Credit
By Dinah Cencig & Georgia Mernagh
It has been a busy start to Q1 within Credit hiring and there are several themes we have seen across both Europe and the US. There has been a growing interest in asset-based financing which includes aircraft, shipping, media rights, and royalties. There have been several $5-10bn funds raised across the US resulting in greater demand for senior people with this background. For example, in the US, Jack Ervasti – Co-Head of Consumer & Esoterics, Asset-Based Finance at KKR – is set to join Blackstone later this year. In Europe, Stefano Questa joined Ares as Partner & Co-Head of European Credit from Hayfin where he was responsible for the firm’s asset investing activities.
Sponsors are under pressure from investors to return cash but are finding it harder to offload companies making credit secondaries and NAV lending strategies more interesting. We are seeing the growth of these areas in both Europe and the US. On the compensation front, pay is generally down across both banks and funds. It has affected the banks on a huge scale but, on the buy side, people are mostly either flat or below levels seen a couple of years ago, in part to make up for overpayments made in 2022.
Real Estate
By Ben Ingram & Samantha Williams
Following a challenging and quiet year in Real Estate equity, few are seeing H1 2024 as one that is going to be hugely different when it comes to volume of transactions in the European market. However, the context (inflation, cost of debt etc.) is stabilising and valuations correcting so a new anxiety is emerging amongst the investor base – when to invest and what/when to hire. Over the past year many clients have audited themselves and others with regards to structure and personnel hence the ‘what’ to hire should mostly be decided. It is now mostly the ‘when’ – get the best talent before the market has turned and bear the cost if it is too early, or the alternative.
Naturally, there has been a focus on asset management over 2023 and businesses have moved the more deal focused investment manager into an asset manager role – a morphing (or at least a better understanding) of the roles was required in any case. However, the demand for greater/better asset management will continue despite a pickup in the investment market hence we are expecting more requirements to come to market. As obvious has been the importance put on capital raising and investor relations with those with proven ability and established networks being highly sought after.
Iberia
By Ana Hernando Hueros
Institutional capital raising is currently facing a difficult time. However, institutional funds accustomed to raising large funds are still managing to do so, albeit with more effort than before. These funds opt for a diversified product, investing in key assets, trends and a good track record.
Due to the decrease in transactions in Private Equity, the focus is shifting towards achieving returns through their portfolio companies. Additionally, transactions will also concentrate on those sectors that offer good opportunities. Real Estate investors are also injecting more capital into Real Estate operators that continue to increase their activity and human growth.
In the Real Estate sector, there has been an increase in transaction activity in the hotel product, which, along with logistics, continues to offer high returns in Spain. New sectors of interest are beginning to emerge and are worth watching throughout the year, such as data centres, affordable homes, life sciences, and natural capital, where large funds with local presence are beginning to transact.
Unlike institutional equity in Real Estate, which is expected to reactivate in Q3, those players focused on debt have a greater advantage in terms of activity, especially in the mid-market where there are better opportunities.
In Investment Banking, an increase in IPO activity is expected in H2. European banks, such as Alantra and Santander, strategically expanded their footprint across Europe in 2023, a trend that's poised to invigorate the sector further in 2024.
Infrastructure & Energy Transition
By Hugo Clark
In our H2 2023 newsletter, I wrote that we should expect to see more consolidation in Infrastructure as more mid-market firms get snapped up by either large-cap Infrastructure specialists, or Private Equity firms looking to offer a holistic investment strategy to their LPs. No one, however, was expecting the nuclear bombshell announcement of GIP and Blackrock merging, and before the dust had even remotely settled from that deal, General Atlantic and Actis made their announcement. Consolidation has emerged as a defining trend transforming and reshaping the Infrastructure investment landscape. Infrastructure is not alone though, as this trend is touching all private markets with capital concentrating in the hands of the 10 largest funds (who all increased their share of capital raised last year). But within our sector, the share that the 10 largest funds represented has now risen from 30% to over 60%. What January has made clear though is that no firm is too big to be bought, and even if the private capital fundraising environment improves this year, these won’t be the last mergers we see.
There has also been some significant senior-level activity coinciding with the consolidation announcements. The highest profile of these being Emma Haight and Chantelle Pellier joining Fidelity to lead the build out of its infrastructure debt and equity strategies, respectively. Ares swiftly replaced Emma by taking Lorenzo Ceretti from GIP, who is now a Partner in their London office. Anna Wiscarson left her role as Head of Investor Relations at GIP, with a search to find her replacement being underway for some time now. Kit Hamilton left his role as Head of Private Credit at Macquarie with Tom van Rijsewijk and Sophia Alison becoming Co-Heads. Rodolphe Brumm joined BNP Paribas Asset Management to lead their new low carbon infrastructure private equity strategy. Exagen poached Ricardo Falgardo from Brookfield, who joins them as Managing Director. BlueEarth Capital hired Daniel Perroud (ex-BlueOrchard) as Head of Investor Relations. CPP hired Christine Hartmann from GIP and, finally, Stephanie Guitton switched from Demeter to Eiffel as Managing Director within their decarbonisation strategy.
