PRIVATE MARKET FUNDRAISING – 2021 OUTLOOK & INSIGHTS

2020: A QUICK RECAP

As we prepare to sign off for 2020 and reflect on what has been an unusual year to say the least, the private equity fundraising market has recalibrated and adjusted well to a world kept at home by COVID. Back-to-back Zoom calls have become commonplace along the fundraising journey, and while we expect these to continue into 2021, many involved have found this new interaction format to be more time-efficient than travelling the world though arguably just as exhausting!

Looking ahead to 2021, with much of the practical and portfolio adjustments already made this year, we feel cautiously optimistic that both GPs and LPs are increasingly well-equipped to successfully navigate further market volatility as they focus on their fundraising and capital allocation objectives.

Less capital raised overall but fundraising activity remained robustWe saw a record number of funds in the market, albeit with more modest fundraising targets than in the past couple of years1. Overall, c.$850bn was raised as of December 2020, across all private asset classes, a 25% decline since 20192.

1 Preqin Quarterly Update: Private Equity & Venture Capital Q3 2020 2 Preqin Database, Dec 2020

Asante Capital is a leading independent private equity placement and advisory group focused on partnering with best-in-class managers and limited partners in both developed and emerging markets.

ASANTE CAPITAL SOLUTIONS

Asante Capital Q4 2020 Newsletter

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PRIVATE EQUITY REAL ESTATE INFRASTRUCTURE PRIVATE DEBT NATURAL RESOURCES

Majority of LPs are willing to adapt to virtual diligence and meetings• Over 65% of those surveyed are comfortable with conducting an entirely virtual diligence process3 • Over 50% of those surveyed are open to investing in fund managers having never met face to face

(a significant uptick from only 21% as of June 20204)

Geographic Preferences• Dampening of enthusiasm for emerging markets• Appetite for emerging markets has cooled as LPs have favoured mature PE markets which are showing faster

signs of economic recovery (i.e. North America, Western Europe and developed Asia-Pacific)

3 Private Equity International’s LP Perspectives 2021 Study, December 2020 4 Asante COVID-19 LP Survey, 20205 Asante Capital Annual Market Overview 2019

Strategy Preferences• Amid uncertainty in the market, investors

have found refuge in more traditional investment strategies such as buyout and growth

• Unsurprisingly, we also saw a notable uptick in allocation to Distressed / Special Situations over Venture Capital, which had historically maintained third place5

Buyout

Growth

Distressed / SS

Venture

Infrastructure

Direct lending

Real assets

Esoteric

Private Investment Program PrioritiesHighLow Priority Spectrum

Private Investment Program PrioritiesHighLow Priority Spectrum

26%↑ 1%↓North America

4%↑ 19%↓Latin America

21%↑ 6%↓Western Europe

7%↑ 9%↓Africa

7%↑ 9%↓Middle-East

8%↑ 15%↓South Asia

18%↑ 5%↓Asia

14%↑ 7%↓China

8%↑ 3%↓Southeast

Asia

Sectors of Choice• Defensive, resilient sectors such as healthcare and technology will

continue to flourish despite the pandemic and sector-funds specializing in these investment themes will continue to be the “flavour of the month” with investors

• LPs will continue favouring underlying investments in business models that are net-winners from government-imposed lockdowns and social distancing restrictions

"Flight to Safety” to continue for the most part• LPs have already been consolidating their GP relationships in recent

years, reducing the headline number in favour of doubling down on their high conviction managers (often the “blue-chip” large / mega-cap funds)

• COVID-19 has further accelerated this trend, with blue-chip managers being perceived as more experienced and possibly a safer pair of hands in this environment to help navigate through current market turbulence

Platform & Strategy Expansions• In line with the “flight to safety” phenomenon, we expect an increasing

number of large blue-chip regional/global groups to aggressively pursue strategy and platform expansions beyond their core verticals

• Established global managers will continue to explore launching dedicated regional/country focused funds

VISUALISING PRIVATE MARKETS IN 2021

PrimariesLPs will continue to deploy• Investors anticipate that

the share of their portfolio dedicated to alternatives will increase by 7.3%, on average, over the next 5 years6

• As an asset class, Private Equity has outperformed for 35 years. We believe that investors today are cognisant of this more so than in prior crises, and hence will continue to deploy

• If history serves as a guide, 2020 and 2021 are poised to be some of the strongest performing vintages over the next cycle, and 71% of LPs we surveyed agree with this sentiment

• However, at GP portfolio level, we expect there to be wide-spread contagion from the pandemic as although a limited few countries and sectors have performed well through the crisis, the majority are still battling to return to pre-COVID performance levels last seen in Q1 2020. Given LP appetite remains reasonably robust, this would likely result in a greater bifurcation between the “haves” and “have-nots”, with private markets fundraising favouring managers that operate in fast-recovery segments of the market

6 Private Equity International’s LP Perspectives 2021 Study, December 2020

Performance Expectations

Unknown / Not sure

Will fall below benchmarks

Will meet benchmarks

Will exceed benchmarks

39%

39%

6%

16%

How are investors expecting their alternatives portfolio to perform in the next 12 months?

