Talk to any big buyout fundraiser over the past two years, and you’ve heard the following refrain: “If the economy goes south and traditional fund capital sources – U.S. pensions, endowments private foundations, etc. – cut back on new commitments, we’ll be okay because of the sovereign wealth funds.”
This line was not in reference to the handful of SWFs who have long invested in PE (Canada, Netherlands, Singapore), but rather to the flood of new money from places like China and Dubai. These groups were viewed as a sort of safety valve for private equity. Dumb money when the smart money runs for the hills.
I’m just thinking aloud here, but I’m not so sure these folks are really going to be there in big buyout’s time of need. An SWF manager that began investing in PE two years ago is currently staring at an all-red portfolio, without the benefit of legacy black. He understands that this is a long-term asset class, but that intellectual argument might get drowned by the visceral vomiting. If so, is there yet another alternative avenue available? And no, the public markets don’t currently count.