SuperReturn North America Virtual
What are the key takeaways from the event?
800+ senior decision-makers
SuperReturn North America Virtual 2020 brought together the private capital industry in one place for one week. Take a look back at the highlights from the event.
Visit our website >>
Day One: adaptation and rebounding
Private credit, like many other sectors, has been shaken up by COVID-19, but managers' response to this shock to the system has surprised many.
Manjot Rana, Senior Principal, Special Situation Credit, CPPIB Credit Investments, noted that the management of cashburn has worked surprisingly well, and the people in this sector have proven themselves to be adaptive and flexible under such distress.
Monday morning's panel expects to get back to “normal” in 15-18 months, but the pockets of stress and distress in particular sectors and geographies would not be surprising. In fact, SuperReturn North America virtual attendees were warned:
It's far too early to declare victory over Covid-19.
Nicholas Brooks, Head of Investment Research, Intermediate Capital Group
Brooks' presentation clearly showed a rebound in economic growth. Richard Fitzgerald, Co-Founder & Managing Partner, CapitalSpring, even saw positive signs in the much talked about restaurant sector, particularly in the fast casual and casual dining areas.
But as usual, there is no one-size-fits-for-all solution - or recovery path - for companies. In this tentatively growing global economy, is there place for new deals and new partnerships?
Investors' feedback was clear: yes to the former, not so much for the latter.
The opportunities the past few months have certainly been surprising for investors, but as Jamie Athanasoulas, Managing Director, HarbourVest Partners, and Kenton Freitag, Senior Portfolio Manager, British Columbia Investment Management Corporation, said, they're not on the look-out for new managers.
Partnerships are everything
When new deals are scarce, and investors are not looking for new managers, it is important to strengthen the relationships you already have. Between March-June 2020, asset managers have been internally focussed, busy with underwritings and re-underwritings. For those with sponsored deals at this time, communicating the options and next steps was crucial.
It matters a lot for us who our partner is, and it always has.
Kerry Dolan, Managing Director, Credit investments, PSP Investments
However, new deals are not impossible. Dean D'Angelo, Founding Partner, Stellus Capital, for instance, has been on the look-out for positive, consistent track records in businesses. The expertise of sponsors could also be a huge benefit to your decision-making here.
Organisational and operational stability is what firms are looking for.
Jocelyn Lewis, Executive Director, Private Markets, IHS Markit
Data-driven decision-making is still important, especially when it comes to liquidity and cashflow management. However, Jocelyn Lewis, Executive Director, Private Markets, IHS Markit, has seen many customers facing reporting bottlenecks at a time when data is so important. Better data transparency, robust data organisation, and improved information hubs could be the answer to this issue and more (like LPs looking for custom reports).
When technology comes to the rescue, you can tell that software and IT companies are the businesses you need to keep an eye on. Both Kerry Dolan and Dean D'Angelo identified this sector as the one to watch. After all, technology, particularly enterprise solutions, is what allowed many of us to work from home and stay in touch with the outside world over the past few months.
On the other side of the scale, many are avoiding sectors that are customer-facing, although casual dining has seen some rebound. D'Angelo also noted that CAPEX-heavy businesses are not preferred, although that has always been the case, even before 1 March 2020.
Day Three: what's next in PE?
Private equity is stabilising
Economist and Director of Portfolio Strategy, New York Life Investments, Lauren Goodwin's snapshot of PE today looks like this:
- provides liquidity where appropriate
- expense control
- slow new deal market
- more selective lending
- virtual fundraising and due diligence
- focus on prior relationships
In this transitory environment, Steve Moseley, Head of Alternative Investments, Alaska Permanent Fund Corporation, said that cooperation with other LPs will become more crucial; intel sharing and joint ventures could bring more opportunities.
Matthew Lee, Co-Founder, Progression Fund, reported that institutional LPs are getting more and more involved with emerging managers and pre-seed stage ventures. Although it's a good time to be in tech, Michael Proman, Managing Director, Scrum Ventures, emphasised the importance of being tech-agnostic, and encourages a diversified strategy in general.
Watch our exclusive interview with Lauren Goodwin on the economic outlook for 2020 and beyond.
Indeed, in an interview with himself, David Rubenstein, Co-Founder & Co-Executive Chairman, The Carlyle Group, has made it clear that the impact of the stimulus from earlier this year is going to wear off soon - and there is no guarantee of another one.
