Home Private Equity Temasek’s bet on private equity and China

Temasek’s bet on private equity and China

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In today’s newsletter:

Temasek’s difficult bets

Singapore’s state-backed fund Temasek made big bets on two of the most lucrative trends of the past 20 years: the growth of China and the rise of private markets. 

These days, both of those bets are facing serious difficulties. 

The MSCI China index was down 19 per cent in the year to March, a time when the S&P 500 index rose 28 per cent. And private equity dealmakers are warning of years of underperformance ahead

Temasek, one of the world’s biggest and most active investors, with a $288bn portfolio, is feeling the consequences, DD’s Kaye Wiggins reports. In the year to March, the portfolio’s value rose just 2 per cent, it reported on Tuesday. Last year, its portfolio shrunk 5 per cent, its worst return since 2016. 

Under pressure to boost returns, Temasek has been quietly backing a wave of dealmaking among portfolio companies. 

Fifty-two per cent of its portfolio is in private markets, where Temasek has established itself as one of the first names that the titans of the private capital world think of when they’re raising funds or looking for co-investors in deals, most recently in the case of Brookfield Asset Management’s bid for the renewables group Neoen

And 19 per cent of the overall portfolio is exposed to China, making the country Temasek’s third-biggest market after Singapore and the Americas. 

As things stand, Temasek’s executives sound more hopeful about private markets than about China — where they said they were going to be “cautious” about investing in the future. 

While its deputy chief executive Chia Song Hwee warned of the need to be “watchful” about the private credit boom, Alpin Mehta, deputy head of private equity fund investments, was sanguine on buyouts. 

“Low interest rates, with a lot of leverage to make acquisitions, drove some part of the returns in the private equity space,” he said. “But even if you had to take that and strip that off, I think the returns are still fairly attractive.” He said secondaries funds and continuation vehicles — in which private equity groups sell companies to themselves — had the potential to be good opportunities. 

Meanwhile, on a slide about the value of its investments, Temasek included a chunky, green, upwards-sloping arrow describing an “uplift” in the value of its unlisted assets. 

What would bring about that $23bn uplift? Marking its investments to market — including using private equity groups’ own assessments of portfolio companies’ worth — instead of using its long-held approach of marking them at book value.

Musk’s pay package sends nerds to Delaware

A Delaware court killed Elon Musk’s $56bn Tesla pay package. Now it has to decide how much to pay plaintiffs’ lawyers for successfully nixing the windfall. At stake is what could be one the biggest legal hauls in American history. 

A Delaware court hearing on Monday over the pay was not just a showdown of rainmaker lawyers. DD’s Sujeet Indap was there in Wilmington for the festivities and his dispatch is here

Two academic stars duelled over what, if any, financial benefit there was from a January Delaware Court of Chancery decision that cancelled Musk’s enormous pay package, which has increased in value to $75bn as of today due to Tesla’s rising stock. 

The benefit conferred is central to a fight over how much the winning plaintiff’s lawyers, led by Greg Varallo of Bernstein Litowitz, are owed for their trouble (they have asked for 29mn Tesla shares now worth more than $7bn).

Tesla’s big gun was Daniel Fischel, a University of Chicago heavy hitter who once wrote a book defending Michael Milken’s conduct at Drexel Burnham Lambert

Fischel told the court the decision was worthless to Tesla shareholders — just a shuffling of shares that did not affect any cash flows. Moreover, an “event study” he conducted showed that Tesla shares did not rally in the days after the January ruling, demonstrating some kind of win for shareholders.

The plaintiffs brought in Robert Jackson, the former SEC commissioner and current NYU law professor. Jackson, for his part, had just shared with Chancellor Kathaleen McCormick some basic maths. The net shares owned, after option exercise, to Musk was roughly 270mn shares. The cancellation of those shares avoided equity dilution of more than $50bn at the ruling date, a straightforward benefit for Tesla that could then use those resources for M&A or anything else. 

Varallo then told the court he was merely asking for a tenth of that benefit, conservative in proportion to precedent fee awards (of course $5bn or $7bn would be record-breaking). 

As the FT wrote in December, the expert witness industrial complex is lucrative, thriving and controversial (and Fischel himself is a pioneer in the sector). The fees charged now approach $2,000 an hour; the expert teams produce, coincidentally or not, exactly what their clients want and judges are not sure what to do with diametrically opposed results.

McCormick did not rule on the fee award immediately. She may even have to redo her original opinion given Tesla shareholders in June again approved the share grant. But if she does decide that Varallo deserves some money, she would now have plenty of input about how to pick a number.

Job moves

  • Blackstone has hired Tyler Dickson, the former global head of investment banking at Citigroup, to oversee client relations for the asset manager’s fast-growing credit and insurance unit. In the newly created role, Dickson will work with clients and source new origination efforts at the $330bn-in-assets unit.

  • Ari Lefkovits has joined Delos Capital, a merchant bank and private equity firm focused on corporate restructurings and special situations. Lefkovits previously worked at Lazard for more than two decades. Andrew Schweibold is rejoining Delos, which he had co-founded with Matt Constantino in 2013. Both are veterans of Apollo. Alice Chong is joining Delos from Guggenheim Securities

  • L Catterton has hired Miray Topay as a partner and head of its London office. She joins from Bain Capital, where she served as a partner and co-led the firm’s consumer investing efforts across Europe.

  • Weil Gotshal & Manges has hired Tana Ryan and Navneeta Rekhi as partners in its private equity group in Los Angeles and San Francisco, respectively. Both are joining from Latham & Watkins.

  • Clayton, Dubilier & Rice has hired Adam Karol as a partner on its healthcare team. Previously he was a managing director at Silver Lake.

Smart reads

End of an era France’s corporate leaders are preparing to say au revoir to Emmanuel Macron’s decade-long business-friendly climate as the rise of the left or political gridlock would derail market-oriented reforms, writes the FT. 

Out of fashion Exclusive Ivy League social clubs are loosening dress codes, discounting dues and implementing speed dating to boost membership as they struggle to stay afloat, The Wall Street Journal reports.

Capital required Bobby Jain won votes of confidence from important investors, even using sweeteners such as fee breaks, to raise $5.3bn for the biggest hedge fund launch since ExodusPoint’s debut in 2018. Bloomberg reports from interviews with about two dozen people with knowledge of his fundraising effort.

News round-up

UK’s new £7bn National Wealth Fund to start green investment ‘immediately’ (FT) 

Tax paid by UK non-doms rose to £8.9bn in 2022-23 (FT) 

Nike’s new chief runs into trouble as turnaround efforts falter (FT) 

Thames Water chief defends bonus amid plan for hefty bill increases (FT) 

Partner pay nears £2mn at Linklaters (FT)

Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, William Louch and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard and Maria Heeter in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to due.diligence@ft.com

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