Archive for the ‘Uncategorized’ Category

Gaw Capital Partners Takes Top Spot in APAC Fund Manager Ranking by PERE

Posted by SANCHIT TANEJA

September 1, 2021, Hong Kong  Gaw Capital Partners ranked first in PERE’s APAC Fund Manager Guide, a ranking based on capital raised over a five-year period, which shows the top 50 fund managers in the APAC region. As announced by PERE, Gaw Capital Partners has raised equity of US$8.6 billion and commands assets of over US$25.6 billion in the APAC region over the past five years. Since 2005, Gaw Capital has commanded assets of USD$30.7 billion under management globally as of Q1 2021.

Gaw Capital Partners successfully closed two investment vehicles totaling US$902 million in commitments. The first vehicle will focus primarily on real estate opportunities across sectors and markets in Asia. The second vehicle seeks to invest in education platforms in major Asian cities with strong structural tailwinds supporting growth in demand for premium international or bilingual education. In addition, Gaw Capital Partners successfully closed the fundraising for its internet data center (IDC) platform, which targets to invest in a portfolio of projects in partnership with IDC developers and operators in Asia, bringing the total equity raised to over US$1.3 billion in 2020. Recently, Gaw Capital Partners also completed the final close of Gaw Growth Equity Fund I at US$430 million to invest in proptech and real estate-related operating companies that are high growth and highly scalable with a primary geographical focus on Pan-Asia.

Goodwin Gaw, Chairman & Managing Principal of Gaw Capital Partners, said, “We are honored to receive this recognition from PERE, which is a reflection of our investors ongoing support, enabling us to succeed in fund raising, fund management and complete our creative value-add to our diverse range of assets throughout the Asia Pacific region. With a solid platform and dedicated team, we will continue to deliver excellent services and maximize returns for our investors.”

Christina Gaw, Managing Principal, Global Head of Capital Markets and Co-Chair of Alternative Investments at Gaw Capital Partners, said, “We are thrilled to be recognized by PERE as one of the best real estate private equity fund managers. The challenge of the pandemic certainly created more hurdles for managers to conduct fundraising. We would like to thank our investors for their ongoing trust in our capability in deal sourcing and dedicated asset management – it is thoroughly appreciated. We would also like to express our sincere appreciation to PERE magazine for their recognition, and most importantly, sincere thanks to our professional teams for their dedication and boundless hard work.”

PERE Magazine is one of the most reliable publications in the private equity real estate industry. The ranking is based on the amount of private real estate direct investment capital raised by firms between 1 January 2016 until 31 March 2021 in the APAC region.

About Gaw Capital Partners

Gaw Capital Partners is a uniquely positioned private equity fund management company focusing on real estate markets in Asia Pacific and other high barrier-to-entry markets globally.

Specializing in adding strategic value to under-utilized real estate through redesign and repositioning, Gaw Capital runs an integrated business model with its own in-house asset management operating platforms in commercial, hospitality, property development, logistics, IDC and Education. The firm’s investments span the entire spectrum of real estate sectors, including residential development, offices, retail malls, serviced apartments, hotels, logistics warehouses and IDC projects.

Gaw Capital has raised six commingled funds targeting the Greater China and APAC regions since 2005. The firm also manages value-add/opportunistic funds in Vietnam and the US, a Pan-Asia hospitality fund, a European hospitality fund, a Growth Equity Fund and also provides services for separate account direct investments globally.

Since 2005, Gaw Capital has commanded assets of USD$30.7 billion under management as of Q1 2021.

Source: Gaw Capital Partners

Mercury Capital Advisors Appoints Michael Ricciardi as Chairman Emeritus

Posted by Muhammad Ibrahim Masudi

Mercury Capital Advisors (“Mercury”), among the world’s elite global private fund placement and advisory firms, today announced that it has appointed Michael Ricciardi, Chief Executive Officer and Co-founder of the Firm as Chairman Emeritus. In his new role, Mr. Ricciardi will focus on business development and sourcing new client mandates.

Mr. Ricciardi founded Mercury Capital Advisors in 2009 along with two of his partners as a spinoff from the Merrill Lynch Private Equity Funds Group. Since its inception and under his leadership, Mercury has completed more than 125 fundraising, secondary advisory, co-investment and direct deal placements across multiple alternative asset classes, closed over $100bn in fund commitments, and became a prominent global placement and advisory firm.

Mr. Ricciardi said: “I look forward to the next phase in my career with great anticipation and excitement. I am enthusiastic about contributing to Mercury’s growth as it continues to deliver exceptional fundraising and advisory solutions to our clients.”

Mr. Ricciardi will retire from the executive management and operations of the Firm to focus on his new role, while the day-to-day management will be handled by the Firm’s Managing Partners John Franklin and Enrique Cuan.

Mr. Franklin and Mr. Cuan, commenting on Mr. Ricciardi’s transition, said: “The Firm has greatly benefitted from Mr. Ricciardi’s passion for helping clients grow their franchises and we look forward to continuing to leverage his network to develop new opportunities and relationships for the Firm in the future.”

This announcement comes as the Firm posted very strong first half results on the back of advising on several fund closings year to date, including those of Ocean Link, MML, Valor, Gaw, Blue Torch and Investcorp. Building upon this momentum, last week the Firm announced that it has hired four senior distribution professionals. In addition to these senior hires, it also strengthened its team by adding eight other staff in recent months across different functions, including distribution, administration and project management.

