The Boring Twenties?

How many times in the last three months have you heard someone say, ‘it’s going to be the Roaring Twenties’?

Dozens?

Scores?

Hundreds?

I’ve lost count.

In all my life, I can’t remember a more ubiquitous sentiment.

Perhaps this is one of those phenomena that humanity wills into existence, but I keep wondering: where were you people living during the last decade? Under a rock?

Like, what if the Roaring decade already happened? And you missed it?!

I’m no historian, but I enjoy reading histories. And I’m no expert, but I’m as capable as Ian Bremmer at spouting spurious nonsense.

Consider a few parallels:

  • Mass communication — the Roaring Twenties had the radio and movies; but the 2010s saw communications technology supercharged at a level people in the 1920s could never imagine. I mean, global mobile and smartphone adoption, Twitter, YouTube, the societal parasite that is Facebook, WhatsApp, TikTok, etc. etc. etc. 
     
  • Consumerism — the 2010s were the era of the “emerging consumer.” According to World Bank data, global household expenditures grew by $10.7 trillion (in real terms) between 2010-2019, with China accounting for 25% of that. Choose most any country of sufficient scale, and you will find an e-commerce platform, on-demand media / delivery, etc.
     
  • Corruption and fraud — “We are in the golden age of fraud.” Corruption and fraud are omnipresent, at a scale humanity has never seen.
     
  • Sexual revolution — I wasn’t around in the 1920s, but I have watched Babylon Berlin, and it’s inconceivable that anything back then could compare to the meat market that is Tinder. 
     
  • Stock market — went totally gangbusters!

Don’t get me wrong — I think there will be an explosion of hedonism and euphoria on the back end of the pandemic.

I, myself, daydream of escaping to Beirut to see a Tala Mortada gig … 
dancing / sweating / in a smoke-filled club / with bass so hard / it hurts.

Or trekking to Central Asia and touring the Silk Road to get as far away as possible from my sons (whom I love more than anything … it’s just been way too long without a breather).

But … most of us know what lies in wait in those deserts.

And I’m not referring to the diarrhea.

I mean the nostalgia for home.

think the surprise is that people will crave genuine connection and intimacy after a decade in the Matrix.

Alas, instead of the Roaring Twenties, I wonder if we’re more likely to see the Boring Twenties.

Less flash. Less sizzle. Deeper, more meaningful relationships, work, and — dare I say — innovation.

And I must confess: given the economic, environmental, (geo)political, and social risks brewing and bubbling beneath the surface of our Botoxed world, a bit of boredom would be positively delightful.

On verra bien.

— Mike


Why Tiger Is Going to Eat VC

Everett Randle @ Founders Fund wrote a thought-provoking essay on Tiger Global and its two structural innovations — maximizing deployment velocity & better / faster / cheaper capital for founders — that are upending growth-stage (ICT) VC investing. (“Playing different games”)


Great Wall of Capital: Part Deux

A few years ago I observed that seven Asia-focused buyout funds were in the market for $34B — a figure that was “on par with the aggregate hauls for EM PE funds in each of the last two years.”

Well.

Fast forward to today, and KKR has announced the close of its $15B Asian Fund IV. 

If the CalPERS & CalSTRS disclosures are anything to go by, the markups on Fund III appear quite good relative to those for Fund II, so the demand makes sense.

But.

If KKR keeps compounding its fund size at 9.9% each year, then they’ll be raising a $38B fund in a decade.

And that honestly doesn’t seem crazy anymore.

Either way, I don’t want to be writing about it.


Jamie Dimon & Fintech

Motive Partners highlighted the following passage from Jamie Dimon’s annual letter

Banks fiercely compete with each other and now face fierce competition from multiple vectors.

Banks already compete against a large and powerful shadow banking system. And they are facing extensive competition from Silicon Valley, both in the form of fintechs and Big Tech companies (Amazon, Apple, Facebook, Google and now Walmart), that is here to stay. As the importance of cloud, AI and digital platforms grows, this competition will become even more formidable. As a result, banks are playing an increasingly smaller role in the financial system.

Financial services are going to be integrated into everything. Legacy banks face daunting challenges.


The Saving Glut of the Rich

Fascinating paper.


From the Bookshelf

There are two forces: fate and human effort …
Two, since actions succeed neither by fate,
Nor sheer exertion alone, but through their bond.



Activated, human effort succeeds through fate,
And then that action’s fruit falls to the actor.
But even the effort of industrious men,
Working together, is fruitless in the
World devoid of fate.
Because of this, idle and unperceptive men
Despise exertion — the wise know better.
For generally action bears some productive fruit,
While to abstain altogether produces
Nothing but the heavy fruit of suffering.

Two kinds of men are seldom found — those who achieve
Their ends fortuitously, without exertion,
And those who, having acted, still do not succeed.
The industrious man, rejecting idleness,
Is fit to live; it is he, and not the idler,
Who increases happiness — it is he
Who desires the welfare of his fellow beings.
If the industrious man, through taking action,
Does not succeed, he should not be blamed for that —
He still perceives the truth.  

