PE GPs acquiring LPs – what does it suggest?

Recently Carlyle announced the purchase of Dutch asset manager AlpInvest Management from its anchor investors APG and PGGM pension funds. APG and PGGM Agree to Sell AlpInvest Partners to The Carlyle Group and AlpInvest Management

AlpInvest is considered one of the world’s biggest PE fund manager with USD 43.3 billion AUM and these two dutch pension funds as the main investors. Even though these pension funds have given commitments of around USD 13.5 billion till 2015, this divestment signals a new investment philosophy on the LP front.

I believe LPs such as APG and PGGM want to remove the FoF intermediary in future and invest directly or through co-investments. On the other hand GPs such as Carlyle who are integrating backwards through such acquisitions want to have access to bigger cash pools. However to me GP and LP owned by same management would create conflicts of interest and investors would surely like to have these two entities different.

Let’s see how things go around for Carlyle while managing AlpInvest? Time will tell us if they will be able to maintain the trust and commitments from AlpInvest investors?

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PE issues today and their implications

Some of the issues the PE world is facing these days and their implications I feel are:

Funds are sitting on a dry powder of around USD 500 bn which is awaiting investments. The investment period deadline of many funds is around 2011-12, so they are left with very less time to invest the uncalled commitments. This is resulting in many funds investing at very high valuations in places like Asia and overheating the already heated market.

Not many IPOs of PE backed companies are happening as a result of this most of the exits are happening through secondary sales. Is this leading to somewhat round robin, where only secondary exits are happening? In that case wouldn’t it be better to have more secondary funds?

In case of buyouts much of the debts used during the 2007 buying spree would be due in 2012-13 and the economic situation of all the funds is not so well that they would be able to payback all the debts. Would this lead to a new market of debt refinancing? If some big repayments do not work out would it lead to new economic problems?

Globally government regulations for alternative asset class especially PE/VC is tightening.PE/VC would no more be as profitable as it used to be. It would no more be a totally unregulated asset class.

Big PE firms have started looking at small deals also.With the big firms trying to take away the pie of small firms who used to specialize in small and medium enterprises, there would be huge competition among the funds. This may inculcate a very favorable environment for entrepreneurs.