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Moving Money: Billions and Billions


Regulatory Watch

• • • •

Investing in Climate Change Russia to co-invest with PE firms for domestic growth Super-sized IPO’s are on the way LBOs of up to $1.5bln possible

• New regulations for banks and potential capital surcharges could affect PE holdings

March 15, 2011


MOVING MONEY: BILLIONS AND BILLIONS Climate change is a megatrend and it shows no sign of slowing, but there are risks, according to a recent report entitled, Investing in Climate Change 2011: The Mega-Trend Continues, published by a team within Asset Management at Deutsche Bank (DB). In fact, 2010 was a record year for investment, with USD 243 billion put to work in clean energy. This is the fourth report from DB on the topic. The first three were about investment strategies. Private equity and venture capital represent a small proportion of all asset types, totaling slightly less than USD 9 billion in 2010, especially compared to asset finance; nevertheless, the report is of interest to better understand the risks and risk strategies for climate and energy-related investment.

Soros, Silver Lake Make Clean-Energy Bet (subscription required) There is a growing wall of money moving into cleaner and renewable energy buyouts and entrepreneurial endeavors. The latest, according to the WSJ is one that has George Soros's Soros Fund Management LLC and private-equity firm Silver Lake working together to create Silver Lake Kraftwerk, a new fund that will invest


in “growing energy companies”. Executives of the fund will be based in the US and China. Other information was lacking, such as the size of the fund, launch date and provenance. Another well-known industry executive, Guy Hands, is also preparing to invest in so-called clean energy deals, according to Bloomberg. The British PE executive’s firm, Terra Firma Capital Partners, is planning on investing €500 million from a fund that was raised in 2007. Rising oil prices make such deals attractive, according to Hands who was quoted in the article. Russia to co-invest with PE firms for domestic growth. Another story involving movements of billions of dollars in the private equity segment comes from, which is reporting that the Russian government is setting up a USD 10 billion fund to co-invest with “leading” international private equity firms in an effort to attract foreign capital to the country. Super-sized IPO’s. A third billion dollar private equity story emerges as the IPO market returns to life. This year could be a big one for exits as several news and industry publications speculated this week in the face of some large-sized IPO’s backed by PE investors. The latest was a hospital operator, called HCA Holdings, whose IPO in the US “was the biggest private equitybacked offering ever”. The floatation is “likely to encourage a new round of exits”, according to the report.

In a Marketwatch article on the same topic, Bain Capital, KKR, and the PE arm of Bank of America Merrill Lynch, were named as HCA’s investors. PE-backed IPOs have totaled USD 10.4 billion or 83 percent of the overall market this year, according to the same Marketwatch article, and the three of the top four global IPO fees this year have been PE-backed. LBOs of up to $15bln possible. And just in case, anyone was thinking that moving billions of dollars is short term, TPG Capital’s David Bonderman speaks up at SuperReturn to say that buyout deal sizes are going up this year. The article quotes Bonderman, the

co-founder of TPG Capital, who made a presentation at the recent SuperReturn conference, who said that deal sizes could balloon up to USD15 billion in size this year. Bonderman also said that emerging markets are attractive, but some may be overheated. He said that the Chinese market may be in a “bubble”. He also mentioned the so-called “wall of debt” and how it has shifted out to 2014, enabled by a “lively” bond market. Covering the same presentation, Reuters said that Bonderman began his talk quoting Mark Twain’s line about the reports of the death of private equity have been greatly exaggerated. He did not talk about returns, according to either article.

REGULATORY WATCH New regulations for banks and potential capital surcharges could affect PE holdings, reports Bloomberg. Emerging regulatory changes that affect European banks and their private equity holdings are discussed in this article, which lists four well-known institutions that are reportedly “trying to sell holdings in private equity funds” before tighter capital rules come into force. Banks will have to hold 50 percent more capital in reserve against investments in private equity and hedge funds under draft capital rules being considered by the European Union to curb risk and cover losses, says the report.


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