About Mercury Capital Advisors:

Mercury Capital Advisors is a leading global private fund and investment advisory firm. Founded in 2009 as a spinoff from the Merrill Lynch Private Funds Group, the firm assists general partners and limited partners in fundraising and secondary advisory, co-investment and direct deal placement. The firm specializes in alternative assets including private equity, real estate, infrastructure, credit, venture capital, secondaries and special situations investments. Mercury has advised on over 100 fundraisings and closed over $100bn in fund commitments since its inception in 2009.

With offices in New York, London, Singapore, Tokyo and New Delhi, the firm maintains strong relationships with a broad range of the world’s pre-eminent institutional investors, including sovereign wealth funds, corporate and public pension plans, insurance companies, endowments, family offices, foundations, secondary funds, funds of funds and consultants.

Mercury Capital Advisors is a 100% owned subsidiary of Investcorp, a global investment manager specializing in alternative investments across private equity, real estate, credit, absolute return strategies, GP stakes and infrastructure. As of March 31, 2021, Investcorp Group had US $35.4 billion in total AUM, including assets managed by third-party managers, and employed over 430 people from 45 nationalities globally across its offices in 12 countries spanning the US, Europe, GCC and Asia.

Source: BusinessWire

Mercury Capital Advisors Announces Four Senior Hires for Distribution Team

Posted by Muhammad Ibrahim Masudi

Mercury Capital Advisors today announced that it has added four senior professionals to amplify distribution efforts for the firm.

Matthew Haimes, based in London, Jill Cohen and Jennifer Tunney, both based in New York, have joined the firm as Partners, while Sara Modalal, based in Dubai, has joined as Principal. All four hires joined in Spring 2021.

“These four new team members bring decades of invaluable industry experience across institutional asset raising, investor relations and client solutions. We are excited to see the value Matt, Jill, Jen and Sara will add as Mercury continues its commitment to excellence and to our clients,” said John Franklin and Enrique Cuan, Managing Partners at Mercury.

Prior to joining Mercury, Mr. Haimes was Global Head of Investor Partners at Safanad, a $2bn PE and RE investment firm, and held a similar position at Quilvest. He previously served as Head of European Consumer Groups in Corporate Finance at both Morgan Stanley and Deutsche Bank. Mr. Haimes also managed the group at JP Morgan’s Private Bank that oversaw relationships with both single family offices and financial sponsors in London, and ran UHNW private banking for the UK and Nordics at Credit Suisse. 

Ms. Cohen was previously Senior Managing Director at Avenue Capital Group, a $9B investment management firm specializing in credit, special situations and distressed investments. She also served as Managing Director at Pinnacle Trust Partners, an independent boutique placement agent for alternative investments. Other prior positions include Director of Institutional Investments and Investor Relations at Salient Partners and Head of Capital Introduction for the Americas at Citigroup.

Before Mercury, Ms. Tunney was Managing Director in Private Markets Business Development at The Rohatyn Group, a $5bn+ emerging markets focused asset manager encompassing private equity, infrastructure, real assets and private credit. She has more than twenty years of investment banking experience after starting her career at JP Morgan and, during her time there, focused on credit, interest rates and commodity markets.

Ms. Modalal previously worked in the Dubai office of Principal Global Investors – a $550B+ global asset management firm  – where she managed institutional sales for the Middle East and Africa region. Prior to that, Ms. Modalal spent five years at Deutsche Bank Asset Management in Frankfurt, Germany, where she was part of the Global Client Group, and dedicated her time focusing on German corporates and multinational clients.

These appointments continue to fuel Mercury’s momentum in 2021 as the firm posted very strong first half results on the back of advising on several fund closings year to date.

About Mercury Capital Advisors

Mercury Capital Advisors is a leading global private fund and investment advisory firm. Founded in 2009 as a spinoff from the Merrill Lynch Private Funds Group, the firm assists general partners and limited partners in fundraising and secondary advisory, co-investment and direct deal placement. The firm specializes in alternative assets including private equity, real estate, infrastructure, credit, venture capital, secondaries and special situations investments. Mercury has advised on over 100 fundraisings and closed over $100bn in fund commitments since its inception in 2009.

With offices in New York, London, Singapore, Tokyo and New Delhi, the firm maintains strong relationships with a broad range of the world’s pre-eminent institutional investors, including sovereign wealth funds, corporate and public pension plans, insurance companies, endowments, family offices, foundations, secondary funds, funds of funds and consultants.

Mercury Capital Advisors is a 100% owned subsidiary of Investcorp, a global investment manager specializing in alternative investments across private equity, real estate, credit, absolute return strategies, GP stakes and infrastructure. As of March 31, 2021, Investcorp Group had US $35.4 billion in total AUM, including assets managed by third-party managers, and employed over 430 people from 45 nationalities globally across its offices in 12 countries spanning the US, Europe, GCC and Asia.

10 Biggest Trends Shaping the Next 3 Decades, According to Big Investors

Posted by SANCHIT TANEJA

Institutional investors and family offices in a recent survey cite digitization, aging population and climate change as the most important trends that will shape the global economic landscape in the coming decades, and are investing across these trends through both private and public markets.

Investcorp, a provider and manager of alternative investment products, conducted the survey in partnership with Mercury Capital Advisors, an institutional capital raising and investment advisory firm; IMD Business School; and Banque Pâris Bertrand, a Swiss-regulated private bank.

