Debutants’ delight as LPs reach for clean slate
Maiden fundraisings are set to become easier as institutional investors abandon long-term relationships in favor of new private equity managers.
Roughly half of the 115 LPs interviewed for Coller Capital’s latest Global Private Equity Barometer expect to back a first-time fund in the next two years, especially if that fund operates in Europe or North America.
The shift will likely occur at the expense of core GPs, as almost all respondents warned they would refuse re-up requests from managers whose previous two funds they had backed.
In Europe, the most popular funds are likely to be in Germany, the United Kingdom and the Nordics, though less than a quarter of North American LPs foresee attractive opportunities in France or Italy over the next three years.
There is, however, uncertainty over the impact of the European Union’s the Alternative Investment Fund Managers Directive, which comes fully into force on July 22, 2014: almost 40 percent of European LPs predicted that it would become harder to invest in European funds, but most American investors admitted they didn’t know how the new law would affect them.
Local authorities award impact mandates
Six local government pension programs in the United Kingdom’s Northwest have backed venture firms that aim to provide social as well as investment returns.
Following a one-year selection process, East Riding, Greater Manchester, Merseyside, South Yorkshire, West Midlands and West Yorkshire opted to invest 152 million pounds ($261 million) across three managers: London-based Bridges Ventures; London-based Boost & Co; and Birmingham-based Midven.
Bridges received 112 million pounds for its property and sustainable growth funds, while Boost was allocated 25 million pounds for a debt fund that targets European SMEs. Midven, meanwhile, now has an extra 15 million pounds for a venture fund focused on the Midlands region of the U.K.
The pension funds were particularly interested in managers serving deprived communities and areas with challenging economic and social issues.
Private equity ignored again by Norwegian oil fund
Hopes for a radical shake-up of the world’s largest sovereign wealth fund—Norway’s $890 billion oil fund—have been dashed by the fund’s latest three-year plan.
Rather than move into new asset classes, fund manager Norges Bank promised to remain in step with its 2012-2014 strategy for the 2014-2016 period. Upon the election of a new Norwegian government in September, there had been predictions that the SWF would diversify into assets such as private equity. Instead, the fund will continue to invest only in public equities, fixed income and real estate, albeit with a shift in emphasis across those classes.
Plans to split up the gigantic fund—thought to be a prelude to greater portfolio diversification—also came to naught.
Insurers could escape Solvency II deterrent
European insurers that invest in private equity funds may not have to hold as much of their own capital in reserve as previously expected.
Under the European Union’s Solvency II directive, to be implemented beginning in 2016, private equity had previously been classified as a risky asset requiring 49 percent capital adequacy—a major deterrent for prospective LPs from the insurance sector. However, that could be about to change, according to Michael Collins, director of public affairs at trade group the European Private Equity and Venture Capital Association.
“We understand that [the European Commission] will propose a 39 percent risk weighting for private equity and venture capital. “This would be a welcome development and better reflect the true risk that insurers face when investing in the asset class than the 49 percent proposed originally,” he said in a statement.
The 39 percent capital charge would bring private equity’s risk profile under the solvency directive roughly into line with that for listed equities.