Jumbo-sized buyout firms are feeling emboldened to spend limited partner capital on deals that may be overvalued. In addition, public funds with large internal team have had success raising third-party capital.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Sovereign and Public Investor Topics: Asset Allocation and Policy
Alternatives - Hedge Funds and Private Equity
Real Estate and Infrastructure |
Central Banks and Monetary Authorities
The not-for-profit TIAA–CREF has agreed to acquire Nuveen Investments for US$ 6.25 billion including debt from an investor group led by Chicago-based Madison Dearborn Partners. Madison Dearborn bought Nuveen for US$ 5.75 billion in 2007, taking it private. At the time, it was the largest leveraged buyout in the asset management industry. New York-based TIAA-CREF was keen on growing its mutual fund business and reached out to Madison Dearborn, the private equity owner of Nuveen Investments.
The deal would create another financial behemoth with around US$ 800 billion in assets under management, putting pressure against firms like BlackRock, Fidelity Investments, Putnam and Vanguard.
“For nearly a hundred years, we have been wise financial stewards for those who make a difference in the world in the academic and non-profit communities,” said Roger Ferguson Jr., president and chief executive officer, TIAA-CREF, in a press release. “The acquisition of Nuveen can generate greater returns that will benefit our customers. This transaction “reinforces our position as a leading diversified financial services organization with a broad mix of product offerings to serve clients today and those in retirement for decades to come.”
TIAA–CREF mostly operates on a not-for-profit basis. The integration of Nuveen will add a layer of operational complexity. TIAA-CREF has around US$ 570 billion in assets and they serve the academic and non-profit realms.
Here are some quick bytes in the world of sovereign wealth funds and other long-term public funds:
Peru Sovereign Wealth Fund Progress
Peru is debating on creating a sovereign wealth fund. The government does not know how big the fund could be. The South American country grew 4.2% in January 2014, a slowdown in gross domestic product expansion.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Singapore’s Temasek Holdings has pushed out Astrea II, a platform that has interests in 36 private equity funds. The Sovereign Wealth Fund Institute reported in late March, that Temasek was seeking an acquirer for US$ 1 billion of buyout fund interests. Temasek holds 38% of Astrea II, being the biggest single institutional investor. There are 6 other co-investors in Astrea II. Paris-based Ardian Sarl, formerly AXA Private Equity, will be the general partner and manager of Astrea II. Astrea II will be diversified targeting funds across sectors, geographic regions and vintage years.
Astrea is essentially a securitization of an existing private equity limited partner portfolio.
According to the Temasek press release, Dilhan Pillay Sandrasegara, Head of Enterprise Development commented, “Temasek continues to be an active investor in high quality private equity or PE funds globally. These investments have created value for us in the form of direct returns, as well as opportunities for us to make further direct investments alongside the PE fund managers.”
For over 20 years, Temasek has been an institutional investor in private equity funds. They sponsored Astrea I in 2006, which allowed the sovereign wealth fund to broaden its investor base and dump some exposure to the 46 private equity funds. Astrea had exposure to over 480 companies. The deal with Astrea I raised around US$ 810 million in debt and equity. Astrea I provided attractive financing terms for Temasek.
Astrea is essentially a securitization of an existing private equity limited partner portfolio.
Sovereign wealth funds and other large public asset owners are moving faster into the venture capital space. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The New Mexico State Investment Council (NMSIC) recently approved a number of mandates dealing with private investments. The NMSIC has committed US$ 75 million to FS Equity Partners VII, L.P. This fund is managed by Freeman Spogli & Co., a private equity firm focusing on U.S. consumer-related and distribution companies. The firm was founded in 1983 by Ronald Spogli and Brad Freeman. The fund is targeting deals between US$ 100 million to US$ 750 million in enterprise value, investing US$ 50 to US$ 150 million per company. Analyzing the public records of other limited partners like CalSTRS, FS Equity Partners V, L.P. had a positive IRR above 10%.
Public investors are plowing tons of dough into American energy. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
New York-based Blackstone Group LP has been hired by Dubai World to analyze the organization’s debt. Blackstone will take an advisory role and seek to come up with strategies on optimizing debt scenarios for Dubai World, particularly the debt maturing in 2018. A large maturity amount of US$ 10 billion is due then.
