NAV/M2M/Denominator effect salmagundi

Covid-19 coverage in one place; Europe Forum dates changed; More NAV considerations; Paul Hastings guidance on LP defaults; FCA filing extension (and SEC); New Jersey flexes its allocation rules; Europe’s Forum date moved; King & Spalding’s covid-19 global regulatory update tracker

I have so much to report to you, that I’m just going to drop some interesting nuggets in here in case they’re superseded by rapidly changing circumstances.

First, some housekeeping: You can see all of Private Funds CFO’s coverage on coronavirus and its impact here.

And our CFOs & COOs Forum Europe has moved dates to October 12-13, 2020. The agenda will be updated soon. There will no doubt be discussions on how the pandemic has impacted fund finances and operations and the lessons we’re learning from it, says one of the organizers.

On to the news:

Be sure to check back here later today for an article I wrote on LP defaults … In the meantime, here’s lawyers from Paul Hastings on some of the things GPs should be aware of when dealing with the denominator effect and LP defaults (particularly right of first refusal clauses and PTP issues).

My article “Crash course”, about how this is the first time the entire financial industry has had to mark to market – despite its pre-crisis implementation in the US – will be up soon, also. But suffice to say, for now it might actually represent a mixed blessing, if NAVs are written down as much as I’ve heard they will be in March (I have now heard at least two firms estimating NAV decreases in the range of 20-50 percent and 30-50 percent, respectively), there may at least be some reprieve for PE investors who are worried about the denominator effect then. On the other hand, I reported in “Mark to what?” that many firms are planning to leave their December marks as-is.

On that front: Rod James has more on December NAVs, reporting that market volatility doesn’t have to have a major impact on them (being counterbalanced by other approaches like income, or possibly because your comparables haven’t refreshed their own outlooks yet) – but that GPs may want to consider how to manage the shock their LPs are likely to get in coming quarters, as reported by sister title Private Equity International (this story to be posted on Private Funds CFO later today).

Stale comparables: In the UK, it might be even longer for you to get an up-to-date assessment of your public market comparables. Philippa Kent tells us that “the UK’s financial regulator, the Financial Conduct Authority, recently announced ‘temporary relief’ for listed companies publishing their financial statements to allow for disruption caused by covid-19.” (No link to a story here, just quoting Philippa).

Philippa continues that “the FCA appealed to other market participants to avoid drawing ‘undue negative inference’ from companies that make use of the additional two months until the filing deadline. A number of private equity firms, including Apax Partners and Oakley Capital have funds listed on the London Stock Exchange. The announcement comes less than a week after the FCA asked firms to observe a two-week moratorium on prelim publication, in order to give companies time to ‘absorb recent events’.”

Over here in the states, we told you about the extensions for Form PFs and Form ADVs, and there has been extensions for some funds’ filing requirements. King & Spalding has posted a very useful covid-19 regulatory update tracker, which you should check out.

Jersey strong: Meanwhile, in New Jersey, (where I’ve set up camp), the state’s Division of Investment fast-tracked the adoption of an allowable increase in allocation to private equity of up to 15 percent, ahead of the perceived denominator effect yet to come, according to Isobel Markham.

Email prepared by Graham Bippart