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June 19, 2024
PI Global Investments
Private Equity

10 Outrageous Predictions For Private Equity In 2024

The following are meant to entertain. Some may still come true, but don’t hold your breath.

OP1 – Direct Private Equity Investment rises to 21 Percent of Committed Capital

Exasperated by fees levied on the record $2.67 trillion in uninvested capital (“dry powder”) – some six years-worth of 2023’s $474 billion in PE investments – Canada’s eight largest pension funds, or the Maple 8, collectively announce in January that going forward they’ll commit some 90 percent of their PE capital to direct investment. Investors around the world follow suit, drastically accelerating a modest, years-long move away from traditional blind-pool PE fund investment. Directs, where PE managers partner with investors to buy a specific company, increase to $200 billion in 2024, up from 2023’s $26 billion. Other forms of investment in highly focused, identifiable assets also rise, including single-asset secondary deals and investment in funds still in fundraising mode, but which have already invested 30-40 percent of their fundraising target in companies. Directs equal 21 percent of $951 billion in traditional fundraising in 2024, up from 3 percent in 2023.

OP2 – Apollo Acquires Ardian (and Clipway), Setting Off an Artificial Intelligence Revolution in Private Equity Secondaries

In February, leapfrogging rivals with major secondary funds – operations that trade closed-fund stakes and refinance portfolio companies – the world’s second largest PE manager, Apollo ($631 billion under management; $54 billion market cap) uses two cash and share packages, one worth $20 billion and the other $1 billion, to respectively buy Ardian, the second largest secondaries PE firm in the world ($160 billion under management) and Clipway, the AI-driven secondaries firm founded in 2023 by former Ardian secondaries chief Vincent Gombault. Clipway’s inaugural fund is targeting just $4 billion, but “its AI is a quantum leap into the future”, says Apollo CEO Marc Rowan. Ardian president Dominique Senequier, 70, retires (see OP6) ending rampant succession speculation. Gombault, head of merged secondary unit, Hephaestus-Apollo, proves AI’s power with three levered $10 billion-plus secondary deals, closing the record-sized $75 billion HA Secondaries Fund in September. Apollo’s market cap triples by year-end.

OP3 – Small Transactions Account for a Quarter of Total Secondary Volume

The annual volume of small secondary deals ($100 thousand to $5 million), driven by the private equity industry’s widespread uptake of non-fungible tokens to slice and dice large investor-owned fund portfolios, rises a stunning 33-fold to $78 billion. Overall secondary market volume, driven by NFTs, AI (see OP2), and by a need to recycle capital in a market where high interest rates impede deal flow, rises to a record $310 billion, a 163 percent year-on-year increase.

OP4 – Amazon
AMZN Creates an Online Private Equity Exchange “Category Killer”

Lured by the huge strides artificial intelligence and non-fungible tokens are making boosting trading volume in private equity funds, Amazon launches its online exchange, Sophia, in November. “As a pioneer of conversational artificial intelligence in private equity fund selection, Sophia will be a category killer,” says Amazon Head Scientist, Rohit Prasad at a press conference. Sophia’s initial goal is to capture 40 percent of secondary volume within a year. In December, a 37-member consortium led by BlackstoneBX, TT. Rowe Price, the Canadian Pension Plan Investment Board, Silver Lake and AI investor Peter Theil, announce the simultaneous acquisition and merger of nine existing online private equity exchanges. The consolidated exchange, Crescendo, named after the loudest point reached in a gradually increasing sound, is meant to kill the category killer.

OP5 – Artificial Intelligence Hits Turbulence in Private Equity-Backed Acquisitions

Predicting the future is, alas, unpredictable. In April, a year beyond our initial prediction (2023 OP7), MicrosoftMSFT (market cap $2.9 trillion), PE fund manager Ares ManagementARES (market cap $35 billion; $269 billion under management) and academic powerhouse, The Massachusetts Institute of Technology, launch MAC Fund, for Machine Aided Cognitions (AppleAAPL and McDonalds consider lawsuits). The first major fund using AI, MAC aims to raise $70 billion. Now the new part: In early December, with MAC $20 billion shy of its fundraising goal, the fund’s backers belatedly note “heightened risk” tied to the well-known issue of AI hallucination. MAC’s algorithms imagine false contract terms, misconstrue lawsuit vulnerability and other seemingly obscure matters that can be critical to investment success. MAC holds no investments and institutes a fee holiday as it works through the teething problems. This prompts a slower approach to AI primary investment, even though AI works well in secondaries.

