Just happened
AI gathers momentum
There’s been a lot of noise over the past 18 months or so about artificial intelligence and its potential to radically overhaul private equity processes. That noise appears to be translating into concrete action.
Schroders Capital, for its part, last week launched an AI platform designed to accelerate its research into existing and potential PE investments. In an interview with Private Equity International, CIO Nils Rode and head of private assets data insights Graham Taylor say the tool will be deployed across primaries, secondaries and direct/co-investments, automating repetitive tasks to provide investment professionals with more time for high-value assignments.
Others are investing more heavily in AI-focused staff. Coller Capital, a pioneer in the secondaries market, is looking to hire an additional data scientist to join its four-strong data science team, as our colleagues at Secondaries Investor covered this week (registration required). The position requires collaborating with data, machine-learning and software engineers, as well as investment professionals to build the next generation of data-driven PE investment tools.
Blackstone, Partners Group, EQT and Triton are also among the other early movers using AI in their processes, not to mention London-headquartered Clipway, which launched last year and which uses machine learning to better price secondaries deals. According to affiliate title’s Private Funds CFO’s Insights Survey 2024, 11 percent of such CFOs are already implementing AI within their workflows and processes.
As Ayon Banerjee, chief strategy and growth officer at India-listed digital engineering firm Persistent Systems, told Side Letter this morning, the technology enables firms to “shrink the investment deal lifecycle”, giving them an edge in execution. “Just to get to a point of writing up that report that gets presented to the investment committee is an incredibly hard, long, laborious process. There is a phenomenal amount of data that needs to be curled and curated and presented in the right way.” Persistent Systems has worked with the likes of KKR, Vista Equity Partners, Carlyle and Thoma Bravo.
Perhaps more enticingly in a higher-for-longer environment, AI can represent an intriguing value creation or cost-cutting opportunity. “There are some PE firms who are saying that: ‘Virtually every portfolio company of ours that we’re investing in right now has a tech angle from a value creation standpoint. Rather than going portfolio company by portfolio company, can we talk about developing something which is replicable across all portfolio companies?’”
It’s little surprise, then, that PE’s excitement over AI has led to something that feels more tangible. As Chris Gobby, managing director in Alvarez & Marsal’s PE performance improvement team, told PEI in January: “There was lots of noise around generative AI in 2023, [but] I think 2024 will be the year when we really start to see these solutions being implemented at scale.” For PE managers, that prediction appears to be ringing true.
Deal digest
We are halfway through the year and it’s time to take stock. KPMG’s 1H report through to mid-June indicates that PE acquisitions were up 37 percent to $268 billion compared with H1 2023 ($196 billion). PE deals are also 17 percent up for the first half from the $229 billion recorded in H1 2023.
“We saw another uptick in the value of private equity acquisitions in the US in the first half of the year, although the first half was not as strong as many were expecting at the start of the year,” Glenn Mincey, global and US PE leader at KPMG, said in the report, attributing this to higher-for-longer interest rates and continued mismatch in valuation expectations. “Nevertheless, we are optimistic for another increase in private equity deals in the second half of the year, particularly on the sell-side where PE firms are feeling pressure to sell assets and return cash to their investors and avoid forced sale situations, which will happen if they wait too long.”
Another recent report shows signs of life in the IPO market. EY’s Global IPO Trends Q2 2024 noted an uptick in large PE-backed IPOs, with the proportion of IPO proceeds rising from 9 percent in H1 2023 to 41 percent in the same period of 2024. This trend was particularly pronounced in the Americas, where 74 percent of the IPO proceeds were from PE-backed companies, EY added. Industrials led the way in the number of IPOs (115 listings – 21 percent), with technology raising the most capital ($10.8 billion).
Last month, Juan Delgado-Moreira, co-chief executive of Hamilton Lane, told PEI that second-half statistics could paint a brighter picture. “The biggest misconception, in our view, is that there’s no liquidity… it’s not true.” Delgado-Moreira said the “surprise elements” will come to the fore around July. “You’ll see all the write-ups on Q2 already showing the step up in liquidity,” he noted. “[It’s] not going to be, of course, 2021 levels, but I think it will be a healthy year on the comeback as a percentage in the asset class.”
They did the math
Indian influx
India’s PE market remains red hot. PE and VC deal value hit a 12-month high in May, per the latest monthly round up from EY India and the Indian Venture and Alternate Capital Association. India recorded $6.9 billion of PE and VC investments that month, up 54 percent from May 2023. May was also the second-highest month for deal count during the past year, with 115 deals taking place.
According to report, India played host to $6.67 billion of investments in January with the bulk of it – $5 billion – going toward infrastructure deals. In May 2024, however, PE/VC investments accounted for $4.4 billion – or 63 percent – of deal value, with $2.28 billion coming from buyouts and $2.53 billion from growth strategies. KKR’s $838 million acquisition of Healthium Medtech was the largest deal in May, followed by Warburg Pincus’s $554 million acquisition of Shriram Housing Finance.
India saw 23 exits – something the market has struggled with to date – in May, totalling $2.5 billion. That compares with $2.1 billion across 24 deals in May 2023. Secondary sales accounted for the bulk of exit value last month, generating $1 billion across five deals.
Essentials
Pemberton’s progress
Side Letter has spent a fair bit of time over the past week discussing LP appetites for NAV financing funds, and how these opportunities are being due diligenced. It’s clear the universe of these funds is expanding. Pemberton, for its part, has held a first close of its NAV financing strategy with more than $1 billion of investible capital. Abu Dhabi Investment Authority acted as anchor investor for the fund and was joined by Legal & General and other institutional investors. Sources close to the firm tell our colleagues at Private Debt Investor that the final close will take place next year and that the fund is actively looking for its first investments (registration required).
Pemberton isn’t alone in tilting at this burgeoning market. In February, PEI reported that Partners Group had become the latest firm to launch a dedicated fund finance vehicle. The fund will invest primarily in GP-led and LP-led NAV loans and opportunistic investments, including NAV preferred equity investments. Fund finance specialist 17Capital closed its first NAV lending fund on its €2.6 billion hard-cap in 2022 and is in market with a successor, according to PEI data.
What’s in a name?
And finally, CVC Capital Partners said this morning its Glendower Capital secondaries unit has rebranded to CVC Secondary Partners. The deal also saw CVC acquire the remaining 20 percent of Glendower. We’ve written much about what this acquisition means since it was first unveiled (see here) and there’s not much else to say – apart from the slightly amusing possibility that the group may at some point work on a venture capital continuation vehicle, begging the headline “CVC’s VC CV”. Side Letter eagerly awaits that day.
Dig deeper
Institution: New York City Fire Department Pension Fund
Headquarters: New York, US
AUM: $19.8 billion
Allocation to private equity: 9.43%
New York City Fire Department Pension Fund revealed commitments to private equity during H1 2024 in its June investment board meeting.
The commitments for the period totalled $255 million, with most going towards buyout funds in North America. This included commitments to existing fund manager relationships such as Clearlake Capital, to which it committed $52.2 million for its eighth buyout fund. It previously invested $11 million in Clearlake Capital Partners VI and $40 million in Clearlake Capital Partners VII. The New York City pension also committed $50 million to Insight Partners’ newest flagship growth equity fund.
The pension is overallocated to private equity at 9.43 percent, above its target of 8 percent. The full list of NYCFDPF commitments is illustrated below.
For more information on New York City Fire Department Pension Fund, as well as more than 5,900 other institutions, check out the PEI database.