DIGEST 125

January 24, 2014

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FinTech: Disrupting Financial Services with Technology Tiger21 Says Smart Money Favors Private Equity

This Week’s $1.3 Billion Sweetspot Pension Funds Lagging Family Offices in Pri-vate Equity Invesment

Larger Players Benefit from PE Recovery Quote of the Week: Talent Management – Funny is good

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FINTECH: DISRUPTING FINANCIAL SER-VICES WITH TECHNOLOGY

Financial technology deal flow is growing at a steady pace and the banks are taking note, re-ports unquote this week. There was about USD 11bn invested in financial technology businesses globally last year, of which the US accounted for 61% and the UK 30%. The hotspot globally is the UK, which although it only accounts for half of the amount of venture capital raised last year in the US, is pro-rata (per population) the UK is two times ahead of the US, with most of that activity taking place in London. The types of companies attracting VC money in Europe include payments software, behavioral analytics and security and fraud prevention technology. Mentioned in the

TIGER21 SAYS SMART MONEY FAVORS PRIVATE EQUITY

report are European high flyers such as Wonga (personal loans), which raised around USD 145m and payment solutions provider Klarna, which raised USD 150m, money transfer startup TransferWise, and Tradeshift, an e-invoicing which signed a USD 3bn working capital deal with CapitalAid. The top 7 most innovate companies at Finovate 2012 (US conference for financial tech) are highlighted in the data-driven infographic above. (Image source: Quid)

In an effort to follow the smart money and its relationship to private equity, we viewed an interview with Tiger21 founder on CNBC this week. Private equity was a popular investment choice last year for Tiger 21’s high net worth (HNW) members to the tune of about 21% of assets under management, ac-cording to Michael Sonnenfeldt. Tiger21 is an investment club of sorts whose members, many of

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Two deals are tied for this week’s private equity buyout of the week spotlight. They are both USD 1.3 billion transactions, making that a sweetspot for buyouts. All the big names in PE are in the running to acquire a Tyco security division based in South Korea, called Caps Co. It is a regular auction with Kohlberg Kravis Roberts & Co., Bain Capital, IMM PE and Carlyle Group LP bidding, according to Re-uters which cited anonymous sources. The other deal is a similarly sized PE buyout of the US-based pizza chain, Chuck E Cheese by Apollo group, which aims to take the company private, according to various sources. The chain is present in ten countries and 47 states in the US, and the deal has thrown the limelight on it dynamic founder (the founder of Atari, a serial entrepreneur, and the man that gave Steve Jobs his first job), according to Inc. magazine.

THIS WEEK’S $1.3 BILLION SWEETSPOT

whom are HNW entrepreneurs and seasoned business angels, pay USD 30,000 in annual membership fees to belong to what Tiger21 calls a peer to peer network.

Sonnenfeldt said that publicly traded stocks are interesting at the moment, but his wealthy clients are more interested in private equity because these “aren’t passive investments”. There is an “opportunity to roll up our shirt sleeves and get involved”, and it is “where people can use their skills”, he said. (Im-age source: CNBC )

PENSION FUNDS LAGGING FAMILY OFFIC-ES IN PRIVATE EQUITY INVESMENT

Pension funds are lagging more sophisticated asset managers when it comes to allocation to private equity, according to new research by the London Business School’s Coller Institute and Adveq, (based on 1,208 US and UK pension funds’ annual reports). The study claims to be the “first empirical, academic analysis of pen-sion funds’ private equity allocations”. Alloca-tions to the asset class have grown significantly, but they are still lagging behind other more experienced or well-staffed investor categories, says the study. From 2005 to 2012 public pension funds’ allocations to private equity have in-creased, on average, from 4.5% to 5.64%. Alloca-

tions from private pension funds have increased, on average, from 4.99% to 5.33% but their activity has not been as great as more sophisticated or experienced investor groups, such as family offices and sovereign wealth funds, which have actually doubled their percentage capital allocations to private equity between 2007 and 2012. (Image Source: Coller Institute/Adveq)

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LARGER PLAYERS BENEFIT FROM PE RECOVERY The news of Apollo’s recent closing of a giant USD 18 billion PE fund generated a lot of media cover-age this past month. The announcement prompted PE industry information provider, Preqin, to take a closer look at the private equity buyout fundraising market. It is clear from the data that fewer funds raised money last year but this group as a whole raised much larger funds. The trend suggests that larger players are benefitting the most from the recovery in PE market, at least for now. These kinds of statistics are typically an indication of a flight to quality, or at least a flight to brand name fund managers. The stats also show that 2013 was the best year since the financial crisis hit in 2008.

Forbes reporters speculate that the new money is bound likely to “heat up” the buyout market with fund managers awash in new cash. (Image source: Preqin)

QUOTE OF THE WEEK - TALENT MANAGE-MENT: FUNNY IS GOOD“Most of these folks are non-conformists. Sometimes when you hire people who have to pass a Mr. Congeniality test, you end up losing some of the non-conform-ists who will give you different views and perspectives… Fact: Funny people tend to be more creative than unfunny people.”

Who said it: Nolan Bushnell, serial entrepreneur, writer, Silicon Valley legend

In Context: Nolan Bushnell describes how to attract the kind of talent that en-able companies to grow, remain agile, and adapt in today’s fiercely competitive business environment. He writes, “When looking for employees, ignore credentials. Hire the obnoxious (in limited numbers). Demand a list of favorite books. Ask unanswerable questions. Comb through tweets. Just because you’ve hired creatives doesn’t mean you’ll keep them. Once you have them, isolate them. Celebrate their failures. Encourage ADHD. Ply them with toys. Encourage them to make decisions by throwing dice. Invent haphazard holidays. Let them sleep.” Bushnell has been inducted into the Video Game Hall of Fame and the Consumer Electronics Association Hall of Fame, received the BAFTA Fellowship, and was named one of Newsweek’s “50 Men Who Changed America.” He’s a frequent subject of media cov-erage and was prominently featured in Walter Isaacson’s bestselling book, Steve Jobs. (Image source: BAFTA)

Where we found it: Amazon.com Book Excerpt

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The Dealmarket Digest empowers members of Dealmarket by providing up-to-date and high-quality content. Each week our in-house editor sifts through scores of industry and academic sources to find the most notewor-thy news items, scoping trends and currents events in the global private eq-uity sector. The links to the sources are provided, as well as an editorialized abstract that discusses the significance of the articles selected. It is a free service that embodies the values of the Dealmarket platform delivers:  Pro-fessional, Accessible, Transparent, Simple, Efficient, Effective, and Global. To receive the weekly digest by email register on www.dealmarket.com.Editor: Valerie Thompson, Zurich

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