“Institutional investors’ view of the major trends that are to shape the global economic landscape over the next three decades can give us significant insight into where capital is likely to flow in both the near- and long-term,” Rishi Kapoor, Investcorp’s co-chief executive officer, said in a statement.

“In this year’s survey, we see digitization and AI as an area ripe for investment. An aging global population and ongoing concerns with climate change also provide ample opportunities for these investors to capture the economic upside associated with these mega trends either through direct investment or, more commonly, by allocating to external managers.”

Top Trends

Automation, digitization and AI boosted its position as investors’ top trend, shooting up 26 points from the inaugural survey in 2019 to 95% of investors. Fifty-three percent said they were likely to invest in this trend through a combination of public and private markets.

The majority of investors expect the automation, digitization and AI trend to be significant over the next two decades, with meaningful progress in key industry segments such as digital infrastructure, robotics and specialized chips occurring seven years from now, according to Investcorp.

But they are also cautious in their expectations, mindful of cyber risk, national data privacy laws and societal debate on the ethics of AI as factors that may disrupt developments in this trend.

Sixty-nine percent of investors in the poll again named an aging population as the second most important long-term trend, albeit down 9 percentage points from the 2019 survey. They expect it to remain important until at least 2050, perhaps indicative of both the large funding gap that exists today and the equally attractive investment opportunity it presents over the long term, Investcorp said.

They expect opportunities in health care services and retirement homes/medical centers to be meaningful in about 10 years. At the same time, investors believe that developments in local immigration laws, black swan events such as pandemics, natural disasters or war, or even a change in life expectancy or birthrates could all influence their investment outlooks.

Climate change ranked as the third most significant trend, cited by 65% of survey participants, unchanged from 2019. Investcorp said it was notable that nearly all investors expect climate change to significantly shape the global economy over the next two decades, consistent with global developments in addressing climate change risks and opportunities.

Sixty-three percent of participants said they were likely to invest in the impact of climate change through both public and private markets, as opposed to favoring one over the other.

About half of investors expect meaningful developments across several industry segments this decade, with the biggest opportunities occurring in the renewable energy and clean technology segments.

However, they cited changes to global political will and technological advances in battery storage or hydrogen as two key factors that may disrupt their current thinking on the significance of climate change as an investment opportunity over the very long term.

Furthermore, some investors specifically noted that changes in the condition of the Gulf Stream — one of Earth’s major climate-regulating ocean currents, which influences weather patterns and sea levels on both sides of the Atlantic — could disrupt the timeline and capital requirements, as well as the risks associated with climate-related investment opportunities.

The following round out the surveyed investors’ top 10 megatrends:

Two of these trends are new to the list this year: China’s growing dominance and cryptocurrencies. Investcorp said this demonstrates that a significant portion of respondents see them not as short-term trends, but ones that are here to stay and deserving of significant attention and capital allocation.

It also pointed out that urbanization and smart cities and redefining global trade, two of the top five trends in the first survey, both decreased in significance this year to eighth and 10th places, replaced by autonomous and electric vehicles and personalized health care in fourth and fifth places.

Fund Allocation and Returns

According to the survey, investors continue to prefer allocating funds to external managers, the choice of 38.6% of respondents, regardless of whether the investment strategy is exclusively private, exclusively public or mixed. This compared with 21.8% who prefer direct investing and 18.4% who combine the approaches.

Twenty-one percent said they do not allocate to trends they see as important. They are not doing so mainly because of a lack of expertise, or they think it is too soon or they have not yet found credible investment opportunities.

Although 85% of investors either lowered or kept return expectations the same over the past year, their net target return expectations — particularly for private market-focused investors — were still higher than those who expressed more optimism about future returns.

The survey found that institutional investors were tilted toward either private or public markets. Private market-tilted investors, who made up 35% of the sample, had the highest expectations in terms of future overall target returns, exceeding those of public market-tilted investors, 42%, by 400 basis points.

Source: ThinkAdvisor

Investcorp partners with 17Capital to structure portfolio of alternative assets

Posted by Muhammad Ibrahim Masudi

17Capital, the global go-to source of strategic financing for investors in private equity, and Investcorp, a leading global provider and manager of alternative investment products, are collaborating to structure a diversified portfolio of private equity, real estate, and credit assets in the US and Europe.

Mercury Capital Advisors, a leading private fund placement and secondary advisory firm, served as exclusive financial advisor to Investcorp on the transaction.

Augustin Duhamel, Managing Partner at 17Capital, said: “We have followed the growth and progress of Investcorp for many years. It is therefore tremendously exciting to enter a partnership with this pre-eminent and forward-thinking firm. We look forward to a strong and mutually beneficial relationship over the coming years.”

Rishi Kapoor, co-CEO at Investcorp, said: “Given the current economic climate, and our expectations over the coming years, we believe that there are significant opportunities to expand our alternative asset portfolios in private equity, real estate and credit. 17Capital is an established and successful capital platform that we believe will help us accomplish our goals”

Sabina Sammartino, Head of Secondary Advisory at Mercury Capital Advisors, said: “We are delighted to have advised Investcorp on this innovative and strategic partnership with 17Capital to further advance Investcorp’s global growth and broaden its institutional investor base”.

Investcorp

Investcorp is a global investment manager, specializing in alternative investments across private equity, real estate, credit, absolute return strategies, GP stakes and infrastructure. Since our inception in 1982, we have focused on generating attractive returns for our clients while creating long-term value in our investee companies and for our shareholders as a prudent and responsible investor.

