United States: US Pension Funds Show Increasing Allocations To PE Companies

Last Updated: July 24 2019
Article by TMF Group

Over the last three decades, the US has been at the vanguard of the Private Equity growth story so it is little surprise that their top managers rule the roost.

The United States dominates the PE marketplace when it comes to AUM (assets under management) size. It's estimated that the top 300 global PE managers manage USD 1.5 trillion in assets, of which US-based managers account for USD 1 trillion; this compares to USD 177 billion among UK-based managers.

Over the last three decades, the US has been at the vanguard of the PE growth story so it is little surprise that their top managers rule the roost.

As Anastasia Williams, Head of Private Equity, Americas at TMF Group remarks: "The big PE fund managers keep getting bigger and I think that is a trend that will continue to play out, certainly among those managers who are US-headquartered.

"If each fund is 20 or 30 per cent bigger than their previous fund, these managers will continue to attract the majority of capital inflows."

The net effect of this is that the gap between the top 300 managers and the rest of the industry will widen. Williams agrees. She points out that the KKRs, Apollos and Blackstones of the world are on a wave of momentum, "doing a lot acquisitions but also engaging in greenfield investment activity, building their own offices etc."

These US-based managers are dominating fund activity across the globe. In Asia Pacific, for example, TPG Capital recently became the fourth US-based firm in the last 10 years to raise more than USD 4 billion for an Asia-focused buyout fund, closing TPG Capital Asia VII with USD 4.6 billion.

These multi-billion fund managers are backing up their fund raising success by producing good returns for their investors. They have the economy of scale and depth of experience that institutional investors appreciate, relative to an emerging manager.

"We see global pension plans relaxing their rules on alternative investments, in terms of what is considered an allowable investment or not, and this is making them more open to PE investments," says Williams. "We have seen this in Brazil, in Chile, and there was an announcement last year from Mexico. Pensions are making huge PE allocations that I don't think an emerging manager can capture."

As PEnews reported, in the past eight months, firms such as KKR, Lexington Partners, BlackRock, General Atlantic, Blackstone Group, Partners Group and Actis, among others, raised more than USD 600 million from Mexican pension funds, according to a report from 414 Capital, a Mexican financial consulting firm.

One of the reasons why LPs gravitate to the biggest US managers is the fact that they have so much money they need to invest. Size matters for these investors. When they are looking to write tickets of USD 300 million or more, they have to go to established names as they cannot take the risk of becoming a dominant investor with a PE manager who might only have USD 1 billion in total AUM.

One of the effects of there being so much dry powder in the market – which is now north of USD 1 trillion – is a trend towards private equity funds engaging in take-private activity.

Williams also notes that some companies are receiving significant capital investments just as they plan to IPO, from PE groups.

According to MergerMarket one in three takeovers of listed companies priced above EUR 200 million involved private equity last year. It is thought that the number of take-private deals could rise further in 2019 as markets begin to show signs of a global slowdown.

Healthcare has proven to be an attractive target for such activity.

As PitchBook reports, three of the four take-private mega-buyouts in the US in 2019, to date, were in the healthcare industry with KKR purchasing Envision Healthcare for USD9.9 billion, including debt, in October 2018.

Williams believes that as PE groups take these companies private, there will be even greater governance oversight from LPs given that de-listing leads to less transparency and less frequent reporting. Since the mid-90s, the US stock market has halved in size. By 2016, there were only 3,627 listed companies, according to data from the Center for Research in Security Prices at the University of Chicago Booth School of Business.

It is forecast that fundraising in North America could reach USD 401 billion in 2019. This compares to USD 251 billion in 2018 and, revealingly, USD 40 billion in 2017; that's a 10-fold increase in fundraising in just two years, should the forecast figures prove accurate.

That statistic alone underscores just how much acceleration there has been in the North American private equity market in recent times.

By comparison, Europe is forecast to see fund raising levels reach USD 150 billion; up from USD 88 billion last year but only slightly up on USD 123 billion raised in 2017.

"Fund raising activity among US managers is incredible. If one looks at the top fundraising activity right now, Advent International is targeting USD 16 billion for its ninth fund, for example. Warburg Pincus has raised USD 13 billion for its latest fund, and BlackRock has raised USD 10 billion.

"The public markets have rallied for so long, investors are perhaps deciding that there are fewer opportunities to make the desired returns, which these large PE managers are taking advantage of. These are long-term investments, which may protect investors in the event of a near-term market correction, if and when global equity markets fall.

"I think the appeal of private markets is that they offer some protection," outlines Williams.

She believes that one way for emerging managers to succeed in fund raising is to focus on specialty investing. After all, mega-funds need to have a very broad investment strategy to deploy all their committed capital; they can't afford to be limited by a narrow investment universe.

Smaller managers who run a 'pure' strategy that only invests in Asian real estate debt, or LatAm mid-cap companies, or only in industrial or energy assets, have the potential to still attract meaningful assets in this competitive landscape, provided they can articulate their message clearly, and can demonstrate a proven track record.

"I do believe there is still plenty of room for mid-market managers to invest in innovative companies that are too small for the big PE groups to invest in. They need bigger targets if they are looking to put USD 16 billion to work.

"If smaller managers can find a niche to attract some of this institutional capital and present themselves to investors as genuine specialists, this could work to their advantage; and in turn help investors diversify their portfolio within the broader private equity space," concludes Williams.

TMF Group is your go-to partner for administering your Capital Markets transactions and PERE investments. Need more information? Contact us today.

This article was originally published by Private Equity Wire and Property Funds World.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
3 Oct 2019, Webinar, Rotterdam, Netherlands

To view this Webinar in full click here

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions