “They’re lending billions of dollars to these vehicles.”

2. The SEC has made examining the handling of fees and expenses a high priority this year.

Pam Hendrickson, chief operating officer at The Riverside Co, made this observation during her keynote address. She said her sources at the SEC tell her that about 80 percent of sponsors are doing it right, 10 percent are being careless but not out of malice, and 10 percent are really doing things they shouldn’t be.

You don’t necessarily have to treat fees and expenses in a standardized fashion, Hendrickson said. But you have to be upfront and clear with investors about how you do handle them, and then follow through on that process. “You have to be prepared to show regulators, ‘This is what we’re doing,'” she said.

3. Sovereign wealth funds “are a force that’s not going away.”

Kewsong Lee, managing director and deputy CIO of the Carlyle Group, said so in his keynote address. Some 13 to 15 percent of the money raised by private equity firms last year came from sovereign wealth funds (SWFs), and it’s a percentage that has been growing for several years, Lee said.

Many SWFs are understaffed, relying heavily on consultants and advisers for private equity advice. But others, especially in Canada, make co-investments and other direct investments the centerpiece of their programs.

“These are sophisticated investors getting more sophisticated by the day, with tremendous buying power,” Lee said. Indeed, he added, “The big question is, do they get so sophisticated that they become competitors? We’ll see.”

Agenda for tomorrow

Buyouts East continues at 8:15 a.m. tomorrow. Need a ticket? Register here.

Here are some of the speakers on the agenda:

>> 8:30 a.m. Keynote: Scott Sperling, Co-President , Thomas H. Lee Partners

>> 9 a.m. Keynote/Lifetime Achievement Award: Brooks Zug, Founder, HarbourVest Partners

>> Noon Keynote: Scott Maxwell, Founder and Senior Managing Director, Open View Partners

Up next: Chicago!

Buyouts Insider is back in the Windy City for the 8th Annual Buyouts Chicago event on June 23-24 at the Palmer House Hilton in Chicago. Expand your network and get deals done by having 1:1 meetings with our investors through our exclusive ExecConnect, program; and supercharge your business strategy by joining in-depth panel sessions about current topics impacting private equity, lead by dozens of the industry’s sharpest minds.

Register by May 1 and Save Up to $900. Register here.