The 2009 property bubble burst forced Dubai World to restructure US$ 25 billion worth of debt.
Dubai World has been looking to shed assets to repay debt and lighten its balance sheet. On January 19, 2014, Dubai World sold Palm Utilities for US$ 500 million to Empower, a Dubai district cooling firm.
ICD Buys Stake in Kerzner International
On another note, the Investment Corporation of Dubai (ICD) is buying a 46% stake in Kerzner International, a hotel management company. Istithmar World, a division of Dubai World, already owns 25% of in Kerzner International. Kerzner International owns the Atlantis Resort in the Bahamas.
Mick Davis, the former Xstrata CEO, has raised US$ 3.75 billion in a venture targeting mid-level mining opportunities favoring copper, coal and zinc assets. Mick Davis transformed Xstrata, a regular-sized coal producer, into a mining empire. Under Davis’ command, in 8 years, Xstrata went from US$ 500 million in market capitalization to a US$ 50 billion market capitalization. Davis left the company after the US$ 29.5 billion Glencore acquisition of Xstrata.
BHP Billiton Ltd. and Rio Tinto Group are among many mining conglomerates contemplating asset disposals in the tens of billions.
In the backdrop of low commodity prices, mining companies have shed assets to lighten up their balance sheets.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Ng Kok Song, also known as Jolly, is the former chief investment officer of Singapore’s mega sovereign wealth fund GIC, where he remains as an advisor. Ng is planning on launching a global macro fund this year. Singapore’s GIC is seeding the startup fund. The GIC has a history of seeding its former executives’ hedge funds.
Ng began his career as an investment analyst in the Ministry of Finance-Singapore in 1970. By 1986, he joined the GIC. His former colleagues have commented publicly about Ng’s positive influence on harnessing the robust investment capability at the sovereign fund.
In February 2012, the GIC seeded Singapore-based Nuvest Capital Pte Ltd which was founded by Aje Saigal. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
New York-based Blackstone Group LP has closed its Goliath-like European Real Estate Fund at its cap of €5.1 billion. This is Blackstone’s fourth European real estate fund – also being the largest dedicated European real estate fund the world has seen. Some institutional investors in the real estate fund include, New York State Teachers’ Retirement System, Texas County & District Retirement System, Pennsylvania Public School Employees Retirement System and the North Carolina Retirement Systems.
Blackstone is banking on the limited availability of opportunistic capital in mega transactions.
[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Abu Dhabi-based sovereign wealth fund Mubadala Development Company and French state investor CDC International inked an agreement in Paris on Tuesday to start a €300 million (US$ 414 million) joint investment fund. Each institutional investor pledged an initial commitment of €150 million (US$ 207 million).
The management team for the new and currently unnamed co-investment fund will consist of senior personnel from both institutions, according to The National. The UAE newspaper pointed to property and infrastructure as asset classes in which the fund would invest, but its top priority will be private equity.
The deal highlights how Mubadala’s investment strategy is shifting gears. Mubadala is ramping up investment activity in mature markets like the U.S. and Europe, lessening its concentration off of emerging economies.
CDC International is a newly created investment branch of France’s public investor Caisse des Dépôts. The US$ 200 billion institutional investor created CDC to pursue the formation of bilateral and multilateral investment vehicles with sovereign wealth funds to support long-term financing and improve competitiveness of the French economy.
Singapore’s Temasek Holdings is in key discussions of selling nearly US$ 1 billion of positions in buyout funds to Paris-based Ardian Sarl, the former private equity unit of French insurer AXA SA. Ardian (the new name for AXA Private Equity) is looking to acquire the positions with debt and dump some holdings to investors.
This is on the back of another deal in which Ardian is positioned to acquire 350 interests in middle-market buyout funds from GE Capital for about €719 million (US$ 1 billion). The French private equity firm is offering to acquire the interests at face value. At the beginning of 2014, Patrick Kocsi, the head of GE Capital’s Americas equity unit, met with advisors on seeking a secondary sale. GE Capital currently manages US$ 2.5 billion in interests in buyout funds.
Dominique Strauss-Kahn, the former IMF managing director, is targeting to raise US$ 2 billion for his macro hedge fund from a variety of investors including sovereign wealth funds. He is chairman of Leyne Strauss Kahn & Partners SA (LSK & Partners) and has launched the DSK Global Investment Fund. Strauss-Kahn picked up Mohamed Zeidan as the firm’s chief operating officer.