We invest a meaningful portion of our own capital in products we offer to our clients, ensuring that our interests are aligned with our stakeholders, including the communities that we operate within, towards driving sustainable value creation. We take pride in partnering with our clients to deliver tailored solutions for their needs, utilizing a disciplined investment process, employing world-class talent and combining the resources of a global institution with an innovative, entrepreneurial approach.

Investcorp has today a presence in 12 countries across the US, Europe, GCC and Asia, including India, China and Singapore. As of March 31, 2021, Investcorp Group had US $35.4 billion in total AUM, including assets managed by third party managers, and employed over 430 people from 44 nationalities globally across its offices. For further information, visit www.investcorp.com and follow us @Investcorp on LinkedIn, Twitter and Instagram.

Mercury Capital Advisors

Mercury Capital Advisors is a leading global private fund placement and secondary advisory firm. Founded in 2009 as a spinoff from the Merrill Lynch Private Equity Funds Group, the firm assists general partners and limited partners in fundraising and secondary advisory, co-investment and direct deal placement. Mercury’s secondary advisory practice provides comprehensive solutions to managers and owners of alternative asset portfolios seeking to leverage the secondary market to achieve their objectives. Our dedicated secondaries team provides customized solutions including advice on strategic options and structuring alternatives, optimal sales strategy and offerings and complete management of the sale and closing process.

With offices in New York, London, Singapore, Tokyo, and New Delhi, the firm maintains strong relationships with a broad range of the world’s pre-eminent institutional investors, including sovereign wealth funds, corporate and public pension plans, insurance companies, endowments, family offices, foundations, secondary funds, funds of funds, and consultants.

Opportunity-Zone Funds Gaining Momentum

Posted by SANCHIT TANEJA

After a slow start, managers of opportunity-zone funds have been raising capital at an accelerated rate, according to Real Estate Alert’s second-annual review of the sector.

Twenty-two sponsors working independently and 12 others acting in partnerships have collected at least $2.8 billion of equity for 34 commingled vehicles targeting multiple development and redevelopment projects in opportunity zones, which offer tax breaks to investors (see listing on Page 9). The amount raised so far represents 17% of those vehicles’ overall fund-raising goal of $16.4 billion. Nearly half of the committed capital already has been invested, the survey found.

In its inaugural review a year ago, the newsletter found commingled funds with the capacity to invest in multiple deals had raised a mere $369 million, as many investors were holding back pending IRS guidance on the program. Instructions the agency issued in December went a long way toward clarifying the qualifications for managers and investors.

While hundreds of smaller investment shops are seeking to raise money to invest in individual properties, Real Estate Alert’s review focuses on diversified commingled funds sponsored by firms with experience managing institutional capital. The universe includes Bridge Investment (four vehicles), CIM Group, Origin Investments, RXR Realty and Starwood Capital. Cantor Fitzgerald and Silverstein Properties are jointly marketing a fund, as is a partnership between SkyBridge Capital and Westport Capital. Two vehicles are being raised by the team of Cresset Capital and Diversified Real Estate.

“Better-organized and more-professionally managed multi- property funds are starting to have a well-deserved advantage over single-property vehicles,” said veteran investor Tony Barkan, founder of Allagash Opportunity Zone Partners.

Because some of the fund managers surveyed declined to disclose complete details, the review understates the total amount of equity raised so far. Novogradac, a San Francisco consulting firm that tracks opportunity-zone funds, counts 17 multi-asset vehicles targeting at least $100 million of equity. To date, those funds have raised a combined $4.7 billion — or 38% of their overall goal of $12.2 billion.

Including hundreds of smaller funds set up to invest in a single project, the sector has attracted some $10.7 billion of equity, Novogradac estimates.

The numbers “show to me that this has turned out to be a remarkable success in terms of capital raising, and it’s only going to go higher,” he said. “And the big funds are a notable percentage,” said managing partner Mike Novogradac.

Jason Kaufman, who runs the opportunity zone business for Silverstein, said his pitch to investors is that placing money with a well-established operator gives them access to a high- quality pipeline and the expertise to manage projects in-house. Cantor Silverstein Opportunity Zone Trust is seeking to raise $500 million.

“What they [investors] understand is that the developer of the World Trade Center . . . is going to be representing their dollars,” Kaufman said. “We’re going to have access to the best deals.”

Novogradac identifies more than 600 opportunity-zone funds, but many are single-asset vehicles seeking to raise well less than $50 million. The average equity-raising goal among the funds identified by Real Estate Alert’s review is $512 million.

The federal program, created by the Tax Cuts and Jobs Act President Trump signed in 2017, is designed to spur economic development in low-income areas, which have been mapped out as 8,700 opportunity zones. To take advantage of the tax incentives, investments must be made through “qualified opportunity funds.”

The target audience for such vehicles includes wealthy individuals, family offices, broker- dealers, registered investment advisors, wealth managers, the private-capital groups of large banks and hedge fund managers. Pensions, endowments, foundations and other large investors generally don’t have a need to shelter investment gains, either because they’re tax-exempt or don’t have large-scale proceeds from capital gains.

Investors in opportunity-zone funds can reap tax benefits three ways. If capital gains from the sale of any assets are invested in a qualified fund within 180 days, the investor can defer taxes on those gains until the money is withdrawn from the fund — but no later than yearend 2026. An investor holding the opportunity- fund stake for five years also would benefit from a 10% step- up in the basis of their original investment — rising to 15% if it is held for seven years.