Going forward, the upcoming US election is set to dominate conversations. And although we are short on crystal balls, there are certain things we can anticipate the coming months.
Whatever the outcome of the election, Rubenstein is expecting tax reforms, possibly on carried interest, capital gains, and corporate tax. Whatever the outcome of the election, improving the current relationship with China will be key. And whatever the outcome of the election, PE will still be a topic of conversation in policy-making circles.
On this note, Rubenstein asked attendees to be ambassadors of private equity.
"All of you in the industry", Rubenstein said, "you should take pride in the industry."
Day Four: LPs and partnerships
For the last couple of days, we've been talking about partnerships a lot, but what makes a good partner?
For Alison Nankivell, Vice President, Fund Investments and Global Scaling, Business Development Bank of Canada (BDC), one of the challenges was finding an answer to this question: what value do LPs bring to the table? Also, what do GPs bring to the table?
Partners or competitors?
Over the last couple of days, we already learnt that both sides can offer their own expertise and experience. But the key to actually enter into a partnership might be in listening. Sometimes partnerships are not as lucrative for LPs as going in on their own. That has certainly been the case for Megan Lindhe, Senior Principal, Private Equity Funds, CPP Investments, who has been in situations when GPs were not quite the partnership material, but rather competitors.
When looking at the markets, especially in the low to mid-markets, LPs can be particularly good partners because these businesses might not be as mature yet. For example, Ryan McGovern, Director, OPTrust, has invested in companies that didn't have an established process for M&A. This is where LPs' experience can be immensely valuable, and coincidentally, the area where many of the recent LP transactions took place. To further add value, one might think about leveraging data and technology to drive better investment decisions.
It's truth universally acknowledged that this is a competitive sector, and it's about to get even more competitive. LPs based in Mexico are casting their eyes abroad, and in an afternoon panel, Alejandro Wassiliu, Chief Investment Officer, InverCap Afore, reported a growing appetite for currencies and industries alike.
Meanwhile, we've seen an overwhelming number of GP-led deals over the summer, and Sunaina Sinha, Managing Partner, Cebile Capital, predicts that this will be the case through to the end of 2020.
The ESG corner
In private equity, when it comes to ESG and diversity and inclusion, LPs are taking the lead in asking the right questions consistently and now, it seems, systematically. For Megan Lindhe, ESG has been a part of every investment review.
Sustainability in energy
After oil prices have gone negative this year, we hear from the key players in this sector and where they see oil & gas in the portfolio.
"Oil has its place but at the lower end of the spectrum longer term", Rick Spencer, Head of Funds & Co-Investments, Barings, said this afternoon.
In long-term investments, ESG is crucial, but at the moment, the easiest way to make the case for it is in infrastructure.
4 things emerging managers should know about approaching LPs
1 LPs, as discussed on Day Four, have incorporated sustainability and ESG into their due diligence processes. Moreover, some LPs, like Amir Aviv, Managing Partner, Gatewood Capital Partners, have taken the extra step and made sustainability matters into policies and set KPIs around them.
2 Don't start your pitch with the economic talks. Joe Aguilar, Director, Investment Analysis & Due Diligence, Illinois State Treasury, said in the panel, that there are other, much more important factors that LPs want to know about you, like your team structure and dynamics, strength of your pipeline, and what makes your strategy sustainable in 5, 10, or 15 years. "Our objective is to be long-time investors", Aguilar said.
3 Because of this, diversity, whether that's gender, ethnic, social, or diversity of thought, is important. Jennifer Vancini, General and Founding Partner, Mighty Capital, said: "We mostly get questions, curiosity, and interest from LPs, but we're expecting this to be more institutionalised."
Diverse teams outperform non-diverse teams.
Carmen Palafox, Managing Partner, MiLA Capital Advisors
4 Then when you talk about economics, J. David Enriquez, Head of Private Equity, Office of New York City Comptroller Scott M. Stringer, Bureau of Asset Management, would want to see a high level of transparency and disclosure.
What differentiates you from the other PE firms out there? I need to see a better returns profile
Gordon Hargraves, Senior Advisor & Senior Partner, Private Advisors; Novacap
What have the thought leaders at SuperReturn North America Virtual said about private equity, innovation, and investment opportunities?