LSK & Partners’ CEO Thierry Leyne stated in a press release, “The assets that will be allocated in the Fund will be based on the expression of Dominique Strauss-Kahn’s comprehensive economic predictions of global trends in bond markets, equity markets, commodity markets, Forex, alternative, cash, and other exchanges.”
Professor Vanessa Strauss-Kahn, the daughter of Dominique Strauss-Kahn, will be leading the economic research unit at the firm.
The U.S. Department of Justice (DOJ) and the SEC have allocated greater financial resources toward stricter enforcement of the Foreign Corrupt Practices Act (FCPA). The federal law has pierced into the world of money management, capital introduction and placement agents. The act outlaws bribery payments by U.S. companies anywhere in the world.
Och-Ziff Capital Management Group LLC in 2011 received subpoenas from the SEC and requests for information from the DOJ. These were in connection to an FCPA investigation. These agencies have also investigated the Blackstone Group and Goldman Sachs.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The California Public Employees’ Retirement System (CalPERS) announced yesterday it will allocate another US$ 200 million to its Emerging Domestic Private Equity Managers program. The US$ 280 billion public pension fund this year will choose a new fund-of-funds manager to receive the allotment, which will be disbursed over four years. The selected manager will target high-potential emerging manager funds. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
David Rubenstein is the co-founder and CEO of the Carlyle Group – a well-known alternatives manager that has carved out a significant corner in the world of private equity. At one of the popular private equity conferences in Berlin, SuperReturn International 2014, Rubenstein laid out his perception on the current and future state of private equity – with an obvious tinge of optimism. A key message during the presentation is that private equity firms should look to sovereign funds as a source of capital. The asset growth rates of sovereign wealth funds has outpaced U.S. public pensions in the last five years.
In the future, David Rubenstein sees sovereign wealth funds as the biggest single source of capital, replacing U.S. pension funds.
When Rubenstein opines, private equity professionals tend to listen. Why? The publicly-traded private equity firm has been able to attract goliath-like limited partners such as large U.S. pension funds, endowments and sovereign funds. The billionaire philanthropist often makes forecasts in the private equity community – highlighting that more private equity firms may go public.
2014 – A Private Equity Renaissance
2013 was definitely a promising year for the private equity industry as deal flow and capital raises maintained upward trends since 2010. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Singapore sovereign wealth fund, GIC Private Limited, and the Blackstone Group LP are in key discussions to purchase a minority stake in Kronos Inc. worth US$ 750 million for approximately 44% in equity. Massachusetts-based Kronos is a workforce management software company.
The selling parties are Hellman & Friedman LLC and JMI Equity, both private equity firms, who rejected outright takeover bids worth as high as US$4.6 billion in February. The private equity firms took Kronos private in 2007 for US$ 1.8 billion. They extracted US$ 1.5 billion in dividends from Kronos over a period of time.
Hellman & Friedman was fine with lowering the valuation of Kronos but demands that new institutional investors pay for a control premium.
The GIC is a key limited partner in Hellman & Friedman.
Sovereign wealth funds and public pensions continue to commit capital to European buyout private equity. A fundamental concern for institutional investors is the amount of quality deal flow versus the limited partner capital being committed. For example, Mid Europa Partners LLP, a private equity buyout firm focused on companies in Central and Eastern Europe and Turkey, has been forced to amend the size of their latest fund called Mid Europa Fund IV. This buyout fund will target companies with enterprise values between €100 to €500 million in regions such as Central Europe, the Balkans and Turkey.
Times were better before the crisis for private equity fundraisers.
The reasoning for the size modification is that the larger limited partners were concerned about the dwindling number of potential deals and size of deal opportunities in the region. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Singapore’s Temasek Holdings is quite the Asian venture capital investor. The Singaporean sovereign wealth fund centers on online companies reaching broad audiences. The online education and English-learning company TutorGroup raised US$ 100 million in a Series B round from Temasek Holdings, Qiming Venture Partners and Alibaba Group.
In April 2012, China-based TutorGroup raised US$ 15 million from Shanghai-based Qiming Venture Partners. Tutor Group was founded in 2004 by brothers Ming Yang and Eric Yang.