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Last month, Buyouts Magazine revealed Karen Frank, OTPP Senior Managing Director and Head of Global Equity, shared his perspective with other industry leaders as they predicted what awaited the deal, fundraising, sustainability and Indus. . Full article! What awaits the private capital industry in 2022?You can download it here.

The article appeared last month and included the following industry leaders:

  • Joe BarataBlackstone Global Equity Global CEO and member of the firm’s board of directors
  • Hugh McCarthyPartner at Bain & Company and Head of Firm Global Private Equity Practices
  • Brian BernasekManaging Director and U.S. Buy and Growth Co-Founder at Carlyle Group
  • Rajiev AmaraFounder of Arcline Investment Management
  • Karen FrankSenior Managing Director of Ontario Teacher Retirement Plan and Head of Global Equity

OTPP has published this article on its website and encourages you to read it.

These are the titans of all industries, but for the purposes of this comment, I would like to highlight what Karen Frank shared:

Procurement: Does the 2022 PE deal match last year’s strength?

Karen Frank: Last year was a record year in terms of transactions and private equity was an important part of that. I do not see this ending until the markets can bear it. Part of this is the rate of fundraising and the total amount of dry powder available. People want to get this investment in opportunities.

I think dry powder should go and so far we have a deal environment that is very conducive to that. It is also a good time for companies and private investors to join the partnership and think about how they are moving in the waters in the future.

Some to speed up delays in areas where they are strong, while others to maintain balance and make sure they are well suited to storms that may still be coming.

Procurement: Will inflation or other economic factors hinder trading?

Karen Frank: If you think about it from the perspective of the Pension Fund and you think about the negative rate from below and now from the perspective of inflation, these are both great impetus for us to keep investing – Especially in real assets and businesses that have pricing power that continues to inflate. So I do not see this as necessarily reducing the transaction environment. I think the market is adapting.

Procurement: Will asset pricing trends lead GPs to work harder to generate revenue?

Karen Frank: There is no doubt that prices are rising given the competitive dynamics of the market. We always go back to the basis of value creation and say we need to be in control and support management and our partners in how we create value organically. It gives us the confidence to weigh and re-deliver risk-adjusted payouts in expensive environments..

One of the ways we differentiate ourselves from some funds is that we are long-term investors. Sometimes it will take more time to execute a value book creation book, sometimes you need to be convenient as market conditions change. We are thinking not about the next 24 months and preparing the company for another sale, but about how we will set it up to create long-term value.

Procurement: How do you expect exciting transaction opportunities?

Karen Frank: We are excited
Technical circuit
. Instead of looking exclusively at the software part or the digital platform, We look at companies and see where we can add these opportunities to take them on a journey and accelerate value creation. We think of technology not only as an area of ​​independent investment, but also as one that encompasses all the sectors that interest us.

Procurement: Will last year’s vigorous PE funding continue to be attracted until 2022?

Karen Frank: When we make commitments to funds, several things happen. One is Megaphones – They are coming back with more and bigger stock tickets.

The reality for us is that in order to be able to make these commitments, we must have expectations of realization on the other side. We can not continue the obligation without returning anything.

Funds are also returned faster and faster. They segment their strategies, returning to the market specifically [situations]Credit, growth, regions, etc. We try to approach this prudently and say that we need to manage the whole exposure and build a diversified book on our side..

Many of us are involved in co-investing and managing additional total investments that accompany a major or leading LP. But as the funds themselves grow, you have to grow with them. So the impact of individual managers is sometimes quite large. I think the dynamics of co-investment against exposure is what will probably be a growing trend in the market. This is something we will balance quite proactively.

Procurement: As private capital is large, should it be more transparent?

Karen Frank: I think every organization has a duty to take care of its own stakeholders. And Whether it is industry-based transparency, or regulation, or how they go hand in hand, I think extra transparency is a mutually beneficial way for us to work together. I hope this will be the direction of the trip.

You will always have small friction between LPAC locations, between LPAC and fund, transparency of fees and costs, etc. It is important to us. We are on the right track, but this idea of ​​continuous improvement – to be more transparent and more involved – will hopefully be accepted.

As more funds become asset aggregators through the multiplication of fund types and the tax-based model on which they operate, in some cases these fundraising transcends institutions. It goes for private individuals, family offices and retail environments. When GPs start with these types of stakeholders, transparency – really opening up about how they work and what their value proposition is – is key.

