The Private Equity Newsletter 25th July

What is going on in the Private Equity world this week...

Top Story

Canadian Pension Plan's Heavy Bet on Private Equity Raises Concerns About Transparency and Ethical Practices

Summary: The Canada Pension Plan's investment arm, CPP Investments, has attracted scrutiny due to its substantial $190 billion investment in private equity, comprising a third of its total portfolio. Despite the potential for high returns, critics are raising multiple concerns about the lack of transparency and ethical implications associated with this investment strategy.

Private equity investments have long been criticized for their opaque nature, making it difficult for investors and the public to accurately assess the true value of holdings. Unlike publicly traded equities, private equity investments are not subject to regular market valuations, leading to questions about the reliability of reported values. This lack of transparency has sparked worries about hidden risks and potential manipulation of returns.

Furthermore, ethical issues have come to the forefront, with some private equity firms accused of engaging in predatory practices that harm consumers, workers, and communities. High-profile cases, such as nursing home takeovers and child labor concerns, have raised questions about the ethical standards of the companies CPP Investments has chosen to invest in.

Notably, CPP Investments' heavy reliance on private equity returns is also drawing skepticism from experts. Professor Lukas Schmid's research indicates that private equity investments do not necessarily provide superior returns compared to publicly listed stocks. This raises concerns about the appropriateness of such a large allocation to private equity, especially given the inherent risks and potential lack of added value.

The stance of prominent investors adds to the apprehension. Warren Buffett has voiced doubts about the honesty of some private equity funds' reported returns, indicating that investors should exercise caution. Similarly, Democratic Sen. Elizabeth Warren has been critical of the industry's practices, warning of their potential for extracting profits at the expense of various stakeholders.

CPP Investments, however, defends its investment strategy, citing the pension plan's predictable cash flows and ability to prudently seek less liquid, complex assets that can generate higher returns. The organization argues that private assets play a crucial role in pursuing additional value beyond passive alternatives available in public markets.

As the debate over the CPP's significant bet on private equity continues, calls for greater transparency and scrutiny are growing. Canadians are seeking more information on the specific investments, industries, and leverage levels within CPP Investments' private equity portfolio. Additionally, some experts are urging the pension plan to reconsider its allocation and explore alternative investment strategies that may offer better risk-adjusted returns.

Recent Headlines:

Bain Capital closes inaugural insurance fund at $1.15bn

Bain Capital Insurance, the insurance investing business of Bain Capital, has held the final close of its inaugural private equity fund, Bain Capital Insurance Fund, with $1.15bn in capital commitments, above its initial target of $750m.?

CenterGate Capital closes Fund II at over $375m

CenterGate Capital (CenterGate), an Austin, Texas-based lower middle market private equity firm, has held the final closing of CenterGate Capital Partners II (Fund II) over its original target with over $375 million of capital commitments.?

Blackstone reaches $1 trillion despite Q2 earnings slide

Blackstone has been confirmed as the first alternative investment manager to reach $1 trillion in assets, three years ahead of schedule, according to a report by Reuters.

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Fundraisings, forecasts, and future exits: Key takeaways from Bridgepoint results

Bridgepoint, the FTSE 250 private equity firm, has revealed its first-half performance, showcasing progress on fundraising and upcoming exits.

The company expects increased M&A activity in the latter half of the year. Despite this, its share price has fallen by 10% to 189p, down from 228p a year ago.

1. Fundraising:?Bridgepoint is in the process of raising several funds. Its latest middle-market buyout fund, Bridgepoint Europe VII, has commitments of €6bn out of its €7bn target. The fundraising effort is well on its way to completion, having garnered an additional €500m in the last quarter. Bridgepoint plans to launch its fifth fund for its lower mid-cap investment strategy (BDC V) and its fourth direct lending fund (BDL IV) within the next 12 months. Bridgepoint Credit Opportunities IV and Bridgepoint Growth II will also close in the same timeframe.
2. Credit:?Bridgepoint focuses on the middle market for its direct lending and credit opportunities strategies. Over the last 12 months, it has deployed around €1.7bn of capital. The company has seen good returns, with BDL III currently achieving low double-digit unlevered returns and no realized losses since inception.
3. Market Outlook:?Chairman William Jackson expects an increase in M&A activity in the second half of 2023, following a slower period. The company targets roughly €4bn of capital in exits over the next 18 months, with some of the 2023 exits potentially moving into 2024 due to market conditions. While challenges remain, there are opportunities in the current market environment.
4. Financial Performance:?Assets under management reached €39.5bn in H1 2023, up 6.5% from H1 2022 and 48% since its IPO in 2021 when AUM was €26.6bn. Fee paying assets under management increased by 24% from H1 2022. Profit before tax rose 10% year-on-year to ￡53.1m.

