Access: Can't Buy Me Love?
“Whole lot of money (That's what I want)” - Bradford & Gordy
Hello reader,
This is the 16th edition of Access - last week’s edition was a deep dive into the world of private equity secondaries.
Love it or loathe it - private equity is everywhere. Once you know to look for it, it’s difficult to stop seeing links between PE and, well, just about anything. Even Taylor Swift has an opinion, calling out the “unregulated world of private equity” after her back catalogue was famously acquired by Scooter Braun and a group of investors that included Carlyle Group.
In the industry’s defence, the FT published a paper this week written by private markets expert Cyril Demaria that addresses some of the trickier aspects of PE valuations.
“… perhaps private market NAVs actually bring a healthy dose of prudence and reason to an otherwise wildly gyrating financial system?”
The piece sparked a flurry of comments on LinkedIn, and some additional commentary from Demaria, who noted, “[a]s private markets mature, the expected level of transparency and information from fund investors increases. We need more data, more granular and of high quality.”
In our experience, opinions within the industry tend to differ quite noticeably from those held by relative outsiders. So, is PE misguided, or just misunderstood? What’s clear, is that Demaria’s point about transparency of financial information could equally be applied to other areas. Through Access, we hope to share what we’re learned about private capital with a wider audience, building an archive of helpful resources along the way. We hope you find it informative and would love to hear your feedback and ideas for future newsletters - drop us a note here.
Until next time -
Liz & Melissa
In case you missed it…
Last week’s edition included news, views, & people moves from across private markets, including:
FEATURING:
In Brief: Insights from the world of private markets
Creative headhunting to secure in-demand ESG talent
People news, moves, and promotions
Sun, sand, and… fund finance 😎
In Depth: Can’t Buy Me Love?
IN BRIEF
Funds Targeting Non-Profits for ESG Hires
I read an interesting article this week about banks and investment firms scooping up sustainability experts from non-profits. WWF, Greenpeace, and ShareAction have all lost staff to financial markets jobs, many for significant pay hikes.
“Even private equity firms — many of which have been slow to make climate change a priority — are taking a closer interest in sustainability specialists.”
- Pilita Clark, writing in the Financial Times
Given the continued focus around sustainability and impact, it's understandable that the finance world is looking for more creative approaches to source ESG talent. It'll be interesting to see how this plays into the latest trend of 'climate quitting', where folk switch companies, or in some cases careers, to land a job with a more positive impact on the world.
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People Moves & Promotions Across Our Private Markets Network
It’s been another busy week for private equity people moves… Congratulations to Matthew Deane, who was promoted to Client Accounting Manager - Funds, at IQ-EQ… Also to Marella Briones, who starts a new role as Office Manager & EA at Bluestone Equity Partners… Deepti Narayanan starts a new position as VP (Finance Technology) at KKR… and Christopher Fahey at Volition Capital is promoted to SVP of Talent & HR.
And on a related note, Graeme Ardus, Head of ESG at Triton, joins the newly created Invest Europe ESG Committee. Chaired by Erwann Le Ligné, MD at Eurazeo, the committee aims to promote responsible investment practices throughout the private equity community. Ardus joins peers from Schroders, Pantheon, Abris, Permira, and more.
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Fund Finance Association Symposium Heats Up in Miami
The FFA’s 12th Annual Global Fund Finance Symposium took place last week in Miami, with private debt featuring heavily on the agenda. There’s a summary here from one of the event’s sponsors, noting “the fund finance industry will continue to grow this year but, due to a slowdown in fundraising, there will be an increased emphasis on NAV, hybrid and preferred equity-type facilities.”
Given the setting, it’s no surprise that LinkedIn was awash with ‘wish you were here’ posts - here’s our favourite, from one of the partners at Mourant, featuring the early birds who attended the annual Subscription Sunrise Run.
IN DEPTH
“Up until the time the deal is sold, we are dating . . . Then at close, you are married. As soon as you’re married, you switch over to a degree of intimacy, of conversation, of candidness that is different to when you were dating.” - Sedgewick CEO, Dave North
For Valentine’s week, our In Depth section takes a look at some of the industries that have received private equity investment to consider what makes these attractive targets, and how partnering with PE impacts the sector longer term… for better, or worse.
Investing in the UK's love affair with football
Football clubs represent potentially lucrative deals for private equity houses with billions in dry powder. Last year saw Chelsea F.C. bought by Clearlake, and Redbird Capital acquired A.C. Milan for an estimated 1.2bn euros, with previous owners Elliott Management retaining a minority stake. Elliott had renovated the club, hiring new directors and younger football players whilst introducing an internal salary ceiling.
