Insights from IPEM
Private Equity Descends Upon Cannes
If you read last week’s newsletter, you already know that September was quite the month of in-person engagement & conferences. Where possible, we aim to put boots on the ground in order to exchange, participate and contribute to top-tier events related to our work at Revaia. It goes without saying that IPEM — International Private Equity Market — in Cannes is an annual gathering for us.
During the 3-day event, more than 4,500 attendees descended on Cannes to take stock of the private equity market trends, develop new connections and debate what the future holds for the industry. We were lucky enough to have a couple colleagues attend. In this article, we’ve consolidated the findings reported back from the scene.
- Building Multi-Strategy Funds
- Developing a Global & Local Approach
- Driver for Sustainability
Building Multi-Strategy Funds
“The last 10 years private equity has been the star asset class, ”beamed Ariane de Rothschild, Chairwoman of the Board of Directors, Edmond de Rothschild Group, in her opening address at IPEM 2022.
The opening statements from Ariane de Rothschild are telling. Private equity performance has drawn attention and therefore competition. Traditionally, funds were built on their single-strategy reputation — a clarity in approach and expertise stood out from the pack. As the market expands, and LP appetite grows, a multi-strategy approach is beginning to emerge as a strength among top-tier funds. This includes, but is not limited to:
- growth equity funds
- sector-specific funds
- multi geographical funds
- GP-led continuation funds
- secondary funds
- mezzanine funds
Growing demand is part of the equation here. But it should be noted that increased diversity in the LP-base is also driving some of these changes. The secondary market alone has experienced a 12-fold increase in growth since 2009, with less than seven percent of investors selling for distressed reasons. In order to cater to these changing dynamics, GPs are transitioning from single-fund specialists to multi-strategy generalists. Nevertheless, it’s important to retain your core DNA as a GP. Expansion in AUM and through adjacent strategies needs to happen without diluting your core messaging. How does one accomplish this? By maintaining incredibly close alignment with LPs. Take a page out of the startup playbook — customer-obsession (in this case LPs) will help steer product, strategy and growth.
Developing a Global & Local Approach
There was significant emphasis on the expansion of the EU footprint around the world. Hyper local or regional funds are losing their shine — it’s time to pivot to a “Glocal” approach. Combining a global presence with domain expertise and regional knowledge and network will be critical.
“Today, to be successful you have to play both ways, and combine sector expertise with local expertise,” said Xavier Robert, Partner and CIO at Bridgepoint.
Ultimately, this is a nuanced strategy that requires intention and patience. There are many ways to develop a Glocal culture through organizational structure to communications to hiring practices. Xavier Robert attributes their success to their “one team” culture where each member of senior management has to spend at least six months in a different European office. While the strategy has a learning curve, it certainly provides benefits:
- Sourcing deals
- Cost savings
- LP relationships
- Portfolio company support
- Cross Border Fertilization
Not to mention the marked increase in private equity investments coming from the Family Office community. BlackRock estimates that the average family office invests 35% of capital in private equity — an opportunity to capitalize on local relationships through a global presence.
Driver for Sustainability
Johnny El Hachem, CEO of Edmond de Rothschild Private Equity, shared what according to him were the top 5 trends in private equity:
- Democratization of private equity — shorter investment periods, lower investment capital requirements for investors, easier access. The risk for GPs to be aware of is reputational damage,
- Alignment of interests — GPs holding on to good assets for longer provided they are acting in the interests of LPs. Lessons can be learnt from the real estate industry, which has built core, core-plus and opportunistic strategies for investors to consider
- Shift from listed equity versus private equity — there has been a shift in private markets and a sell-off in public markets. This will likely result in increased secondary market activity
- GPs building bigger platforms have the ability to benefit from the network effect — As benchmark, real estate, private credit and infrastructure teams can share insights and know-how with private equity as their platforms are more diversified.
- Sustainability alongside the energy crisis and climate change — PE is in a good position to drive change. “Let’s build collectively to benefit collectively”
While each one speaks to us, we were particularly interested in his final point: sustainability. Impact, ESG, Diversity & Inclusion — each topic was highlighted and discussed throughout the sessions. What is becoming clear is that ESG and sustainability are transitioning from nice to haves into need to haves. This is demonstrated through increased demand from LPs. Candice Brenet, Head of Sustainability at Ardian claimed to be an early adopter, developing sustainability models well before there was pressure from LPs. Today, she said, there are explicit expectations.
Two points have become clear: diversity delivers performance but we have a long way to go to achieve our long-term goals. Patricia Miller Zollar, Managing Director, Neuberger Berman, explained that the firm has committed to 60 funds and those classified as “diverse” outperformed the rest. Initiatives like Level 20 in London are playing an increasingly important role, where its aim — as the name suggests — is to get 20% of women into senior investment positions. France is one of the better countries, with 15% of women in senior positions and 42% of women in junior positions.
As for impact, Baudin D’Herouville, Partner, Head of Midcap, Initiative & Finance explained that investments are designed to have a positive impact on the world but they also see it as an opportunity to drive change within a portfolio company, to guide and improve their sustainability efforts. They offered three pieces of advice to GPs thinking about launching impact funds:
- Be clear on what you want to achieve and why you are pursuing an impact strategy, which goes beyond risk/return
- Have a certain degree of specialization
- Have a strategy that is truly aligned with your companies’ goals
All in all, the sessions gave the sense that the trendline is deeply in favor of greater inclusivity, increased democratization (by opening up to retail), and continued commitments to ESG which should provide solid foundations on which to build an even stronger, mature industry.
Special thanks to Revaia team members who attended the event and conslidated these insights!
