The latest insights from the private markets specialists at Armstrong.
Credit
By Dinah Cencig
Credit had a busy 2021 with direct lending coming back full force from a senior recruitment point of view. Both from US entries who want to establish a European leg to their US private credit business to European startups we have seen senior direct lending talent being in high demand. Director level origination talent is particularly wanted in a French and DACH context.
Other than direct lending, performing credit especially in terms of credit analysts for
CLO strategies has had a comeback this year. Given the stellar performance of many
European CLO businesses during Covid and 2020, we have seen competition rise in
the market for performing credit analysts. Structured credit in the form of secondary
CLO investing and tranche trading had a busy 2021. This buy-side activity is mirrored
by heightened recruitment activity also on the sell-side where loan credit trading and
distressed/ high yield credit trading has seen numerous moves in the market this year.
Whilst actual performance of credit strategy is below 2020 performance, the chase for
yield means that credit remains an attractive risk/return asset class in a low-interest
rate environment which means that credit recruitment across the board has had one
of its busiest years in a decade.
Real Estate
By Ben Ingram and Samantha Williams
The post COVID outbreak ‘bounce back’ in investment has been prevalent in Real
Estate across Europe in 2021. With institutional investors desperately looking to
deploy capital and private equity chasing the higher return, vogue sectors and regions,
there has been (and, unusually for December, continues to be) a huge amount of
activity.
The widely reported ‘hot spots’ have been the usual core markets of the UK,
Germany and France; however, those looking for greater yields raced into Iberia early
in the year and as time went on increasing talk had been around CEE (beyond just
Poland).
The overused term for the vogue sectors of “beds, sheds and meds” still rings true.
Drilling down: industrial and logistics (particularly the newer ‘last mile’ and urban
logistics) is still being fuelled by continued growth of e-commerce but the market feels
it is reaching boiling point; datacentres have been steadier in comparison but have
considerable and long term growth prospects; the size and potential of the life science
sector remains unclear but interest in it remains; the broad living assets (including
PRS, affordable, senior living, co-loving etc) are probably the most certain for
consistent and long term growth.
Naturally, senior talent with a track record in these regions and sectors are sought
after. Those with development management and asset management skills are also in
high demand amongst investor clients as they seek to have greater control of/de-risk
on projects and assets in their portfolio and allow them to accurately consider
development and investment opportunities. In short, there has been a race for such
professionals that has driven significant wage inflation that is causing a disconnect in
businesses and the market.
Infrastructure
By Hugo Clark
Overall, it’s been an extremely busy year in infrastructure and, unsurprisingly, we’ve
seen the continuation (and substantial growth) of 2020’s themes of renewables, energy
transition and decarbonisation.
With over $90bn raised this year already we are on track for the largest amount of
fundraising ever in infrastructure (c. $130bn in 2019), with funds like EQT, ISQ, KKR &
Stonepeak all still in the market for their funds targeting $10bn+. Some of the largest
fund closes include CIP with $8bn (infra partners fund IV), Macquarie with $6.9 (infra
partners fund V) and Blackrock with $4.8bn (renewable power fund III). Interestingly,
renewables accounted for 61% of all sectors specific funds raised, with Telecoms coming
in second with 22%. Some notable examples of this include Copenhagen Infrastructure
Partners, Infracapital & Antin all raising funds to focus on energy transition assets.
All this fundraising of course means a huge volume of deals and lots of hiring. The most
interesting development here is the build out of new teams, to focus on deploying
capital from new renewables and energy transition strategies. CPP Investments created
a new platform to invest into renewable power, Antin made 5 senior hires for their Next
Generation strategy, iCON are looking to expand their market share in renewables with
a senior hire and Eurazeo taking on board 3 of Marguerite’s senior leadership to lead
their new core+ strategy.
There can be no doubt that this rapid growth will continue into 2022, fuelled by the
targets set by COP26 and the need of the achieving net-zero, which can only be good
news (hopefully) for AI.
Private Equity
By Oliver Blaydon
Private Equity and Secondaries funds are waking up to how much value data science
can bring to deal discovery, due diligence and acquisition. They see the extra multiple
firms like EQT and TDR have been getting over the last few years and want to
incorporate this level of machine learning into their own processes. This follows a
hugely successful year for GPs generating huge profits from digitally transforming
traditional portfolio companies. We are having much more sophisticated
conversations with owners, investment professionals and PortCo CEOs about how our
network can revolutionise their business models beyond the Chief Digital Officer into
the CTO, CMO, CPO and CEO roles as well.
Venture Capital
By Hugh Barran
Venture capital firms and high-growth technology companies have never been more
awash with cash. It was only in September that Greylock Partners, a large US VC
announced they were looking to raise the largest ever seed VC fund at $500m. Hedge
funds, known as crossover funds are entering the space and investing at earlier stages
too. Venture capital firms will need to continue to differentiate themselves as founder-friendly businesses as a way to stick out from the rest. However, we should start to see
many more VC firms look to institutionalise as businesses and hire more talent across
their infrastructure, sales and operational teams. With this much money entering
venture capital, VC firms are going to need to compete somewhat more aggressively.
There appears to be a collision of financial services across these high growth
technology companies, where it doesn’t matter if you are a hedge fund, VC firm, asset
manager or investment bank, everyone wants a slice of your Klarna’s, Cazoo’s and
Stripe.
Cryptocurrency & Blockchain
By Ben Ashkenazi
Cryptocurrency and Digital Assets have garnered mass media attention over the last 12
months.
The mass level of adoption has produced a shift in the narrative; rather from a general
questioning of the success the space will have, to an air of inevitability regarding the
transition from traditional finance to a more decentralized one.
2021 has seen the parabolic rise of meme coins, NFT’s, and the reaction of a parallel
online universe we now know as the metaverse. The newly rebranding of leading tech
companies, Meta and Block, as well as the forays by household names like Nike and
Adidas have made the introduction into the space a much easier transition from the
earlier complexities which digital assets often met new participants. As the year comes
to an end, many will tell you that the bull market which 2021 has hosted is too, but if
2021 has taught us one thing, it’s that Crypto is here to stay.
Distribution
By Roger Threlfall
As we head towards the end of 2021, we can reflect that demand for fundraisers across
the private markets spectrum this year has continued to be very high. Whether it is
the US or Asian managers having a footprint in London by hiring a fundraiser or more
established managers, that are growing at a very fast pace, having a more
institutionalised set up from a fundraising perspective, where roles are much more
geographically focused.
We have also seen private markets firms in Europe move into a newer client segment
(wholesale) to diversify their book of business away from pure institutional
(pension/insurance). Trying to attract money from global private banks, discretionary
fund managers and family offices etc has been 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. KKR recently hired 2 people in London
to lead this effort in Europe and a number of other firms are doing the same.
A by-product of the huge 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.
Finally, the pandemic accelerated the consolidation across the whole asset
management industry. Traditional asset managers have been keen to get into the
private markets arena but it is not straightforward. Do you hire a team and wait for it
to grow or do you buy a business outright and have the revenues immediately? The
latter seems to be the more preferred route (should you have the capital) but it is an
expensive route given it is a sellers-market.