FirstFT: Private equity groups offer sweeteners to secure investor backing

Private equity firms are increasingly offering sweeteners such as fee discounts to secure backing from deep-pocketed investors, in a sign that the industry is facing its toughest-ever fundraising environment.

Blue-chip firms including CVC Capital Partners, Ardian, TPG and Cinven have all in recent months offered investors either a discount on management fees or other incentives such as larger amounts of so-called co-investment, which enables investors to get a bigger slice of individual deals without paying a fee, according to people familiar with the matter and fund marketing documents. 

Some firms are even offering big backers such as pension plans and sovereign wealth funds a slice of the management fee that usually goes to the fund manager. 

Last week Marc Rowan, chief executive of Apollo Global Management, warned the lucrative age for private equity groups had ended.

He said a decade of “money printing” and low interest rates that had fuelled high profits for the sector and low financing costs were over.

“In the [private] equity business, this year has really marked the end of an era,” he said during Apollo’s second-quarter results presentation.

Private equity firms globally raised $517bn in the first half of this year, a fall of 35 per cent from the same period in 2022, according to a Bain & Co report released in July.

The report found that for every $3 of capital firms were trying to raise, investors only had $1 available to allocate to private equity, the worst imbalance since the global financial crisis. 

Here’s what I’m keeping tabs on today:

  • Wall Street: US shares look set to rebound at the open of trading later today after recording their longest daily losing streak for three months.

  • Company earnings: Tyson Foods reports third-quarter results and Beyond Meat releases second-quarter earnings.

  • Monetary policy: Federal Reserve Bank of Atlanta President Raphael Bostic and Fed board governor Michelle Bowman speak at a public event.

  • Niger: A seven-day ultimatum has passed for the military junta in the west African country to restore the civilian leadership it toppled.

Five more top stories

1. Saudi Aramco this morning reported second-quarter profits fell by more than a third from last year’s record highs as a lower oil price and production cuts eroded the group’s performance. Read more on the results.

  • More company earnings news: Warren Buffett’s sprawling conglomerate Berkshire Hathaway on Saturday reported a near record level of cash.

2. US banks are still relying on hundreds of billions of dollars in government financing that was crucial to shore up the industry after the collapse of Silicon Valley Bank almost four months ago. Regional lenders are tapping the support despite a recent rebound in their share prices and second-quarter earnings that were deemed to be positive by investors. Read more

3. A Financial Times analysis has shown that Europe’s biggest companies suffered at least €100bn in direct losses from their operations in Russia since President Vladimir Putin’s full-scale invasion of Ukraine last year. Read the full results of the survey of 600 European companies.

4. Duke University is finalising a probe into one of its most high-profile professors, sparked by concerns over his own research into dishonesty including a study claiming people were more honest after first being given a “moral reminder”. Read more on the latest academic practice probe.

5. US government scientists have achieved net energy gain in a fusion reaction for the second time in an experiment that produced a higher energy output, fuelling optimism that progress is being made towards the dream of limitless, zero-carbon power. Read more about the achievement by researchers in California.

The Big Read

The disintegration of the Conger-Glenzer ice shelf in March 2022 as captured by satellite images
© Earth Observatory/NASA

Corals are dying in waters near Florida and the Caribbean. With far less ice forming in the seas around Antarctica, marine biologists now worry about fisheries in parts of the north Atlantic as average global sea surface temperatures hit all-time highs. While scientists blame marine heating on human activities pumping greenhouse gases into the atmosphere, the reasons why it is speeding up now are far from clear.

We’re also reading . . . 

  • Inside Business: By creating an off-balance sheet gizmo Apollo has turbocharged the returns from its life insurance business — and others are beginning to take notice.

  • US politics: In Philadelphia’s electorally crucial suburbs, sympathy for Donald Trump and his legal woes is dwindling.

  • ESG: Few ideas are more inconsistent, and thus uncertain, than ESG — no matter how you brand it, says Stuart Kirk.

Chart of the day

Rising US fuel prices are triggering alarm in Washington. The surge in petrol costs to a nine-month high follows a 20 per cent jump in global crude prices this summer, after Saudi Arabia and Russia slashed supply. The move has revived predictions of $100 a barrel oil this year — and new worries about the political fallout.

Take a break from the news

Talking Heads frontman David Byrne is back in the spotlight with a disco musical about Imelda Marcos, the former first lady of the Philippines. How did he come up with that?

And listen to Byrne talk about how he makes creative choices on the FT Weekend podcast.

David Byrne
© Jack Davison

Additional contributions from Tee Zhuo and Benjamin Wilhelm