Purchases: Will Private Equity Implement New Invasions on the ESG Front in 2022?

Karen Frank: For us, it has become a gateway issue. E, S and G are important to us all. If we have no commitments or visibility about how foundations or portfolio companies are leaning, it gives us a real pause to think. We have plenty of data to understand that a variety of organizations that comply with ESG provide better and more sustainable returns to their shareholders.. Not all companies, not all situations will be on the same trajectory! But we expect a positive movement towards each of these goals. This is one of the things that helps us support our investment.

Despite COP26 [the 2021 UN Climate Change Conference] And the emergencies that arise there, I think we are still in the early days of how the industry relies on the environment – in terms of influencing portfolio companies, distributing investments and investing in solutions.
We still have a few ways to go about doing this effectively or fully understanding how good it looks.

Procurement: Is private capital doing enough to ensure diversity within its own ranks?

Karen Frank: I joined an organization where I am satisfied with my commitment to diversity. Women, for example, are well represented on the board, the executive team, the asset group leadership, and the investment team. Private equity is focused on getting more consumption, but not all forms of diversity, including at the leadership level, are yet to be seen. It will be important for us to move on to a wider industry base.

It’s a long way to go, but we’re starting to get critical mass. We know the inherent benefits of diversity. I am also interested in opening the diaphragm.
We can not talk only about women, we must talk about all forms of diversity, equality and inclusion. The more progress we make, the more time, voice and thought we devote to it, the more likely we are to think we will eventually achieve it.

Procurement: Will energy transition be a bigger priority in 2022?

Karen Frank: We have recently declared our commitment to pure zero [in the
portfolio by 2050, with 2025 and 2030
interim targets]. For us it is not about carbon dumping. Some of the most recent investments we have made include supporting companies and management teams to help you through this transition. We get carbon in some cases, but only in cases where there is a transition plan that ensures the business is moved to a low carbon environment.

As for the ability of private markets to surpass the technologies and capabilities that will help us solve this problem, I think there is a real opportunity. The industry is developing very fast. T.How private equity is involved in climate and energy transitions is likely to accelerate as these opportunities become clearer and more accessible.

This is an excellent interview where Karen Frank covers many interesting topics.

Again, take the time to read the entire article here and read the views from other industry leaders.

I would like to make a few points about Karen Frank’s perspective:

  • As for inflation, there is no doubt that high real rates will benefit pensions as their liabilities decrease (higher discount rates mean lower future liabilities). So from an asset liability perspective, high real rates are really good, but if rates rise too fast and eventually ruin assets and the real economy, and a deflationary scenario develops, then pensions are still a big problem because real rates will return to negative territory.
  • There is a lot of dry powder in private equity, the price reflects that, but you have to invest. Pensions have additional benefits such as they have a long-term investment horizon and have captive clients (so they do not have to worry about raising funds). This gives them time to realize the value creation plan.
  • Large funds co-investments are critical for OTPP and other large Canadian pensions. Funds are growing and there are more opportunities to co-invest, reduce commissions and maintain a healthy allocation on PE.
  • ESG and diversity and inclusion are crucial for long-term success in private equity. I recently discussed how BCI and IMCO joined CPP Investments, PSP Investments, and other large LPs to participate in a data convergence project that seeks to standardize environmental, social, and governance metrics to provide a comparative reporting mechanism for private In the investment industry. This week, the University Retirement Plan Ontario (UPP) announced that it is also joining. I think OTPP and others will join soon.
  • I like the technical involvement as part of the value creation plan and I think there will be plenty of opportunities for investment in the energy transition economy, private equity and other areas. Private capital will play a crucial role as the world moves to more sustainable energy.

Okay, let me finish, I hope one day I will interview Karen Frank and Sui Kim, but for now, whatever I find, I will take it and share my thoughts with you.

By the way, According to CNBC’s Leslie Picker, investing in private equity is becoming more expensive.

And CNBC’s “Squawk on the Street” team is considering private equity firm TPG, which made its public market debut last month in the first major initial public offering of 2022.

Just remember what Mark Wiseman once said to me when he was head of CPP Investments: “I could have hired David Bonderman, but I could not afford it, so we always invest in private equity with the best funds and co-investment. Them. ”


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