— The Sauptikaparvan of the Mahābhārata (Oxford World’s Classics: 1998)

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The information presented in this newsletter is for informational purposes only. Portico Advisers does not undertake to update this material and the opinions and conclusions contained herein may change without notice. Portico Advisers does not make any warranty that the information in this newsletter is error-free, omission-free, complete, accurate, or reliable. Nothing contained in this newsletter should be construed as legal, tax, securities, or investment advice.

Copyright © by Portico Advisers, LLC 2021, all rights reserved.

Is EM PE Dead?

When Portico launched four years ago, I asked “Is Emerging Markets Private Equity Dying?

There’s no need to ask the question anymore.

It’s dead.

You don’t have to take my word for it — the DFIs are telling us so.

For instance, Clarisa De Franco, Managing Director for Africa Funds, Funds and Capital Partnerships with CDC Group, recently told PEI:

I also think we will see fewer new funds emerge as fundraising becomes challenging and consolidation plays out. Our strategy now is two-fold: continue our engagement and innovation with teams that are addressing specific market inefficiencies (including first-time teams) and to back strong-performing existing GPs, with fewer new managers than previously because we believe that will help create a stronger industry that can focus on both financial and developmental outcomes.

Or, look at IFC’s recent report on EM PE funds in the era of Covid-19:

Fundraising in EMs is expected to become more challenging in the next two to three years, especially for funds targeting small and midsize companies. These funds will struggle to survive, while larger and more established funds will be less impacted but still need DFI support. The composition of the Limited Partner (LP) base in EMs will shift, with international institutional investors being constrained in their asset allocations to EMs. The life cycle of funds will see a lengthening in light of longer fundraising cycles and longer investee holding periods due to challenges in achieving exits.

(Also, Actis is eschewing the traditional PE model in favor of hard assets.)

Will there be traditional PE fund managers that raise capital in EM?

Of course.

But a vibrant, growing industry?

Forget about it.

There are capacity constraints, and there are different structures for investing in EM private companies.

Work on a Portico Pivot™️ is underway. 

* * *

 I recently recorded a podcast episode about private equity in Russia. I hope we get to release it.

During the conversation, the guest and I got to talking about the transition from the Soviet Union to what came after, and how generations experienced the shift differently. For instance, people aged 40+ often had difficulty adjusting to new conditions, while younger people benefited from a lack of habits and legacy thinking that communism had engrained in the older generations.

The discussion reminded me of a passage from Sebastian Haffner’s Defying Hitler. Recalling events in Germany in 1923, Haffner wrote:

The old and unworldly had the worst of it. Many were driven to begging, many to suicide. The young and quick-witted did well. Overnight they became free, rich, and independent. It was a situation in which mental inertia and reliance on past experience were punished by starvation and death, but rapid appraisal of new situations and speed of reaction were rewarded with sudden, vast riches.

Speaking of Weimar, the feeling that the United States is on the cusp of a crucible is palpable.

It’s banal to say that Covid-19 has been an accelerant for long-standing trends, but in the last couple of months it feels as if the fissures have broken open.

Perhaps it’s the paranoia of a c. 40-year-old American who fears getting caught flat-footed, but the international system that has defined my existence is gone, and it’s not going to be reclaimed.

The urgency to adapt is acute.

 * * *

If you are a U.S. citizen, please vote in this year’s election.

Election Day is Tuesday, November 3rd.

The website www.vote.org is helpful for finding out which voting options are available in your locality (e.g., early in-person, absentee by mail), and locating your polling place. 

Vote!

Alla prossima,
Mike


Asia

Two recent pieces on private equity in Asia caught my eye. 

1.McKinsey & Company interview with Baring Private Equity Asia Founding Partner Jean Eric Salata.

Insightful take on the deepening of the Asian market — not only in terms of the strategies and sectors that attract investment, but also in terms of the evolution of human capital and the professionalization of asset management firms. Particularly thoughtful on the necessity of infusing digital capabilities throughout one’s operations and the investment cycle.

2. BCG report on The Promise for Private Equity in Asia-Pacific

There’s not much new in it, candidly, but it rightly points out the heterogeneity of investors in private markets, and it has a useful data nugget: “As of 2018, China, India, South Korea, and Thailand all ranked in the top 10 countries globally for number of family-owned businesses with market capitalization of over $250 million.”

While Portico has been cautious on investor exuberance toward mega-cap Asia and China-dedicated funds — and we watch the dogpile into Jio / Reliance Retail quizzically — the region is core.

On this point, Benedict Evans put out a thought-provoking essay on “The End of the American Internet.” Upwards of 90% of internet users are outside of the United States; China and India have 5x as many smartphones as the USA; and, the “RoW” (largely China) accounts for nearly half of global venture investment.


Someplace Else

The placement agent Eaton Partners conducted an LP Pulse Survey in September. They asked LPs which region is home to the best private market opportunities. 

The verdict: 

  • North America — 68%
  • Europe — 18%
  • Asia — 14%
  • “Someplace else” — 0%

Josh Lerner on U.S. Venture

One of the assertions I put forward last year is that the institutionalization of U.S. venture capital is leading to less innovation.

