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Bain Capital’s new fund terms offer fee flexibility and clawbacks

The firm’s terms make fee collections easier but provide investors with clawback opportunities

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Bain Capital’s latest flagship fund provides some fee flexibility to investors as well as recurring opportunities to claw back their capital, while lowering the threshold at which the firm can begin collecting profits.

The Boston-based private equity firm’s terms for investors in its Bain Capital Fund XIII fund feature a two-tiered fee structure as well as a deal-by-deal distributions format that can accelerate the firm’s receipt of its share in investment profits, according to Richard Pugmire, principal for alternatives at investment adviser Mercer, which works for the New Mexico State Investment Council.

The fund’s annual clawback feature will let limited partners recoup their capital periodically in case of poor fund performance, Pugmire said during a public meeting of the council Tuesday. The council oversees investing from the state’s $28.54bn sovereign wealth fund.

Under the fund’s Class A fee tier, Bain Capital would charge a higher management fee while taking a lower percentage of the profits from investments, or carried interest. The Class B tier offers a lower management fee but charges a higher carried interest rate, Pugmire said. The council preferred the Class A tier in making a $50m commitment to the new fund, he said.

In addition, Bain Capital’s new fund comes with a deal-by-deal distribution structure, which means the firm collects its share of any profits on each deal as the fund’s general partner instead of on the basis of the whole fund’s investments. According to Pugmire, the new fund’s structure is common among fund managers with strong track records and helps firms attract high quality investment team members who look forward to the opportunity to accelerate the collection of their portion of the carried interest.

According to Pugmire, the Institutional Limited Partners Association recommends the use of the whole fund distribution schedule, which returns all realised capital to investors before fund managers collect their carried interest.

However, Pugmire said the annual clawback “is actually something that this fund has that helped us get comfortable with it”.

The fee structure allows for “less volatility in the relationship with our investment limited partners and also allows for less volatility in the compensation of our employees”, Ryan Cotton, a Bain Capital managing director and the firm’s global head of consumer and retail investing, said during the virtual meeting.

“We’re trying to lower volatility…obviously, neither your friend nor ours,” Cotton said.

Bain works to achieve an absolute return of at least 20%. The firm earns its share of profits only after the fund generates returns over its 7% hurdle rate, according to Mr. Cotton. The lower-than-customary hurdle rate is meant to reflect the low level of overall interest rates, he said.

 “I think we’ve moved into a new paradigm where money is ubiquitous and interest rates are below 1% for the long term. The preferred return [hurdle rate] coming down is meant to reflect the benchmark rate coming down,” Cotton said.

“It would be my suspicion that you’ll see that in nearly every large-cap, alternative asset manager over the next two to three years, as they’re trying to index themselves to that benchmark,” he added.

Bain Capital aims to raise $9.9bn for its 13th flagship buyout fund, including almost $900m from the firm — a commitment level that was “quite a bit larger than many of their competitors”, David Lee, the council’s director of private equity, said during the meeting.

But the firm’s final commitment to the fund could exceed that amount, a person familiar with the situation said. Bain Capital contributed about $1.4bn to its previous flagship vehicle, which collected about $8bn before being closed to new investors in 2017.

The new fund expects to make 15 to 20 large buyouts with investments of $200m  to $1bn.

Write to Preeti Singh at preeti.singh@wsj.com

From The Wall Street Journal

Source: https://www.penews.com/articles/bain-capitals-new-fund-terms-offer-fee-flexibility-and-clawbacks-20200827

Private Equity

FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company, while stc pay is a fully owned subsidiary of Saudi Arabia’s stc Group.

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FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

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stc pay becomes the first Saudi unicorn and first fintech unicorn in the Middle East.

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company. stc pay is a 100% subsidiary of Saudi Arabia’s stc Group. (Arab News)

Western Union will initially pay $133.3 million to acquire a 10% stake in the Saudi fintech. It will acquire another 5% for $66.67 million if stc pay obtains a digital banking license.

stc pay

stc pay is the first fintech company in the Kingdom to receive a license from the Saudi Arabian Monetary Authority (SAMA).

It is also the largest digital wallet in the MENA region with more than 4.5 million users.

It has been established in accordance with the objectives of Saudi VISION 2030. Those are to support the growth of the national economy, to enhance financial inclusion, and reduce dependence on cash.