Beneficiaries

Home Improvement

Food Retail and Grocery

LogisticsRemote-working

Technology

Online Consumer Retail

Online Learning Platforms

Contactless and Online Payments

Virtual and Tele-Healthcare

Medical Devices

Life Sciences and Biotechnology

Online Entertainment Platforms Insurance

Coller Capital. Global Private Equity Barometer Winter 2020-21

LP’s settling into a ‘new normal’ mode of conducting fund due diligence• We expect virtual diligence to continue as the main mode of diligence

until the pandemic subsides or vaccines become broadly available. Thereafter, LPs are likely to rely on a mix of virtual and physical meetings, with less travel overall and an increasing reliance on virtual formats than the pre-COVID world we lived in

First Time Funds and Emerging Managers will face the most challenges• We envisage ‘perfect spin-out stories’ will continue to find fundraising

success – i.e., spin-out teams from blue-chip GPs with strong attributable track records, and these emerging GPs will often have amassed a loyal investor following

• Spin-outs from large tech corporate venture capital and in-house M&A teams are another category of emerging GPs to look out for, especially in tech-hubs like China

• However, the vast majority of first-time funds, as the fundraising environment becomes more challenging, will need to carefully consider their options, including opting to focus on deal-by-deal capital raises, with the aim of deploying capital with good frequency to build a track record before targeting a blind pool raise

Risk of the Denominator Effect• The denominator effect has not had a pronounced impact on LP

capacity to deploy in private markets, given the quick public markets rebound in Q2, which is a key difference between the ’08 Crisis and today

• However, the relapse in number of COVID-19 infection cases worldwide and the imminent release of Q4 earnings results means that this risk still looms at large

Process of finalising a final commitment has always been virtual!

Follow Up Video Conference with

Additional Team Members

Multiple Video Conferences Substitute for In-Person Diligence and Onsite with Team

and IC Members

Initial Introductory Video Conference

Held

82%believe international

business travel will be reduced permanently as a

result of Covid

Decision to be made whether due diligence may proceed

without meeting in-person

Secondaries

Preqin. 2020 for Private Equity (Buyout, Growth, Balanced) and Venture Capital, on a global basis

• The global secondary market is now almost 5x larger than in 2008, with $280bn in total assets under management (AUM) as of December 20197.

• Capital has flooded in, with $44bn raised in H1 2020 alone. According to Preqin, there are currently 73 secondaries vehicles in market seeking a total of $69bn, and 16 managers are targeting over $1bn each8.

• With a record amount of dry powder – estimated at $125bn as of June 20209 – competition is fierce, and we expect to see continued innovation, especially around GP-led transactions which now account for a third of deals.

• This highlights how the secondary market is increasingly being used for strategic reasons, rather than purely as source of liquidity. These include portfolio rebalancing, shifting investment strategies, re-investing in higher-growth opportunities, reducing the number of GP relationships and focusing on ones that allow co-investment, and validating asset valuations.

• Just 181 of 1,082 sellers surveyed are “highly likely” to sell fund interests in the coming 12-24 months, with the sizable majority taking an opportunistic approach. In contrast to the immediate aftermath of the Global Financial Crisis, nearly three-quarters (73%) of LPs do not expect to have difficulties meeting capital calls10.

7 Preqin Secondary Market Update: H1 20208 Coller Capital. Global Private Equity Barometer Winter 2020-219 Preqin Report: Why Secondaries Could Be a Victim of Their Own Success10 Preqin Report: Why Secondaries Could Be a Victim of Their Own Success

GP-led restructurings to outstrip LP sale transactions• COVID is anticipated to increase supply of GP-led opportunities,

particularly continuation funds and strip sales, as GPs hold companies for longer and need to find solutions for holding companies beyond end of life of funds as well to increase distributions returned to investors

• Further increase in concentrated deals, and in particular, single asset deals which have become popular in 2020. These allow secondary investors to differentiate by developing expertise around specific sectors and assets that they would like to focus on, and blurs even further the lines between secondary investing and co-investing

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Key Performance Statistics (2008 – 2012)

It’s nothing personal as LPs seek secondariesrestructurings in the

coming months though…

LP Reasons for Pursuing an LP Stake Sale

29%

19%16%

14%

13%

9%

Portfolio Rebalancing

De-Risking Portfolio

GP-Led Process

Cash Management

Consolidating GPs

Other

Key Performance Statistics (2008 – 2012)

Rebound of transaction volumes and co-investments• Pick-up in M&A markets in the U.S. to get companies sold

before new Capital Gains Tax rules are set by the new Biden administration

• Increased capital flows to sector specialists, with resultant increases for ‘in-favour’ industries

• Resumption of COVID-halted deal processes, where founders did not wish to sell at a discount to reflect uncertainty

• However we expect slower activity rates globally through to H2 2021 as many countries deal with a second wave of COVID cases, despite lots of dry powder sitting with LPs for co-investments

• As a result, this is likely to lead to more deals getting done with greater economics for the sponsor

What this means for LPs and Deal-by-Deal managers• More GPs going down the Deal-by-Deal route as first time

fundraising are challenged in an environment where face-face meetings are not possible

• LPs are gaining experience with Deal-by-Deal fundraising and a market is beginning to emerge for fee economics and broken deal cost cover

• Fees are trending downward on management fees and upward on carry, via a ratchet structure

• LPs getting comfortable doing desktop DD but deals still suffering because onsite visits are not possible

• 71% of dealmakers expect the M&A market to strengthen over the next 12 months. Despite COVID-19 and current economic uncertainties, they see increasing opportunities for completing deals in the next 12 months11

11 Dykema Mergers & Acquisitions SurveySource: Preqin database, Dec 2020

Directs & Co-InvestmentsAlthough 2020 has undoubtedly been a strange year, we’ve all managed to endure it successfully as a result of the dry powder you’ve had as a principal investor, or the many GP clients that have required transactional/fund advice as an intermediary. Despite the fact that private markets have always relied on deep relationships and in-personal interaction, we have been encouraged by the quick and widespread adoption of virtual meeting formats to achieve the same means. This phenomenon has given us cautious optimism that the private equity industry will continue adapting, and although 2021 is expected to have its fair share of speedbumps, we at Asante are confident that private markets managers will come out of this crisis stronger and more efficient in terms of how they go about raising capital and making investments.

Concluding Remarks

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