Concierge Treatment: Private Equity Courts Mega Sovereign Funds and Pensions

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Over the past few years, sovereign wealth funds have gained a bit of leverage over private equity managers. Sovereign funds like Kuwait Investment Authority (KIA), China Investment Corporation (CIC) and Abu Dhabi Investment Authority (ADIA), have taken ownership stakes in headline private equity firms such as The Blackstone Group and The Carlyle Group. As sapient sovereign funds and mega pensions boost the ranks of their internal private equity teams, they will be larger actors in co-investments and direct deals. According to the Sovereign Wealth Fund Transaction Database, in the first half of 2014, sovereign funds invested directly US$ 51.3 billion. This compares to US$ 42.6 billion in the first half of 2013.

The idea of concierge service, creating separate accounts for mammoth-like investor clients, has been implemented by AUM-rich private equity managers like Apollo, KKR, Carlyle Group and Blackstone Group.

The relatively simplistic demands of sovereign funds and some of the larger-sized U.S. and Canadian pensions have motivated private equity firms to create products with lower risk and longer investment horizons. These cash-rich public pools of capital are constantly redeploying money to find sufficient returns in a low-yield world. For example, CVC Capital Partners, a European private equity firm with extensive relationships with pensions, life insurance companies and sovereign funds, is forming a bespoke private equity fund targeting larger companies and holding positions for an extended period of time. This strategy may lower returns; however, it will help solve the issue of limited partners from constantly redeploying cash. In return for lower expected fund returns, CVC is looking to lower the fees for such a venture. The popular publicly-traded private equity firms are essentially becoming mainstream asset managers, forming a wide-range of solutions for their customers. The idea of concierge service, creating separate accounts for mammoth-like investor clients, has been implemented by AUM-rich private equity managers like Apollo, KKR, Carlyle Group and Blackstone Group.

The Case for CVC

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