The shift from individual to private equity ownership can bring a change in culture. Being an owner of a football club was a highly coveted symbol of status for high net worth individuals, the ultimate show of dedication to their favourite sports team. The landscape with private equity looks a little different - more focused on the return on investment, revenue generation, effective cost control and an exit plan.
“[P]rivate equity represents a new era for football, and Chelsea will be in a better, more stable position, as a result.”
- Dr Rob Wilson, football finance expert based at Sheffield Hallam University
The financial value of football doesn’t stop at its teams. PE funds have also invested in broadcast rights - with a growing interest in both media businesses of leagues and clubs. Real estate also plays a part, with investors looking to capitalise on hard assets by develop multi-purpose stadiums, commercially diversifying the space.
“Do you know who owns your vet?” 😽🐶
The pet industry has shown resilience to economic recessions and downturns, and is being propelled forward by an increasing number of pet-owners, even through the pandemic and subsequent economic uncertainty.
“Because let’s be clear: private equity is coming for your pet.”
Pet companionship has also increased deal activity in the veterinary sector. Rebecca Springer, a private equity analyst at Pitchbook, comments that the interest in pet humanisation has increased. “[O]wners are more interested in giving their pets more consumer goods… similar to how we would treat humans, and therefore veterinary medicine more resembles the acyclical nature of healthcare services.”
As predominantly cash-based businesses, US veterinary clinics are a compelling target for investors. A lot of pet owners will pay up front to avoid treatment delays, so the clinic doesn’t need to seek reimbursement from third-parties, removing obstacles to secured revenue.
The popularity of pet ownership combined with labour shortages has resulted in increased pressure on hospitals, clinics and offices. But this seems to be the perfect climate for PE to make significant operational improvements in a fragmented industry.
PE ❤️’s cardiovascular health
Private equity doesn’t have the best reputation when it comes to healthcare deals, although that didn’t stop investments increasing across the industry in 2022. Under PE ownership, critics argue that costs of medical services almost always increase, and the quality of care almost always declines – patient care sacrificed in the name of ‘efficiency’.
"[A]n investor that maybe tells you all the things you want to hear but doesn't have a track record and tries to throw some big price in front of you, those are the deals that you should probably run away from."
- Eric Majors, managing director at investment firm Provident Healthcare Partners
Cardiology is a specialism particularly of interest – ageing populations make the demographics appealing - although the partnership of cardiovascular medicine and private equity is a fairly new one. Apart from the clear injection of needed capital, private equity investment hopes to enable new avenues of growth for cardiology practices, transitioning to value-based care – in other words, higher quality care is rewarded with incentive payments. Looking ahead, a shortage of cardiologists is looming, particularly in the US, pushing up demand in an already lucrative medical speciality.
Investing for Impact
Unless you’ve been hiding under a rock, you’ll have noticed that public opinion, private capital, and government policy is all steering towards sustainable investment approaches. Whilst ESG remains a hot topic, it’s not all smooth sailing.
As the value of private market ESG assets increases, so too do the demands of LPs for data and insights on their investments. Mid-market managers have identified difficulties with data collection, as well as metrics for reporting and disclosure processes across their portfolio.
“Firms can take as long as up to 12 weeks to collect the proper ESG data, which often results in missing reporting deadlines — something that can stall exits or even cause deals to fail.”
- Making it Material: Granularity in ESG Reporting, 2023 Survey from KEY ESG
Research from Clarity AI analysed 750 Article 9 funds and found that many were failing to do “no significant harm”, with one in five funds underreporting their fossil fuel exposure. The analysis suggests that these failings were associated with misalignment and uncertainty around the European ESG Template (EET) regulations, rather than evidence of greenwashing.
And compounding these issues? As we reported earlier in this edition, sustainability specialists are in demand, and not just on investment teams - the GP needs experienced ESG resources in the middle office too. With limited resources, it’s a constant battle to keep on top of data requests from LPs, regulators, and other key stakeholders, presenting a significant challenge.
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And finally… Did ChatGPT write your Valentine's Day card?
The world's obsession with ChatGPT continues, as McAfee reports that 25% of people surveyed planned to secure help from the AI tool to write a letter to their loved one. Reasons given for outsourcing their billet doux include low confidence, lack of time, or needing some inspiration. And who said romance is dead?
❤️❤️❤️
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