Additionally, any appreciation in the fund is free from federal and most state taxes if the investment is held for at least 10 years.

Investor demand for the funds has increased since the IRS issued its latest guidance in December, market pros said.

“A lot of people felt like once they’re in a fund, they’re stuck for 10 years,” said Libin Zhang, a partner at law firm Fried Frank. “That’s not true. You only stay 10 years if you want the full tax benefits, and even so there are tax-efficient ways of getting out and investing in a new fund within that period.”

Julie Bauch, head of real estate investment banking at New York placement agent Mercury Capital, said some of the big- gest investment managers are taking a wait-and-see approach to opportunity-zone funds. For the moment, they’re more focused on raising capital to pursue distressed opportunities amid the pandemic.

“If you look at the tone of the market right now, a focus on dislocation is what’s happening,” Bauch said. “The attention that will get paid to [opportunity-zone funds] on a relative basis is not necessarily going to grow now.”

But others said the financial-market turmoil triggered by the coronavirus outbreak could be a boon for opportunity- zone funds. As stock prices plunged in March, many wealthy individuals and family offices liquidated portfolios built up during a 10-year bull market. Rolling those proceeds into opportunity-zone funds could help them minimize capital- gains taxes.

Michael Episcope, a principal and co-founder of Origin Investments, said investors have to be careful, however, that the funds are targeting deals that make sense. “If you’re investing in real estate, you have to be prepared to invest through cycles,” he said. “When you have a 10-20 year time horizon and you pick the right neighborhoods, even the pandemic of today will be in the rearview mirror soon enough and is a blip we will get through.”

Barkan added that given the volatility of the stock market the past few months, investors have a new appreciation for longer-term strategies.

“Without taking a side with respect to over- or under-valuation in the stock market currently, from a pure volatility and downside-risk standpoint, people see a totally different outlook for the next few years,” he said.

Oaktree Leads Rush of New Distressed Funds Seeking $30B

Posted by SANCHIT TANEJA

A wave of distressed debt and special situations funds has hit the market in recent weeks in response to the Covid-19 pandemic downturn, jumpstarting a segment that had dwindled to almost an afterthought of private credit investing. Nearly a dozen new or expanded funds are seeking about $30 billion in capital, led by Oaktree Capital Management’s $15 billion effort that alone would bring in nearly as much as the entire distressed debt segment
raised all of last year.

Other big names jumping in the market or adding capacity to existing fundraising efforts include PIMCO, Fortress Investment Group, Highbridge Capital Management, Cerberus Capital Management, and Atlantic Park, a joint venture between General Atlantic and Iron Park Capital Partners that is raising $5 billion.

That’s a big change from a relatively sleepy 2019, which featured 19 funds closing with about $19.1 billion in aggregate capital, down from the recent high of 29 funds closed in 2017, according to data from Preqin. Distressed strategies were a small slice of the 151 private credit funds that closed last year with $104 billion in aggregate capital, most of that in direct lending vehicles, according to Preqin.

But the rush of new distressed strategies responding to the coronavirus economy may not be done yet, says Alan Pardee, a managing partner at Mercury Capital Advisors, a placement agent firm.
“Any fund platform that is credit-oriented is currently in the market or devising how to be in the market soon with a distressed debt version of themselves,” he says. “We’ve seen people who are still taking those steps, and would not be surprised to see other funds joining the present group.”

Limited partners and consultants are not surprised by the rapid shift, with many closely studying the new landscape for investing, says Andrew Angelico, v.p. at Wilshire Associates in its manager research group.

“It has been interesting to see how quickly the opportunity set has opened up or transitioned,” he says. “It was a less interesting area to be in for a couple of years, but with Covid-19 and the energy and oil disruptions, we’re seeing opportunity sets open up. We’re actively sharpening our pencils… as the dislocation, economic impact, and price realization rolls through the capital markets.”

Oaktree’s effort, the latest version of its distressed debt flagship fund, would be the largest ever raised in the category. The strategy aims to buy debt from struggling companies or launch takeovers through corporate restructuring efforts.

General Atlantic and Iron Park Capital – led by former GSO Capital founder Tripp Smith – are teaming up for their $5 billion effort, aiming to provide financing to companies facing distress during the downturn, according to the Wall Street Journal. Fortress is raising a new $3 billion pool aimed at downturn-created opportunities that will complement the $5 billion credit opportunities fund it closed last November, says a source familiar with the matter. Meanwhile, PIMCO is launching a new $3 billion distressed

vehicle, Highbridge is seeking $2.5 billion across two funds, and Cerberus is planning on raising $750 million, a target upped after the crisis began, as reported.

Some firms have already finished their efforts, including Kayne Anderson Capital Advisors, which quickly raised and closed a $1.3 billion real estate opportunistic debt fund in recent weeks, building on its existing real estate debt strategy with a vehicle focused on distressed lending and buying opportunities, says a source familiar with the effort.

Others have just begun, with Angelo Gordon pivoting off of the $1.8 billion credit solutions fund it closed in February to now raise an “annex” to that strategy focusing on downturn-related investments, which has brought in about $650 million, along with two other new $750 million funds focused on real estate debt and structured credit, according to Bloomberg News. The San Mateo County Employees’ Retirement Association already committed $25 million to the annex fund earlier this month, according to MandateWire. And KKR has used the shell of its third special situations fund, which it began raising last year with a $1.5 billion target but later suspended, to launch a new dislocation opportunities fund that is aiming to invest in several areas, starting out with about $617 million that had been in the prior strategy, as reported.