Watch our interviews and find out more.
Pam Hendrickson, Chief Operating Officer and Vice Chairman Strategic Initiatives, The Riverside Company, shares how innovations in deal-making at the time of COVID-19 has changed the way we build partnerships.
Which classes of private equity have done well? How has Covid-19 changed the game in PE? Mark Sotir, President, Equity Group Investments, joined us to explore these questions and more.
The technology sector has stayed strong the past few months, but how do you pick your investments? Hear from Rudina Seseri, Founder & Managing Partner, Glasswing Ventures.
How has the direct lending market changed in 2020? Hear from Matthew Harvey, Managing Director, Direct Lending at PGIM Private Capital, as he shares where the challenges and opportunities lie.
SuperReturn Asia Virtual
What are the key takeaways from the event?
850+ senior decision-makers
Take a look back at the highlights from SuperReturn Asia Virtual 2020, the best LP/GP networking event for the region.
Visit our website >>
Day One: optimism in venture capital
How did VC fare under COVID-19?
Looking at the overall picture, both PE and VC had fared well against the initial impact of COVID-19, said Judy Zhang of Cambridge Associates. VC seems to be doing a little better than PE, but this was to be expected as VC is more exposed to more digital sectors. It’s also widely observed that upper quartile funds had seen negligible impact and are weathering well, while the lower quartile saw more impact – it's a sign that quality does matter in this environment.
However, it is important for us to remember that these data are only looking at the initial impact, and we don’t know how much more could come in terms of longer-term impact and length of recovery from that. We need to continue to keep communication channels open between LPs and GPs, especially information on real impact and cashflow needs etc. It is also a good time to evaluate dry power levels and to do some stress testing in case of prolonged impact from the pandemic.
A perfect time to find great talent
But of course, it’s not all doom and gloom. Every crisis creates opportunities, and Ed Roman at Hack VC shared his insights with us on where he believes we can find these.
One of the interesting points mentioned was that COVID-19 is actually a good time to start a new company – it’s easier to hire great talent due to redundancies and the acquisition of struggling competitors allows for cheaper and faster growth. However, he cautioned, you’ll need to be in the right sectors. Some of the best sectors to be in include IT and digital, while the riskiest sectors are in travel and hospitality etc.
Our speakers generally agreed that the level of impact differs greatly depending on the sector you’re in. However, it was agreed that the Chinese market has recovered very quickly and disruption for Chinese VC was minimal.
Day Two: the near-term outlook for Asia
How are the global macro uncertainties impacting the way businesses are currently run, and the investor outlook moving forward?
The country’s economy took a large hit from COVID-19 initially, but there are signs that businesses are rebounding as they pivot themselves to be in a better position than pre-COVID periods. For India, they are watching the US-China trade tensions closely. New opportunities have arisen in the country as more investors are giving more attention to the country. The trend is positive – talents have always been available, the infrastructure and tech are being established, the flow of capital into the country is accelerating, and the quality of funds have improved dramatically.
COVID-19 seemed to have limited impact in Japan when compared to many other countries. Sectors such as healthcare and some domestic services have not been affected, but retail and leisure took a strong blow. The uncertainty and volatility in consumer behaviour bring huge challenges. At this time, it is important to inform your portfolios of potential outcome projections, prepare to be more agile with decision making, and secure cash where possible. A trend observed in Japan post-COVID worth noting is the acceleration in founder succession and more exists for traditionally family-owned SMEs.
A major impact of COVID-19, like in many other countries, was that consumers stopped offline shopping and went online. For those in the online space, it meant that it was less costly to acquire additional users. This enables them to conserve the cash or use it to get more great talents out in the market and build their competitiveness.
Attitude towards venture capital has changed rapidly in the country for the better, and inhibitors of innovation within current regulations are gradually being tackled. It is increasingly more profitable to invest here.
As the first country to be hard-hit by COVID-19, China is already getting back on track. It’s important to cease the moment and become the real leaders in the market by focusing on ways to strengthen the company, as well as have another round of financing or IPO. An interesting trend observed was that companies in China are specialising as they are realising that it’s important to focus on what they’re good at to bring competitive advantage and innovation.
Asset allocation to Asia has continued to increase, with China leading the way. Despite the geopolitical challenges, LPs believe the impacts will be short-term. Southeast Asia is also an area of interest for investors, but it is important to note cultural differences, have strong on-the-ground knowledge, and make sure you do diligence.
