Sovereign wealth funds and state pension providers want their capital back
Some investors in private equity firms have been pulling out their funding in the $8 trillion industry according to sources concerned with the matter, as reported in an article by fortune.com.
Private equity firms, like Blackston Inc. and Apollo Global Management, and their backers were known to have a symbiotic relationship as large fund managers cannot scale their platforms without funding from limited partners while investors need managers who can accept large capital.
With buyout funds in the $8 trillion private equity industry struggling to return money to investors, limited partners such as sovereign wealth funds and state pension providers are now becoming more persuasive.
There were more sovereign wealth funds, such as those from UAE, Saudi Arabia, and Qatar, who have been making investments into private markets as money pouring into private equity slowed down in the previous year. 2023 saw five of the top 10 state-owned investors of private markets hailing from the Middle East, which included Abu Dhabi’s ADQ and ADIA, data from Global SWF found.
Some funds like ADIA and GIC, a sovereign wealth fund in Singapore, have asked the return of their distributions from older vintages while they discussed upcoming fundraises. A source from GIC has also stated that it was making selective investments into new funds without taking capital from its previous vintages.
Investors were now asking for more information about their investments, with sources saying that some sovereign wealth funds were demanding for more disclosures about underlying assets in portfolios.
One of the reasons behind limited partners asking for their money back is the denominator effect, where asset value from real estate to public stocks have been volatile throughout the years and private equity valuations have held steady.
With fund managers struggling to sell fund assets in the markets, denoting a reluctance to crystallize asset values that can possibly be lower than anticipated, many are utilizing leverage to release funds. This led to the wide use of net-asset-value (NAV) financing or loans backed by a pool of portfolio companies which are costly and are likely to dilute returns.
While sovereign wealth and pension funds were raising their scrutiny and demands in private market firms, there was an increase in those directly lending to borrowers as well as cutting out direct lending giants.
Notably, the Canada Pension Plan Investment Board (CPPIB) and GIC, which provided funds for private credit giants, have directly provided the largest parts of the loan that backed Blackstone Inc. and Permira Holdings’ purchase of Adevinta, an online classified company in Europe.