Investors certainly will be evaluating distressed team experience as well as asking managers about their deal sourcing capabilities and how they will manage downside risk in this uncertain market, Angelico says.

“Are there structural protections in place?” he asks. “Is it cheap enough? How will you control the outcomes of difficult situations?”

Investors will want to see managers with specific skillsets, Pardee says.

“Who has the stressed, distressed, transitional skillsets?” he says. “Those are the ones that limited partners will spend more time with now. We expect limited partners to still do their homework.”

Wilshire sees one set of near-term “clear and present” opportunities, such as better pricing on leveraged loans and
corporate debt because of market dislocations, Angelico says. There is also a still-forming set of future investments in the structured credit markets in areas related to collateralized loan obligations (CLOs) and asset-backed or specialty finance lending, he says.

It’s also likely that consultants and investors scouting this new distressed debt and special situations market will tilt more toward existing managers rather than new relationships, and to experienced firms rather than outfits pivoting to add new strategies, Angelico says.

“The groups that we have had contact with on a more regular frequency are where more of our conversations are right now, given how fast it opened up,” he says. “The markets became dislocated so quickly that we have to have that capital in their control sooner rather than later.”

Crisis Sidetracks Fund Shops’ Equity Raises

Posted by SANCHIT TANEJA

The coronavirus chaos is taking its toll on fund managers’ capital campaigns.

Operators across the country are postponing initial and final closes, or discuss­ing doing so, as investors focus on the dire outlook for their own investment port­folios. Among the shops pushing off dates are Encore Capital of Boca Raton, Fla., Newport Capital of Chicago, and TerraCap Management of Estero, Fla.

In addition, market pros say they expect few managers to roll out new offerings right now — with the exception of opportunistic vehicles looking to capitalize on the market dislocation.

One fund executive said investors are “in triage mode. They don’t want to know about the next fund someone’s going to launch. They want to hear about their exist­ing portfolios.”

To be sure, some managers haven’t delayed or canceled capital raises. But closings have slowed noticeably, placement agents said.

“We have seen closings in the back part of March,” said Alan Pardee, co-founder of Mercury Capital, a New York advisory firm. “Few and far between, but they have occurred.”

Doug Weill, co-founder of New York-based Hodes Weill & Associates, said managers and institutional investors are in fre­quent conversations about market conditions, asset valuations and potential future fund-raising opportunities.

“We are counseling clients to limit marketing in the near term,” Weill said. “It’s not productive to be pitching an offer­ing to a new institutional relationship at this moment in time, when most institutions are prioritizing assessing their current portfolios.”

David Frank, chief executive of New York placement agent Stonehaven, said the situation is worst for an operator that already had an initial close for a fund and began deploying it before the coronavirus crisis. An investor putting in new capital would effec­tively be buying into assets at pre-crisis values, he said.

“It’s like entering the S&P 500 but at January’s level,” Frank said. “Why would anyone do that right now?”

Frank said it could make the most sense for a manager to stop raising money for a such a vehicle, and instead launch a new fund with an opportunistic strategy targeting the current market dislocation. However, that means going back to the original vehicle’s committed investors and letting them know they will be the only ones in that fund — meaning they have larger-than-expected exposure to those assets.

“If you’re caught in that, it’s a wedge,” Frank said. “You bet­ter have very good [limited-partner] relationships.” He added managers may also turn

to offering individual deals to inves­tors to quickly raise capital for specific investments.

Pardee said that investors seem to have fallen into three camps. Many are continuing to schedule meetings, albeit via video-conferencing, and moving toward making commit­ments. Others are sitting out for a few months as they take stock of the initial damage to their portfolios. And a third group is still putting money out — but only to managers they already have longstanding relationships with.

“Some managers that are about to close are seeing inves­tors increase their allocation to a fund, as they want to have capital available for investment, particularly with a manager they know and trust,” said William Thompson, senior managing director in Evercore’s private-capital advisory group.

Managers that have already held an initial equity close also face a timing issue. After that first close, operators usually have a time-stamped deadline of 1-2 years to hold a final close. Given the current market pause, some managers could run out of time to raise more money, or have to ask their initial inves­tors for an extension.

“We’re fortunate in that the clock’s not ticking on us,” said one manager pushing off an initial close. He added investors won’t necessarily be willing to grant more time. “They aren’t always that nice. They think about their returns and what’s best for them. I’ve seen that in the past.”

Investors, meanwhile, are grappling with the “denomina­tor effect.” As the values of their securities portfolios decline, some institutions’ real estate holdings suddenly account for a larger percentage of their total assets. Take Ohio School Employ­ees. The pension system last week reported that due to falling values of other investments, its real-assets portfolio has hit its allocation cap of 17% of total assets, up from 14.7% at yearend.

Market pros say the denominator effect may prove to be tem­porary, however, since property values eventually will have to be written down to reflect the economic effects of the virus.

Another potential fear for managers is that institutions might fail to fund capital calls — although market pros say that’s unlikely to happen soon in more than a handful of cases. More likely, they say, fund shops and their backers would have conversations about waiting to draw down capital, to avoid such defaults.

Looking ahead, the market disruption could prompt limited partners to prioritize funding their biggest managers, partic­ularly ones raising capital for strategies that will look to take advantage of distressed assets.

“There was a haves and have-nots market before,” Mercury’s Pardee said. “Now the haves will have a little more and have-nots will have a little less.”