Day Three: is Asia still attractive?
2020 has hit economies hard worldwide, not least because of the impacts of COVID-19. Do investors still see Asia as a resilient market with growth potential?
In exploring investor appetite for the region, the answer is that Asia is still considered a growth powerhouse, and China is still leading the way. Investors in general are in favour of increased allocation over time in the Asian region, especially in the post-COVID era.
The WEF has predicted for 2020 to be the turning point where Asia Pacific will take over the rest of the world in terms of global GDP. Europe is slowing down, while US is experiencing geopolitical instability. Asia also has the advantage of having a large consumer base – especially in China.
Is specialisation the way to go?
Asia Pacific is a broad region, so investors know that you cannot paint the region with a broad brush. There is increased segmentation in opportunity sets, which influences investors’ choices in selecting for established managers or sector specific managers. The consensus is that traditionally, established managers have been the preferred option, but investors are paying more attention on emerging managers. They tend to be more aligned with investors and specialised on a geography or sector, both of which are good qualities to allow ‘fine tuning’ of investments. There is some expectation for growth in sector specific investments in this region.
It’s an important time for first time managers to be creative, show great teamwork, get some track record and develop great relationships with LPs. They need to make sure they are being seen, as more established managers with track record tend to be where investors default to in difficult times.
What are the challenges?
Overall returns in Asia has been similar to what’s seen in Europe and US, but they very different dynamics. Asia lags behind on secondaries, and due to the large number of countries in the region, currency risk is one for managers focusing on this region.
The geopolitical tensions between China and US is still one to watch for investors, and some have considered new areas to explore as a result. However, investors need to remember that different parts of Asia are very different in characteristic, so your strategy will need to change to suit them. Of course, it is also good to keep in mind that most geopolitics are short-term, and you should always remind yourself of the bigger picture.
We prefer scalable business that reaches all corners of the online market.”
Weijian Shan, Chairman and CEO, PAG
Day Four: COVID-19 impacts on China
Given the backdrop of global trade issues, slow economic growth and COVID-19 pandemic, is China still a place to invest in, and why? Our panellists looking at investment themes in China noted a number of trends they’ve observed on the ground.
Consumers and ecommerce
First, consumer space in China has mass potential as consumption continues to increase as people become more affluent. A key demographic to watch is the Millennials and Gen-Zs as they become the major spenders in the economy – and they have much greater spending power than their parents did. Consumer tech services – especially online community-based ecommerce – has much room to grow and it’s worth keeping watch.
Social ecommerce and technology is also booming under COVID-19 pressures. Examples of this includes healthcare technologies in making diagnosis and online education video solutions. There are many new innovative solutions out there and the early stage market is getting increasingly crowded as both investors and entrepreneurs are moving in fast.
Points for concern
Some investors are wary of geopolitical tensions and deliberately stay away from companies and industries that are more exposed to these risks. High valuations and excess liquidity are also things to watch out for. However, a recurring message from investors this week is to focus on the long-term investment thesis and switch yourself off from short-term noises and distractions.
One of the biggest challenges brought by COVID-19 for LPs is their ability to do due diligence and building relationships with GPs. Overall, the fundraising market is slowing down but the best and biggest players are still doing well. The situation is tougher for new managers. While some are more comfortable with using video conferencing tools, most others say they don’t make decisions solely on digital interactions.
However, China in general has dealt with the pandemic well and has mostly recovered from the initial impacts, so investors are feeling confident for most parts of their portfolios, especially those in digital, online technologies and healthcare.
Focus on long-term investment thesis and turn off the noise.
Allen Huang, Director of Investments, Michigan State University
What have the thought leaders at SuperReturn Asia Virtual said about diversity, technology and investment opportunities?
Watch our interviews and find out more!
Local vs. foreign investors in Southeast Asia - who has the upper edge?
Helen Wong, Partner at Qiming Venture Partners
What practical steps can be taken to help leaders build diverse teams?
Tanya Rolfe, Managing Partner at Her Capital
Trends, impacts and challenges: a deep dive into AI and IoT
Dr Kai-Fu Lee, Chairman & CEO at Sinovation Ventures
Is China still the go-to place for Asian venture capital?
Judith Li, Partner at Lilly Asia Ventures