OP6 – Carl Icahn and Nelson Peltz Take Control of Large, Poorly Performing Fund Managers

Given “higher for longer” interest rates, sales of portfolio companies hit record lows. By June, capital returned to investors on an annualized basis drops to a nadir of 7 percent of the value of private equity investments & total committed capital (annualized distributions are usually 20 percent-plus). With investors capital short (see OP3), octogenarian corporate raiders, Carl Icahn (aka: The Lone Wolf of Wall Street), and Nelson Peltz (aka: The Turnaround King), lever-up and team-up, buying a combined $40 billion of net asset value at troubled PE funds. This is done at an average discount of 40 percent to NAV. By December, the pair – voting with a few other holders in each case – oust exist managers overseeing some $55 billion in PE assets. Control shifts to a vehicle the pair control, Wolf Turnaround PE, run by Dominique Senequier, the recently retired founder of secondary pioneer Ardian (see OP2).

OP7 – Michael Jordan, Serena Williams and Blue Owl Consolidate Private Equity’s Sports Investments

Michael Jordan, Serena Williams and listed Blue Owl ($157 billion under management; $21.7 billion market cap), a pioneer of PE investment in sports teams, close on the $55 billion Sport King Fund in April. Working with most of the PE fund groups that own stakes in sports teams (assets range from European soccer clubs to American NBA franchises), notably CVC, Silver Lake, KKRKKR and Actos Sports, Sport King offers investors the choice of rolling over at par or cashing out at an average premium to net asset value of 125 percent. By December, Sport King and its partners hold 70 percent of all PE sports assets. Jordan calls Sport King “hidden treasure,” as it sparks a global merchandising tsunami. Sport King plans to defend itself against U.S. anti-trust charges by noting that its 50-plus professional sports team investments are all minority stakes.

OP8 – Permira and BC Partners Launch the British Share the Profit Fund

In November, reacting to widespread public indignation which sees take-private deals in Britain as gutting the stock exchange and shortchanging (mainly) British investors, the three largest British private equity managers, CVC ($129 billion in assets under management), Permira ($84 billion in assets under management) and BC Partners ($40 billion under management) join forces to launch the £100 billion ($127 billion) British Share the Profit Fund. Set up as a poison-pill protected closed-end evergreen fund whose shares trade on the London Stock Exchange, the vehicle makes counter-bids on London Stock Exchange listed companies that private equity investors and others are trying to take private. The fund is only open to British citizens and is followed by similar initiatives in Germany, France and the United States.

OP9 – BlackRock
BLK Introduces ESG/Vice Share Classes for its Funds, Including those in Private Equity

In February, a month after citing for the first time “increasing focus from stakeholders regarding environment, social and governance matters” as a material risk to its share price (true), BlackRock ($9.2 trillion assets under management; $120 billion market cap) announces two share classes going forward in all its funds, including private equity vehicles. The two classes are GIS (for General Investment Focus shares) and Select (shares which invest only in companies that comply with the environment, social and governance standards of the United Nations Sustainable Development Goals, widely considered the most credible ESG standards in investment). By December, almost all major fund managers in every category of investment follow suit.

OP10 – With Workers Returning to the Office and Space in Short Supply, Blackstone Real Estate Income Trust Quadruples in Size

Blackstone Real Estate Income Trust, arguably private equity’s boldest experiment in marketing an unlisted vehicle to the mass affluent, sees its value quadruple to $264 billion by December as it shifts investment focus to office space from multi-family housing and industrial space. After suffering billions in outflows in 2023, amidst unfounded speculation that the fund faced serious impairment or collapse (despite positive returns), BREIT’s growth this year is primarily driven by a massive return-to-office trend. BREIT registers a stunning 270 percent annual return, as some $20 billion in new commitments flow into the fund.

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