April 11, 2022

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Private Market Newsletter April 2022





Credit

By Dinah Cencig 

 

2022 continued a busy hiring trend across credit that has now slowed down since the beginning of Covid in 2020. The biggest driver in buy-side credit recruitment is across direct lending: Morgan Stanley Investment Management hired Mark Jochims from Arcmont to build their private debt offering in Europe in January 2022. He has since followed up with two MD hires and various Vice Presidents and Associate hires to cover the European continent. Fidelity has further grown their private credit offering since acquiring Michael Curtis’ CLO business and have now hired a Head of Direct Lending from the Bank of Ireland. They will soon bolster the team with a senior UK and DACH hire. Other notable moves indirect lending is Mark Spangenberg moving from Alcentra to Arcmont (to cover DACH) and Cecile Ferrie-Davies, MD, leaving Hayfin to join Pimco to help them with their French coverage. In addition, primary CLOs have had a busy quarter with various new entrances in the European CLO market: Bluebay lost Rajat Mittal, CLO PM, to Signal Capital to build their European CLO offering. In addition, Carlyle acquired CBAM’s $15bn of predominately CLO assets to make the US private equity player one of the dominant CLO houses on the street. In another consolidation move, Alliance Bernstein bought CarVal and T. Rowe Price acquired a majority stake in OakHill Advisors backend of 2021. As such the movement of asset management firms trying to grow their private credit offering by acquiring boutique businesses is not slowing down.

 

Also on the special sits / distressed credit side, the market has seen multiple moves: Stan Fedorenko, ex Centerbridge, resigned to join Hamza Lemssouguer’s new $1.3bn credit fund launch Arini Capital. Otto Alaoui left CVC in late 2021 to join Carlyle after CVC’s decision to merge their special sits credit and direct lending efforts into one. Ian Jackson at Carlyle, who ran their European distressed credit business, is set to leave Carlyle in June 2022 after Carlyle decided to merge their liquid and illiquid credit business under one umbrella. Attestor Capital hired Fahmi Anar from Davidson Kempner to run their Norther European coverage effort. With such hiring activity across the market, we have seen a jump in total compensation numbers, especially driven by hikes of up to 30 percent for the base salaries of Associates. Given the search for returns and turbulent times ahead for the public equity markets, we do not expect hiring across credit to slow down until Q3 2022. 

 


Real Estate

By Ben Ingram and Samantha Williams 

 

As we return to business as usual after 2 years of legal COVID restrictions, investment in the Real Estate market continues to grow across a broad range of assets. Following the end of compulsory mask-wearing and social distancing measures, the retail sector is staging something of a comeback. The UK market has highlighted this as CBRE’s acquisition of GWM – a consultancy firm to over 60 retail brands – for an undisclosed fee in February this year demonstrates. Despite fears of the High Street’s demise, there still seems to be a market for retailers, outlets, and shopping centres to sell their wares to a population who are eager to get back to normal living. 

 

While industrial and logistics, datacentres and the living sectors enjoy continued success, life sciences are increasingly being considered a vogue sector. Although the full extent of life sciences as an investable asset class and the depth of in-sector talent remains uncertain, it is fast becoming an area of priority focus for Real Estate investors. Trinity Investment Management’s recent takeover of Cambridge’s Grafton Shopping Centre for a joint life sciences venture with Angelo Gordon – the latest addition to a large portfolio of life sciences assets – is a testament to this sea change in UK Real Estate investing.

 

Real Estate Debt continues to be a busy and competitive market. Debt funds are looking to move down the risk curve and broaden their offering with Abrdn even announcing an unusual open-ended fund. Others, including private equity houses and institutions, are looking to set up debt businesses - the likes of KKR, Ares, Invesco and Delancey recently established themselves in this space. The upshot is a hugely competitive market for senior and mid-level individuals or teams, that can originate and execute deals. Carried interest remains a key incentive to poach talented individuals from investment banks and institutions at the VP level.



Infrastructure

By Hugo Clark

 

With over $130bn of capital raised globally in 2021, it was the biggest ever year for equity fundraising in infrastructure & energy. It is interesting to note that the number of funds closed has significantly dropped since 2018, down from 149 to 91. This consolidation is partly due to LPs being reluctant to invest in first-time funds (take DIF’s recent pausing of their debut debt to fundraise), and instead opting for the security of track records in such a competitive market. 

 

Nevertheless, fundraising momentum has continued into 2022 with the likes of KKR closing their largest-ever fund at $17bn, NextEnergy closing $896m for NP3 (beating its $750m targets), InfraVia closing €5bn for their 5th flagship fund (beating the €3bn target), and Digital Bridge closing their second flagship fund at $8.3bn (beating their $6bn targets). No prizes if you can spot the theme here. Other notable examples include Allianz first closing €880m for their latest European infrastructure fund, I Squared are a few weeks away from closing their 3rd fund at $15bn, and ICG closing its first equity fund at €1.5bn.  

 

In addition to equity, infrastructure debt has grown markedly since 2019 (despite the pandemic) with the 20 largest GPs raising $20bn more than the $105bn raised the previous year. Unsurprisingly, sector specialists like Blackrock, AMP Capital (although now part of Ares), AXA, Macquarie, Allianz & GIP still dominate the debt space. The growth of infrastructure debt has not gone unnoticed by European players, many of whom are now looking to raise either first time or new vintages. Paris based SCOR has just announced they are targeting €750-1bn for their 4th fund. CIP started raising for their first-ever debt fund last year, going public in January with their €1bn target, and Zurich based SUSI Partners are targeting €600m for their 3rd debt fund. 

