US private equity shops brace for supply chain disruption, Hillhouse runs up against coronavirus downturn with ambitious target for new fundraising, HGGC looks for deals amid dislocation

Despite the coronavirus crisis, business still goes on at some PE firms: Hillhouse is seeking to raise up to $13 billion for its next fund while HGGC is scouring for new M&A ventures.

Happy Friday!

Another week in the bag here in the Metuchen compound. Every morning the birds are singing and the hum of traffic from Route 287 is absent. Such a strange time right now.
Tales from the front lines: Since it’s Friday (I think … Friday doesn’t quite feel like Friday anymore), let’s keep it light this morning. By the way, thanks to everyone who reached out to say hello recently. We’ve received more informal notes of greeting the past couple weeks than I can remember. It’s great to have this sense of community each morning, especially as we’re all locked away. Keep em’ coming!

We’re getting reports from limited partners that private equity firms have been offering broad and open communication in this time of uncertainty. This is an improvement from the global financial crisis, when LPs had complaints about the level of GP transparency into the portfolio.

“Most GPs are doing a really good job of acknowledging the need to very closely monitor and follow what’s going on with portfolio companies and portfolio company debt levels and possible changes to EBITDA and profitability going forward,” said Brian Murphy, managing director of LP consultant Portfolio Advisors.

“I would say the GP communications is the best I’ve ever seen,” said Trevor Williams, managing director and portfolio manager at Penn Mutual Asset Management. “I’ve been on call after call with managers communicating what actions they’re taking in portfolio companies, how their business operations are going to be altered by this.”

This level of communications is necessary because the most recent quarterly reports were rendered almost irrelevant by the sudden and shocking pandemic-spurred downturn. Performance marks for Dec. 31 are obsolete and first-quarter marks won’t be out until April or May. GPs have stepped into this information gap to keep investors updated on changing valuations and the status of portfolio companies.

Communications fall into three categories: GP internal operations; impacts on the portfolio; and opportunities GPs are seeing the market, Scott Hart, co-chief executive officer of StepStone Group, told me. The challenging aspect of this is assessing the impact of the downturn on portfolio companies.

LPs have all sorts of questions. They are concerned about the future of each private equity fund, among other things. “What’s going to happen with dry powder, are companies funded enough to withstand this slow period? There’s lots of questions that need to be answered and for the most part, the GPs we deal with have stepped up to the plate,” Williams said.

Read my story here. How have you found LP/GP communications in this situation? Reach me at cwitkowsky@buyoutsinsider.com.

This level of communication is vital for LPs to be able to make decisions about private equity investing, especially as other parts of their portfolios like public equities are getting run through a ringer. LPs are concerned about distributions drying up and potential cash crunches making it harder to meet capital calls.

We expect to see some slow down in private equity pacing on the parts of LPs, though they will continue to back their trusted GPs.

Big fund: Speaking of commitments, here’s a reminder that business is still happening, and will go on once we get out from under this crisis. Hillhouse Capital, the Asia-focused private equity manager, is targeting up to $13 billion for its next fundraising program.

The firm will split its fifth fundraising effort into three strategies: buyouts, growth and venture. The question now is will the firm be able to attract the level of capital it may have anticipated prior to the coronavirus downturn. Read more.

Top Scoops
HGGC is open and looking for new opportunities even as most M&A processes are on pause. The firm sees opportunities in the public markets and also looks for ways to invest in companies where management teams want to sell a stake but stay involved, writes Milana Vinn on PE Hub. Many companies that don’t have scale are now more inclined to partner with a larger PE platform in a period of financial uncertainty, Milana writes. Check out our story here.

Tom Lopez, chief investment officer of Los Angeles Fire and Police Pension, said the $550 million to $650 million in new commitments the system had planned may not happen. The challenge of valuating private equity, which lags in terms of reporting by a quarter, makes it hard to know what the future will look like, writes Justin Mitchell on Buyouts.

“Private equity quarterly numbers come in a couple of months late, and so while our other asset classes we can value on a daily basis, we can’t do anything about those. So, there’s big lag involved,” he said. “We don’t have anything definite to work with yet.” Read more.

Walks: We put up a bunch of paper Easter eggs on our front window as part of a neighborhood Easter egg hunt organized by local moms. Excited to go hunting this weekend!

Have a great weekend! Reach me with your thoughts, tips, gossip, whatever at cwitkowsky@buyoutsinsider.com or find me on LinkedIn.