PE giants eyeing 2 opportunities amidst COVID

Posted by SANCHIT TANEJA

We talked to 14 private-equity insiders about how they’re planning to play the coronavirus turmoil. They identified 2 huge opportunities. Market chaos is creating crises and opportunities. Private-equity firms are scrambling to manage both.

As the stock market crashes, and the global spread of coronavirus delivers a blow to sales from plane tickets to draft beer, private-equity firms — the giant managers of companies such as the bookseller Barnes & Noble and the dating app Bumble — are scoping out new investments.

But they’re looking to ramp up in just about everything but actual private-equity stakes.

Firms like Apollo Global Management, Oaktree Capital, Blackstone, and Ares Management are staffed to buy debt in troubled companies. Others like KKR and Silver Lake have divisions focused on something not as closely associated with private investing: minority stakes in public companies.

These two areas of investing are expected to play a crucial role in deciding who owns what when the dust settles. And private-equity shops, which are equipped with hundreds of billions in unused investor dollars, are well-positioned to snap up their selection of distressed assets while also offering liquidity to companies in need of support, according to bankers, lawyers, and consultants.

But with deals paused because of economic turmoil, a near-term challenge for private-equity firms is putting out fires at their own businesses.

Private-equity firms are busy communicating with their existing portfolio companies about how to maneuver the fluid situation, assessing business repercussions and suggesting when they should draw down on credit lines, private-equity execs, consultants, and bankers said.

“The pandemic has spurred a period of greater focus by PE firms on portfolio companies — partly because of the challenges they’re facing of both supply and demand and partly because the current uncertainty has caused many deal and fundraising processes to stumble or pause,” Bryce Klempner, a partner with McKinsey & Co. who advises private-equity firms, said.

Peter Martenson, a partner at the fund-placement firm Eaton Partners, said private-equity firms, along with growth-equity and venture-capital companies, were “triaging their portfolio aggressively” and that he expected private-equity shops to hold their assets longer to ride out the downturn.

The comments came from conversations Business Insider had with more than a dozen bankers, lawyers, private-equity execs, and consultants since Monday to better understand how private-equity shops are planning their next moves.

The coming weeks and months will demonstrate how businesses weather the downturn, but private-equity shops are already scrambling to aid companies in industries such as travel, leisure, and hospitality, creating loans directed at carrying them through the period with their employee bases relatively intact and without a bankruptcy filing.

On the investing front, one private-equity executive told Business Insider there wasn’t much available to invest in at the moment outside public equities — and that his firm, which is one of the largest, was increasingly focused on liquid investments like loans, bonds, and public stock. He spoke on condition of anonymity because he was not authorized to speak publicly, but Business Insider confirmed his identity.

Meanwhile, one sponsor banker said private-equity execs were busy managing their portfolio companies and advising them on new policies in light of the coronavirus. But he said they expected to be called upon in the near future to provide creative liquidity solutions for large, including public, companies grappling with a slowdown as a result of the coronavirus.

This person, whose identity Business Insider confirmed, spoke on condition of anonymity to preserve private-equity relationships.

Firms positioned for the downturn

Preqin data, along with bankers and lawyers, pointed to a handful of firms, such as Apollo Global Management, Oaktree Capital, Blackstone GSO Partners, and Ares Management, as players whose distressed-debt divisions are positioned to pounce on the downturn.

These firms have not yet made big announcements about distressed investments related to the recent downturn. In the 2008 financial crisis, Apollo deployed more than $50 billion in four months, according to Leon Black’s comments at a private-equity conference in February.

“A downturn would not be a bad thing for Apollo,” he said at the SuperReturn conference, which was held while the spread of the coronavirus was just starting to ramp up and it was still unclear how it would affect the global economy.

Now senior credit professionals are seeking out lending opportunities in businesses directly affected by the downturn, though they would not share specific deals or companies.

Cruise lines, bars and restaurants, live-entertainment companies, and airlines have all seen revenue plunge as a result of the coronavirus and are considered some of the most obvious areas of opportunity, private-equity executives and bankers said.

At the same time, portfolio companies under management of some of the same firms are taking a beating as a result of the coronavirus.
Hospitality names are taking a big hit

For one, Blackstone has poured billions of investment dollars into businesses that are now getting slammed by the coronavirus.

One deal was the copurchase of Merlin Entertainment, the large visitor-attraction operator that controls the amusement park Legoland in Florida. Legoland said on Friday that it would join other amusement parks in shutting down its theme and water parks through the end of the month to ride out the coronavirus.

Blackstone also bought a controlling stake in Great Wolf Resorts, the owner and operator of family-oriented entertainment resorts such as Great Wolf Lodge, in October. On Monday, Great Wolf announced it had closed all of its 19 resorts in 13 states because of coronavirus concerns, with plans to reopen on April 2.

Two other large investments it made in 2019 were the purchases of the Bellagio from MGM Resorts International and US warehouse properties from the logistics company GLP in an $18.7 billion deal.

MGM announced Sunday it would close all of its resorts, including the Bellagio, because of the coronavirus. The effect of the coronavirus on Blackstone’s US warehouse properties could not be immediately determined.

A Blackstone spokesman on Tuesday said the firm’s investors “are and always have been long-term investors.”

He also said the firm had successfully weathered many crises in the past, including 9/11 and the 2007-09 global financial crisis, and still delivered outstanding performance for clients. “Our confidence in this approach remains stronger than ever,” the spokesman said.