Josh Lerner and Ramana Nanda published a paper over the summer that argues a similar point. In short:

Three issues are particularly concerning to us: 1) the very narrow band of technological innovations that fit the requirements of institutional venture capital investors; 2) the relatively small number of venture capital investors who hold and shape the direction of a substantial fraction of capital that is deployed into financing radical technological change; and 3) the relaxation in recent years of the intense emphasis on corporate governance by venture capital firms.


Stash

Sometimes it’s fun to contemplate the embedded assumptions amongst the venture community.
 
For instance, Anish Acharya at Andreessen Horowitz wrote a blurb about Stash, a fintech startup that enables people to earn fractional shares as a reward when they use the Stash debit card at a merchant (i.e., you get a slice of Starbucks stock when you purchase a pumpkin spice latte or whatever).
 
Acharya believes bringing the ‘intelligent default’ to the 401(k) — making it opt-out as opposed to opt-in — is “one of the biggest forces for financial progress.”
 
Oodles of assumptions about financialization, ‘nudge’ psychology, etc.
 
Anyway, Stash is positioned as a way to help regular people build wealth … by spending their money. (There’s a monthly fee of $1 to $9, btw).
 
At first glance, this seems like a good idea. Rather than points or cash back, why not acquire a fraction of a share of stock?
 
But if you think about it for a minute longer, you’ll realize that it ‘nudges’ consumer spending toward large, publicly listed companies, leaving smaller, privately held businesses in a lurch.


From the Bookshelf

The boy thought he smelled wet ash on the wind. He went up the road and come dragging back a piece of plywood from the roadside trash and he drove sticks into the ground with a rock and made of the plywood a rickety leanto but in the end it didnt rain. He left the flarepistol and took the revolver with him and he scoured the countryside for anything to eat but he came back emptyhanded. The man took his hand, wheezing. You need to go on, he said. I cant go with you. You need to keep going. You dont know what might be down the road. We were always lucky. You’ll be lucky again. You’ll see. Just go. It’s all right.

I cant.

It’s all right. This has been a long time coming. Now it’s here. Keep going south. Do everything the way we did it.

You’re going to be okay, Papa. You have to.

No I’m not. Keep the gun with you at all times. You need to find the good guys but you cant take any chances. No chances. Do you hear?

I want to be with you.

You cant.

Please.

You cant. You have to carry the fire.

I dont know how to.

Yes you do.

Is it real? The fire?

Yes it is.

Where is it? I dont know where it is.

Yes you do. It’s inside you. It was always there. I can see it.

Just take me with you. Please.

I cant.

Please, Papa.

I cant. I cant hold my son dead in my arms. I thought I could but I cant.

You said you wouldnt ever leave me.

I know. I’m sorry. You have my whole heart. You always did. You’re the best guy. You always were. If I’m not here you can still talk to me. You can talk to me and I’ll talk to you. You’ll see.


Will I hear you?

Yes. You will. You have to make it like talk that you imagine. And you’ll hear me. You have to practice. Just don’t give up. Okay?

— Cormac McCarthy, The Road (Vintage: 2006)


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The information presented in this newsletter is for informational purposes only. Portico Advisers does not undertake to update this material and the opinions and conclusions contained herein may change without notice. Portico Advisers does not make any warranty that the information in this newsletter is error-free, omission-free, complete, accurate, or reliable. Nothing contained in this newsletter should be construed as legal, tax, securities, or investment advice.

Copyright © by Portico Advisers, LLC 2020, all rights reserved.

Ep. 1: Early-stage VC in Africa



I’m delighted to kick off the podcast with Aniko Szigetvari and Ik Kanu.

Aniko and Ik are the founding partners of Atlantica Ventures, an early-stage venture capital firm focused on six of the largest markets in Sub-Saharan Africa.


Aniko has over 20 years of experience investing in emerging markets, of which over 17 have been focused on the technology, media and telecom vertical.

Aniko has been investing in Africa for the past 15 years and she has built up a wide range of contacts across the continent and other emerging markets. Prior to starting Atlantica Ventures (‘AV’) Aniko was the Global Head of the TMT group at the International Finance Corporation, where she managed a team of ~50 professionals who sat in eight regional hubs from Colombia to Singapore.


Ik has over 10 years of African private equity experience, with an additional nine years working in technology and consulting in the United States.

Prior to starting AV, Ik was a principal at Convergence Partners — an Africa-focused TMT fund — and before that he spent five years with Helios Investment Partners. At both PE funds, Ik was seconded to portfolio companies into temporary operational management positions where he troubleshot issues across different stages — from growth to turnaround. Ik is a Class 23 Kauffman Fellow, one of the world’s premier innovation, leadership, and venture capital-focused programs.


In our discussion, we talk about why Aniko and Ik decided to team up to found a venture capital firm, whether the continent is ready for institutional VC investments, how Africa compares to other emerging markets, and how Covid-19 is impacting the startup landscape in their target markets.

I hope you enjoy our conversation.

This podcast was recorded in April 2020.