 

With all this fundraising comes lots of hiring, with the theme of the team moves continuing into 2022. We have previously seen large asset managers like Patrizia & Schroders expanding their infrastructure capabilities with the acquisitions of Whitehelm & Greencoat, respectively. This quarter we saw the completion of AMP’s debt team move into Ares Management, and then at the very end of the quarter, it was announced that HSBC AM had poached AMP’s entire listed infrastructure team. The team, led by Giuseppe Corona, is split across London & Sydney and will report to Alternatives CEO Joanna Munro. It will be interesting to see whether there’s a further exodus from AMP’s wider business. 

 

On the individual front, there are lots of activity across the entire sector, at all levels across investing (equity & debt) and asset management. As usual, the most movement was at the Associate level with GIP, Arcus, Basalt, Brookfield, CPP Investments, Fiera Infrastructure, and IFM (to name a few) all making hires into their investment teams. Some notable mid & senior level moves include Will Cunneen joining Abrdn’s core infrastructure team from Macquarie as an Investment Director. On top of the hiring spree in 2021, Kiril Prodanichin has joined Antin’s NextGen strategy as an Investment Director from Wren House. EIG brought in Etienne Renault as a VP from GIG and InfraCapital made two hires, bringing in Lee Hamano-Crossingham and Giorgiana Wegener as Asset Management Directors. Columbia Threadneedle lost their Head of Origination & Investments, Antonio Botija, to H.I.G, where he joins as a Managing Director in London, bolstering their already more than 20 strong team across London & New York. And finally, there’s been a change of guard at 3i with Managing Partner Phil White moving to Vice Chairman, and Partners Bernardo Sottomayor & Scott Moseley becoming Co-Heads of infrastructure. 

 


Private Equity 

By Olly Blaydon 

 

Even though the Real Estate and Credit markets are starting to look more closely at building in-house teams, their grasp of what’s possible through data and digital technologies is still very immature. There are notable exceptions (Starwood, Blackstone, Oaktree and Signal Capital for example) but they are very much outliers, for now. 

 

We find ourselves addressing two main themes in meetings with Real estate and Credit funds: First, digital transformation and data science have become catch-all terms to describe an evolving series of changes, technologies and systems. Packaging it all in one phrase is unhelpful and deceptive. The traditional real estate investment and management industries face huge efficiencies through modernisation and data analytics; credit portfolios do not but will be revolutionised by deep neural networks and quantum computers. Second, this is unlikely to be a bubble. A lot of .com revolved around exciting software which just couldn’t run on the low-bandwidth networks and small processors we had. These engineering issues aren’t a problem for data science and the digital technologies behind the change we have now. 

 

Private Equity continues to convert digital transformation into the increased valuation. We’re co-hosting a Roundtable of the Partners responsible for data and digital in the GP and Portfolio with EQT in May and the invite list is 48 people, two years ago this would have been less than half of that number. Hiring a CIO / CDO and CTO in the portfolio is the theme now. The people in the Operating Group can no longer cope with demand and the assets need their own people.

 


Venture Capital 

By Hugh Barren 

 

One of the most interesting trends we are seeing across European VC is how the funds themselves are thinking about helping their portfolio companies and winning deals with more than just capital. After speaking with a couple of funds lately, they outlined different scenarios where founders were happy for them to invest not just because of the amount of capital and their background as investors. Different scenarios included being able to hire and bring a wealth of top-level engineering talent from around the globe. Another firm we spoke with, claimed to be specialists in public relations and their pitch to founders is based along the lines of ‘let us invest and we will take care of all PR matters as well. As the deals become more competitive, VCs are continuing to think of different ways to deliver value to their portfolio. 

 

Access to capital is another large topic VCs have been considering much more. We are starting to see funds looking to develop their own in-house investment banking divisions. Whether that is to help a capital raise, prepare for an IPO or offer support once public, this ties into the increasing trend of VCs wanting to support the best companies, for as long as possible, providing they are still founder-led businesses. One VC, we spoke with told us of their team who spent three months working from their portfolio company’s offices, day in day out preparing them for their IPO. This function saves start-ups investment banks fees, but also offers an unparalleled level of support for businesses looking to embark on large strategic initiatives


 Distribution

By Roger Threlfall

 

As we finish Q1 2022, irrespective of what is happening from both a geopolitical or inflationary perspective, the amount of hiring across the broad private markets spectrum has not eased up, which includes the demand for fundraisers. Whether it is the US or Asian managers having a footprint in London by hiring a fundraiser or it is the more established managers having a more institutionalised set-up, where sales roles are now much more geographically focused across Europe.

 

We continue to see private markets firms in Europe move into a ‘newer’ client segment (wholesale) to diversify their book of business away from pure institutional investors. Trying to attract money from global private banks, discretionary fund managers and family offices continues to be a big push this year from a recruitment perspective. Global Private banks have shown huge interest in wanting to offer their clients more illiquid products, creating a demand these private markets firms will happily supply. Blackstone has the most established business (Private Wealth Solutions) but others have been following suit.

 

A by-product of the huge asset growth in private markets firms is the increased interest in hiring private markets product specialists, particularly in the private credit space due to the large variety of strategies. Firms can no longer rely on the fund manager or the fundraiser to manage existing relationships or have in-depth knowledge of every strategy, thus creating a demand for these product specialists.

 

We also see no let-up in the continued consolidation across the asset management industry, with traditional asset managers keen to bolt-on private markets capability. AB’s recent acquisition of CarVal Investors ($11bn alternative credit business) is a great deal. Schroders acquiring Greencoat Capital, the specialist renewable infrastructure business is a shrewd piece of business. Oaktree took a majority stake in 17 Capital to tap into the ever-growing interest in the fund financing space. A follow on from this is that traditional asset managers continue to build out their alternative sales teams who work closely with the regional relationship managers. Franklin Templeton, Wellington and Fidelity have all recently / are in the process of hiring these salespeople.