A private-equity firm typically holds on to investments for five or so years, so a monthslong slowdown doesn’t necessarily translate to a financial loss for private-equity firms, but it will likely cause firms to change up how they manage their assets, including recapitalizing investments by selling stakes, experts said.

Fundraising put on pause

The uncertainty in the market, coupled with the inability to conduct on-site meetings, put a pause on some fundraising for private-equity shops, according to placement agents.

At the same time, some investors no longer have the appetite to put their money in illiquid investments this year, they said.

Alan Pardee, a placement agent with Mercury Capital, said it was still early to predict how investors would react to the coronavirus and resulting market volatility. But from what he has seen so far, there are a number of investors who are adjusting by scheduling video and regular conference calls as a substitute.

“We are aware of a couple [investors] that have said things along the lines of, ‘I’m not doing any more illiquid strategies for the balance of the year,’” he said. “We’ll see how the market sorts out, given the continuing downdraft in the public markets.”

The coronavirus could also make more attractive areas of private-equity investing that are not as correlated with the markets, like litigation finance, life settlements, music royalties, and needs-based real estate, such as self-storage, rental homes, and medical offices, placement agents said.

LPs Slow Pledges to Debt Vehicles

Posted by SANCHIT TANEJA

Demand for high-yield-debt funds appears to have softened in the past year.

The amount of equity raised by active closed-end vehicles is down for the first time since 2013, according to an annual review of high-yield real estate funds by sister pub­lication Real Estate Alert. Of the 533 funds identified by the survey, 74 invest pri­marily in debt — the most ever. But the number of fund operators in the mar­ket dropped to 65, from a record 70 last year (see list­ing on Pages 9-11).

After peaking at $54.9 billion a year ago, the aggregate equity held by debt funds plummeted 18% to $45 billion. The total amount invested by those vehicles also fell — to $11.4 billion, from $14 billion.

To be sure, the universe of debt funds is still large from an historical perspective. Before 2017, the total amount of equity raised never exceeded $40 billion. But after seven years of steady growth, the market clearly has slowed — and the coro­navirus pandemic could further suppress investor demand.

“There has been a massive proliferation of debt funds over the previous three years,” said Bill Thompson, senior managing director in Evercore’s private-capital advisory group. “So even before the coronavirus, LP interest was slowing. ‘Not another debt fund’ was the refrain.”

Thompson predicted, however, that investors will continue to back managers offering differentiated strategies, whether defensive or opportunistic.

Since the financial crisis, nonbank lenders have come to account for an increasing share of the commercial-mortgage sector. Originations by nonbanks amounted to 41% of the mar­ket in the fourth quarter, up from 29% a year earlier, according to CBRE.

Among high-yield vehicles, the total amount of dry powder they have to invest dropped 18%, to $33.7 billion from $40.9 billion a year earlier. That’s a potentially worrisome sign for borrowers at a time when commercial MBS lenders have retreated to the sidelines and balance-sheet lenders are proceed­ing with extreme caution.

Market pros expect debt funds that use leverage sparingly will remain active and even thrive amid an economic downturn, while highly leveraged vehicles will struggle.

“No investment committee has underwritten this kind of shock — none,” said Walter Stackler, founder of New York placement agent Shelter Rock Capital. “The groups that do well in this environment will be well-capitalized and have multi-disciplinary teams that can effectively manage the restructur­ings that are bound to happen. Managers with in-house direct equity expertise will have an advantage.”

Kevin Miller, chief executive of Los Angeles-based fund manager Thorofare Capital, said operators that borrow heav­ily to boost their returns or rely on CMBS programs to recycle capital will suffer in the months ahead. “Those groups that are overleveraged, they’re the ones who are going to get hurt. And being under-levered is finally going to pay off for groups like ours,” Miller said.

Multiple sources said banks that offer warehouse lines or repurchase-agreement financing to debt funds soon may pull back — either by freezing the facilities or raising rates to unworkable levels.

Real Estate Alert’s review found that just 17 debt funds held a final close last year — the lowest number since 2016. The peak was 28 in 2017.

Alan Pardee, co-founder of New York placement agent Mer­cury Capital, said foreign investors lately have been deterred by the high cost of currency hedging. “The one thing that has been different was that hedging costs to the dollar made U.S. debt funds a bit harder for international investors to invest in last year,” he said.

Real Estate Alert tracks active closed-end funds that invest in properties, debt, or both, and shoot for returns of at least 10%. The 533 vehicles identified in this year’s review are seek­ing to raise $411 billion of total equity. The debt-fund compo­nent has an aggregate equity goal of $66.1 billion, or 16% of the total — the lowest level since 2014.

Vehicles are considered active if they are still raising capital or if they have already held final closes but have invested less than 75% of their equity. So each year, a rotating group of funds is counted. Twenty-six debt funds were added this year and 25 fell off the list.

One that dropped off was a $4.8 billion Blackstone vehicle, Blackstone Real Estate Debt Strategies 3. The removal of that fund is part of the reason that the total amount of equity held by high-yield debt funds fell by as much as it did.

The review classifies funds as debt vehicles if they intend to invest at least half of their equity in the origination of loans or in the acquisition of loans or debt securities. The other 459 high-yield real estate funds primarily target property pur­chases, but 224 of them also can buy or originate debt. So 42% of the fund universe overall can invest in debt to some extent.

Funds are included if they raise capital at least partly from U.S. investors or invest mostly in U.S. commercial real estate. Joint ventures, separate accounts and open-end funds are excluded.

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