Overall, Bridgepoint anticipates growth in the coming months and plans to launch several more funds, positioning itself for a dynamic market outlook.

The Private Equity channel and Podcast?houses our podcast recordings, PE and Portfolio advice, plus recent case studies conducted on new talent and their firm

We keep you updated on our latest podcast stars and the hot topics of Private Equity.?You can watch our podcast recordings over on our YouTube channel or tune in?on Spotify, Apple Podcasts,?and Google podcasts.

Keep?informed about what we are doing?through our LinkedIn page or change your thinking and gain some knowledge by getting stuck into an advice episode on the Private Equity channel, hosted by Alex Rawlings.?

In this episode, we welcome?Bryan Gordon who discusses producing above-market returns, why the team fit is crucial, and his experience in 30+ years of Private Equity

What You Will Learn:

• Focusing on the Upsides Versus Focusing on the Downsides
• Team Culture in PE Firms
• The Value of Human Capital

We also have a bonus episode!?Our Playbook Series...

We welcome Nevin Raj who discusses?the complete guide to achieving proprietary inbound deal flow

What You Will Learn:

• How to Develop a Strategic Business Development Plan
• The Best Way to Ask for Referrals in Private Equity
• How to Play the Long Game with Private Equity Relationships?

Catch up on the links below to tune in...

Podcast Links

Want to be a guest?

We are always looking for people in the Private Equity space who have great conversations, can provide an interesting perspective, and are on top of their game.

If this sounds like you, give Alex Rawlings our podcast host, a message either on?LinkedIn?or drop him an email at [email protected]

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WHY LOWER MIDDLE MARKET PRIVATE EQUITY FIRMS RELY ON EXECUTIVE SEARCH FIRMS

Lower middle market Private Equity firms face unique challenges when it comes to executive recruitment. They often operate with smaller teams and have limited resources, which makes it difficult to attract top-level talent. As a result, many of these firms rely on executive search firms like Raw Selection to help them find and attract the best candidates for their open positions.

One of the primary reasons why lower middle market Private Equity firms turn to executive search firms like Raw Selection is that they have a deep understanding of the industry. Raw Selection has extensive experience working with lower middle market Private Equity firms and knows how to navigate the unique challenges they face. They understand the importance of finding candidates with the right skill set and cultural fit, as well as the need for speed and efficiency in the recruitment process.

Another reason why lower middle market Private Equity firms rely on executive search firms like Raw Selection is that they provide a level of expertise that is often missing within the firm. Many of these firms don’t have a dedicated HR or recruitment team, which makes it challenging to identify and attract the right candidates. By working with a specialized executive search firm like Raw Selection, they gain access to a team of experts who have a deep understanding of the market and can help them identify and attract the right candidates for their open positions.

Additionally, executive search firms like Raw Selection have a vast network of industry contacts and a proven track record of success. They have developed relationships with top-level executives across a wide range of industries, which gives them access to a vast pool of talent. They also have a proven track record of success, which gives lower middle market Private Equity firms confidence that they will find the right candidate for their open positions.

Finally, executive search firms like Raw Selection provide lower middle-market Private Equity firms with a level of flexibility that they wouldn’t have if they tried to handle recruitment in-house. They can adjust their approach to fit the specific needs of each client, whether it’s a short-term or long-term engagement, a single position or a more extensive search, or a full-time or interim position.

In conclusion, lower middle market Private Equity firms rely on executive search firms like Raw Selection because they provide a level of expertise, access to a vast network of industry contacts, and a proven track record of success. If you are a lower middle market Private Equity firm looking for help with executive recruitment, we urge you to reach out to Raw Selection’s Managing Partner, Alex Rawlings, at?[email protected]?to discuss your requirements and how they can help.

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Raw Selection

We specialize in executive search, working exclusively with lower and middle-market Private Equity firms and their Portfolio Companies across Europe and North America.

We support Private Equity firms to secure talent for their investment and operations teams and to identify proven senior executives for their Portfolio Companies.

When it comes to recruiting senior executive talent for your business, our approach is one of meticulous search and due diligence.

So much so, we de-risk recruitment for all our retained clients. We are so confident in our approach that we are prepared to offer a money-back guarantee on our services.

Interested? Get in contact here.

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