The document summarizes several news items from the private equity industry: 1) A study found that several venture capital funds outperformed during the 2008 financial crisis, including Union Square Ventures, Avalon Ventures VIII, and Emergence Capital Partners II. 2) Many European entrepreneurs are founding startups in Southeast Asia for business opportunities and financial success, not just for better weather. Payments services are seen as attractive for expansion to other emerging markets. 3) Global M&A volume hit a seven-year high in 2014, with healthcare deals reaching a record level. Private equity accounted for over 20% of deal volume.

1. DIGEST 163
November 21, 2014
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Which VCs Outperformed During the
Credit Crisis?
Euro Entrepreneurs Venturing Forth in
East Asia
LP’s Shadow Capital Exacerbates Dry
Powder Dilemma
M&A Volume Hits Seven Year High
Super-Wealthy Have too Much Cash
and Bonds
Quote of the Week: Successful Meritocracy

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WHICH VCS OUTPERFORMED DURING THE CREDIT CRISIS?
Last week we reported which European PE funds did well with their 2007 vintage. This week, we have news about VC funds that outperformed when the rest of the VC industry struggled to make the grade. According to a Preqin research note, the VCs that generated exceptional returns and multiples were NYC-based Union Square Ventures (vintage 2004, net IRR 70.6%); San Diego-based Avalon Ventures VIII (2007, 58.1%); San Mateo-based. Emergence Capital Partners II (2007, 52.9%); Vienna, Virginia- based Grotech Partners VII (2007,46.5%) and Australia-based CHAMP Ventures Investments Trust No. 5 (2002, 42.7%). It is always interesting to note that when Preqin unearths outperformers, it is not necessarily the big “brand” name PE firms that we all know and talk about. (Image source: Avalon Ventures)
EURO ENTREPRENEURS VENTURING FORTH IN EAST ASIA
There is quite a list of Europe emigré tech-founders building startups in places like Bangkok, Singapore, and Jakarta, according to Dušan Stojanović of True Global Ventures in an article in Informilo. And they are living abroad for business opportunity and financial success, not necessarily just to avoid the long dark winters of Norway, Denmark, and Finland. According to Stojanović, a “super-angel” and currently based in Singapore, transferring know-how between Europe and Southeast Asia can increasingly be a profitable two-way street. He says that 1) European entrepreneurs that have survived and thrived since the dot.com bubble days can leverage their knowledge to set up businesses in Southeast Asia as entrepreneurs, or expand their current Western European operations there. And 2) ventures in East Asia, some of which are leapfrogging, can expand the successful business model into other parts of the world, particularly in Eastern Europe, which is also considered an “emerging” market. Technology leapfrogging is evident in places

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LP’S SHADOW CAPITAL EXACERBATES DRY POWDER DILEMMA
M&A VOLUME HITS SEVEN YEAR HIGH
where fixed telephone line infrastructure was sparse, and mobile calls expensive. In the meantime, WhatsApp and Line are used instead of mobile voice for talking, and payments jumped from cash directly to cellphone “without the steps in between”, he says. Stojanovic sees payments services, in particular, being attractive in other so-called emerging markets. (Image source: True Global Ventures)
This year is going to stand out for corporate finance as global M&A volume climbs to USD 3.23 trillion, according to the latest dealogic data. It is the highest year to date volume since 2007 (USD 4.08tr) and 27% higher than last year at this time, as the above graphic depicts. Healthcare is the most targeted sector and has reached the highest volume on record for the period at USD 437.4bn, followed by Telecom and Real Estate, with USD 363.4bn and USD 328.7bn, respectively. Private Equity is has taken slightly more than 21% of the overall M&A volume, accounting for USD
The “Elephant in the Room” for PE is the growing amount of dry powder or capital raised by PE but as yet uninvested, according to a research note from Hamilton Lane, as is the unrealized value of portfolio companies. According to Jim Strang, a Managing Director at Hamilton Lane, GPs are asking for investment period extensions, which is worrying. What is more, institutional investors have an unknown amount of capital earmarked for co-investments that is not in commingled funds.
This so-called shadow capital is finding its way into deals through co-investments, separate managed accounts, co- sponsorships and direct investments. The additional capital could make an already highly competitive deal market even
more difficult, and could lead to PE players too high a price for acquisitions. Not to mention, the mis- alignment between GP&LP caused by paying fees on uninvested capital
692.7bn worth of deals, the highest level since 2007 (USD 937.5bn)

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SUPER-WEALTHY HAVE TOO MUCH CASH AND BONDS
QUOTE OF THE WEEK: SUCCESSFUL
MERITOCRACY
Wealth concentration, as reflected in high cash balances and holdings in government bonds, is said to present more risk to ultra high-net worth (UHNW) individuals’ portfolios and purchasing power than other types of risk, according to the latest UBS Wealth-X World Ultrawealth Report. “Inflation may well be eroding the wealth of UHNW individuals at a faster pace than in the broader community,” said the analysts. The insight is just one of many in the report released this week. Of note, is the fact that more 12,000 new UHNW individuals were created this year, which means that global UHNW population reached
a record of 211,275 people, a 6% increase from 2013. The combined wealth of this elite group (UHNW is defined as those with greater than USD30 million net assets) increased by 7% to USD 29.725 trillion in 2014. That figure is almost twice the GDP of the USA, note the analysts. More data like this can be found in the report, which is also the source of the above easy to grasp graphic, showing the wealth concentration by region.
“I’m in the intellectual property business… I don’t care what you look like. If you get in that top quartile … those are people I want to hire.”
Who said it: Robert F. Smith - Founder & CEO of Vista Equity Partners
In context: Smith was quoted on his meritocratic philosophy at a recent PE conference panel discussion about sustainable PE investments. His company, Vista Equity, is a highly specialized IT and software buyout house, with a remarkable track record, which we’ve covered here. He said his portfolio companies receive roughly 500,000 applications each year from candidates. Vista tests fewer than 200,000 of those, and roughly about 10,000 get hired.
Smith also commented on women in PE, pointing out that it is a highly competitive business. “Understand this is not a place necessarily where work life balance is going to be rolling off of everybody’s tongue. It isn’t. Understand that’s the market. If you want to move in that business that’s what your life will be for a long time,” he said. Smith is not only a market leader in PE, he is also a very active philanthropist. (Image source: Project Realize)
Where we found it: PEHub

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The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most noteworthy news items, scoping trends and currents events in the global private equity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers: Professional, Accessible, Transparent, Simple, Efficient, Effective, and Global.
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Editor: Valerie Thompson, Zurich
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