From a hiring perspective, one of the biggest trends we have seen is an increased appetite from firms trying to find specialist and high-quality talent for their portfolio companies. This is typically in nascent technologies in energy transition & decarbonisation, where talent pools (especially at c-suite and management level) are much smaller and finding specialists with a successful track record, who can add-value to said assets or companies, is easier said than done. No doubt this trend will create a very competitive hiring period for 2024.
Private Equity (Data & Digital)
By Oliver Blaydon
There's been a huge surge in hiring senior digital talent into GPs over the last few months. 11 Private Equity houses have brought in or are looking for advisors, interim or permanent people, 7 of these are mid-market and the rest are bulge-bracket. This is a function of market conditions which increase the need for GPs to apply greater emphasis on value creation. The burden of this is borne by digital technologies, data, and analytics.
At our last Roundtable of Data, Digital Technology and AI operating leads, generative AI still absorbed the room. A handful of Private Equity houses now have fully operational Large Language Models (LLMs) informing investment strategy, sourcing deals, aiding Investment Committees and helping with due diligence. Almost all are working very closely with their portfolio companies to develop use cases and PoCs. However, there are very few indicators that the current generation of LLMs can produce more than efficiency gains. No one appears to have a use case which improves the investment thesis, although there are a number which suggest a target may be obsolete.
Venture Capital & Growth Equity
By Hugh Barran
Naturally, given the current state of European tech, hiring has somewhat slowed at the fund level. As interest rates rise, Venture becomes a less exciting asset class to LPs. GPs have therefore struggled to raise new funds over the last 12-18 months and the cash has dried up for start-ups. We have unfortunately seen a couple of funds completely shut down; Stride.vc in the UK and OpenView in the US. It looks like we are going through a re-calibration of the Venture industry. We don’t predict we are going to see too many more full-scale shutdowns of funds, but more what has happened typically over the last few cycles; the tourists retreat for some time; early-stage managers who raised a growth fund, go back to being experts at early stage; hedge funds who went into life sciences VC, go back to trading the public markets and so on.
However, for the funds who survive and make the necessary changes we will see some incredible vintages of funds. There also appears to be a shift from traditional software investing to hard tech, robotics and, dare I say it, AI. I think we can expect fewer Venture dollars going into 15-minute delivery over the next five years compared to climate, logistics, supply chain, defence tech and healthcare, problems that need to be solved at scale and where Venture is the only source of capital to finance these super hard problems from the outset.
Distribution
By Roger Threlfall
Given the challenging backdrop of 2023, there did not seem a noticeable reduction in demand for fundraisers. Understanding why seemed to throw up several consistent answers:
1) Clients requiring more and more of fundraisers' time hence the need to hire more.
2) The reduced ‘re-up rate’ meaning firms hired more fundraisers to find new investors.
3) Many PE firms are developing direct lending credit capability and requiring someone with credit fundraising experience.
4) Firms hiring people to sell to the broader wealth channel.
As we head into 2024, the general market sentiment has not significantly changed. Private markets fundraising remains extremely challenging against the backdrop of a continued uncertain macroeconomic environment, a question mark over whether we are at peak interest rates / inflation and a lack of distributions paid back to LPs being a few of the key issues.
Firstly, increased competition poses a significant hurdle. As more capital flows into private markets seeking higher returns, the landscape becomes crowded, making it challenging for fundraisers to stand out. Differentiating their offerings, demonstrating unique value propositions, and building strong relationships with potential investors becomes crucial for success.
Secondly, evolving investor preferences and demands present challenges. Investors are increasingly scrutinizing fund strategies, performance metrics, and alignment with environmental, social, and governance (ESG) principles. Fundraisers must adapt to these changing preferences, incorporate ESG considerations into their investment strategies, and enhance transparency to meet investor expectations effectively.
Thirdly, fundraising cycles are becoming more prolonged and complex. Lengthy due diligence processes, extensive documentation requirements, and regulatory compliance add layers of complexity, extending the time required to secure commitments. Moreover, geopolitical uncertainties, economic fluctuations, and market volatility can further prolong fundraising timelines, testing the patience and resilience of fundraisers.
Fourthly, regulatory challenges continue to evolve. Compliance with stringent regulations related to securities offerings, investor protections, anti-money laundering, and data privacy requires significant resources and expertise. Keeping abreast of regulatory changes across jurisdictions and ensuring compliance throughout the fundraising process is essential but demanding.
Lastly, geopolitical tensions and macroeconomic factors introduce additional uncertainties. Trade disputes, currency fluctuations, and geopolitical crises can disrupt global markets, impacting investor sentiment and capital flows. Navigating these uncertainties while maintaining investor confidence and securing commitments presents a formidable challenge for fundraisers.
In summary, private market fundraisers in 2024 must navigate a complex landscape characterized by heightened competition, evolving investor preferences, prolonged fundraising cycles, regulatory complexities, and geopolitical uncertainties. Adapting to these challenges requires agility, transparency, strong relationships, and a deep understanding of market dynamics. However, cautious optimism is commonly used terminology for how many fundraisers view 2024 with many hoping the second half of the year will show signs of improvement. What we do know is that those who do allocate in this more uncertain environment, commit to the largest and most established managers.