First unicorn in Saudi Arabia and first fintech unicorn in the Middle East

HRH Prince Mohammed bin Khalid Abdullah Al Faisal Chairman of stc Group, said the decision by Western Union to make such a significant Foreign Direct Investment in its fintech subsidiary was highly encouraging.

“For us at stc Group it reflects our position as a digital enabler and an ICT regional champion as we celebrate the creation of the first Saudi unicorn and the first fintech unicorn in the Middle East,” he added.

“stc pay has rapidly developed a leading regional digital payments service over the past two years and has been a highly successful digital partnership for Western Union,” said Hikmet Ersek, CEO and President, Western Union. “Looking forward, we believe stc pay is well-positioned for continued expansion in digital payments.”

Use of funds

stc pay will use funds to boost its capital resources and to fund its plans for long-term expansion.

The Saudi fintech also intends to launch more products for its customers.

In July this year, stc pay and Visa (NYSE: V), the world’s leader in digital payments, entered into a strategic partnership. They would launch customer-centric financial services and digital payment solutions to stc pay customers.

Related Story: Saudi Fintech Geidea Launches Beta Testing of End-to-End Solutions for SMEs

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Source: https://dailyalts.com/western-union-acquires-15-of-saudi-fintech-stc-pay/

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European insurers gear up to do deals

A tough period during the pandemic is prompting restructuring and sales, including a number of private equity-backed transactions

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European insurers have weathered the crucible of the coronavirus pandemic and are ready to do some deals.

Last week a Canadian and Danish insurance consortium agreed to buy the UK’s RSA Insurance Group for £7.2bn. And on Friday, 20 November, Zurich Insurance Group said it is in talks to acquire MetLife’s US property and casualty insurance business.

The RSA deal, which pushed up the share prices of some insurance stocks when the proposal was announced on 5 November, portends further mergers and acquisitions, industry participants say.

That is because the pandemic forced insurers of all stripes to take a hard look at their businesses as losses from claims piled up, bringing weaknesses into sharp relief. Some are recognizing the need for scale to cement profitability, while others are pruning units where they can’t make enough money to compete. Bankers say more deals are brewing.

Another factor that could ignite a shopping spree: the regulatory environment. The European Insurance and Occupational Pensions Authority in April urged the industry to temporarily suspend dividends and share buybacks. As a result, cash has accumulated on some companies’ balance sheets, which dilutes return on equity and is feeding the need to seek combinations.

Insurers’ share prices reflect a tough year littered with losses related to Covid-19 and the continuing impact of low interest rates on their investment portfolios.

The Euro Stoxx Insurance Index is down 15% this year, lagging behind the broad Euro Stoxx 600 stock-market index, which is down 6%. Lloyd’s of London, the UK insurance and reinsurance market, said in September it expects to pay out up to £5bn, in coronavirus-related claims this year.

Some insurers reason the larger they are, the better. “The RSA deal shows the importance of having scale to drive profitability for the sector,” said Tryfonas Spyrou, an insurance analyst at Berenberg. Large insurers can operate in multiple markets, negotiate better pricing with suppliers and have access to more data, which allows better pricing of risks, he said.

Consolidation has been happening in the US as well.

Insurance giant Allstate in July agreed to acquire rival National General Holdings for about $4bn in cash, though discussions began before the crisis.

Private equity firm KKR the same month said it would buy retirement and life-insurance company Global Atlantic Financial Group for more than $4.4bn.

Italian insurer Assicurazioni Generali SpA last week said it has up to €2.5bn, to spend on “acquisitions that are fully aligned to our clear strategic priorities.” The insurer in June took a 24% stake in an Italian insurance company backed by Berkshire Hathaway that had been told by Italian regulators to boost its capital.

UK-based insurer Aviva has been trying to sell its operations in France, according to people familiar with the matter. A spokesperson declined to comment on a potential sale and pointed to previous statements by the company that it would focus on its businesses in the UK, Ireland and Canada, and that it was in the early stages of developing its strategy for its continental European business.

Dutch insurer Aegon NV in August said it would review the more than 20 countries in which it operates and concentrate on countries and business lines where it could create the most value.

Belgian insurer Ageas NV in recent months has increased its stake in its joint ventures, and recently said it has €700m to €800m in cash.

Some insurers are operating warily. Giulio Terzariol, German insurer Allianz SE’s chief financial officer, said earlier this month that if buybacks aren’t permitted in 2021, the insurer would look at deploying capital. But he said the company wouldn’t buy “suboptimal assets” for fear of regretting it for the next 10 years.

—Ben Dummett contributed to this article.

Write to Julie Steinberg at julie.steinberg@wsj.com

From The Wall Street Journal

Source: https://www.penews.com/articles/european-insurers-gear-up-to-do-deals-20201123

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Weekly Wrap, November 23rd, 2020; DPI, CDC, EBRD launch pharma platform, OMAI’s latest education deal, AIIM backs MetroFibre Networx and more…

Last week in brief…November 23rd Several of the larger investors in Africa’s private capital ecosystem […]

The post Weekly Wrap, November 23rd, 2020; DPI, CDC, EBRD launch pharma platform, OMAI’s latest education deal, AIIM backs MetroFibre Networx and more… first appeared on https://www.africacapitaldigest.com.

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Last week in brief…November 23rd

Several of the larger investors in Africa’s private capital ecosystem were involved in deals on the continent last week. The biggest, by far, was the launch of a $750 million pan-African pharmaceutical platform by Development Partners International, and two DFIs, then UK’s CDC and the EU’s European Bank for Reconstruction & Development. With a combined initial investment of $250 million, the three have acquired and merged two generic drug businesses – one in Egypt and the other in India – to form the foundation of the new pan-African platform business.

African Infrastructure Investment Managers (AIIM) has acquired a stake in MetroFibre Networx via a newly incorporated HoldCo, Digital Infrastructure Investment Holdings. The infrastructure is taking a minority stake in the fibre network operator using capital from two of the funds it currently manages, the IDEAS Managed Fund and AIIF 3. Ed Stumpf, who led the deal for AIIM, takes a seat on MetroFibre’s board.

Old Mutual Alternative Investments (OMAI) announced the first deal for its second education impact fund last week. The Education Investment Impact Fund of South Africa (or EduFund for short) is investing debt in Sifiso Learning Group, a 3-year old black-owned independent school operator. The financing will be used in the development of a new school in the Johannesburg suburb of Roodepoort.

African Capital Alliance (ACA) is backing a business focused on building a fintech platform across the continent. The Lagos-based private equity firm is investing $20 million in Accelerex for an undisclosed stake. The asset will be part of Capital Alliance Private Equity IV’s portfolio.

Having backed the platform earlier this year, ARCH Emerging Markets Partners is investing in CrossBoundary Energy again, and, this time, facilitating the exit of several of the unit’s first fund investors at an IRR of 15%. The capital will be used to push CrossBoundary’s ongoing development of distributed commercial and industrial projects across the continent.

The IFC is considering an equity investment in Adumo, an Apis Partners and Crossfin Technology Holdings-backed payments platform which came into being last year following the acquisition of Sureswipe. If the proposed investment gets approved, the platform will have $15 million to support its plans.

The Facility for Energy Investments Off-Grid Energy Fund is investing additional debt into Bboxx, a well-known off-grid solar business on the continent. The Lion’s Head Global Partners-managed fund is providing Bboxx with $4 million in financing which will be used to finance the firm’s operations and expansion in the Democratic Republic of Congo. The fund last backed the firm in May last year.

Etop Ikpe, a founder of Cars45, has raised a seed round for his new venture. The round was led by TLcom Capital, who’d backed his former startup. Between them, the investor group is investing $3.4 million into Autochek, Ikpe’s new venture, which will be used to hire more people, develop the firm’s technology and expand in its home markets of Nigeria and Ghana.

In other venture news, Novastar Ventures has led a seed round for an insurtech startup with operations in Kenya and Uganda. The Nairobi-based investor together with Mercy Corps Ventures, Musha Ventures, GAN Ventures, and Zephyr Acorn is investing $2 million in the startup, Turaco, which will use the capital to expand its workforce, invest further in its technology and scale its operations.

That’s it for this week. As always, you can review these and other stories by clicking through to this week’s preview edition of the newsletter.

Source: https://www.africacapitaldigest.com/weekly-wrap-november-23rd-2020-dpi-cdc-ebrd-launch-pharma-platform-omais-latest-education-deal-aiim-backs-metrofibre-networx-and-more/

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