It has never been a better time to be in alternative assets. In 2019 so far, the growth in private capital markets continues to outpace fixed income and public markets worldwide; it is an exciting and inspiring space to be in. Preqin tracks the key news stories of the week that got us reading, thinking and talking. Please note, some of these sites may require a subscription to view the article.
Why macro hedge funds keep praying for a return of volatility
Global macro hedge funds built a reputation from swashbuckling bets such as George Soros’ $1bn profit wagering against the pound in 1992, or successful punts on US bond yields tumbling during the Global Financial Crisis. But, in the past decade, reality has been far more grim. An index of mostly macro funds run by data group HFR, for instance, has lost money in two of the past six years, and in the remaining four its biggest gain has been just 5.2%. Funds such as Moore Capital, Graham Capital and H2O are among those that have suffered losses in recent years. Losses have largely been attributed to quantitative easing, but is QE the sole culprit?
Take a look at Preqin’s latest hedge fund performance figures for breakdowns by strategy, region, size and more.
How dry powder could blow up private credit and private equity
With alternative assets firms sitting on $1tn in dry powder, the surplus of capital available to private equity deals and private credit loans are posing serious risks to investors, JP Morgan Asset Management says. At the end of 2018, alternative asset managers had $800bn in private equity dry powder and another $200bn in private credit funds that have been raised but not invested. With so much capital waiting to be deployed and investors eager for deals, borrowers get the upper hand and lenders may not deploy the safeguards they would in a tighter market.
Source: Institutional Investor
Our recent Private Capital Dry Powder Reaches $2tn blog provides further insight on dry powder levels across all alternative asset classes.
China is mulling tougher rules on private equity, hedge funds
China has gotten tougher on its Yuan 12.7tn ($1.9tn) private fund industry, putting in place stricter rules and tightening scrutiny as the government reins in financial risks, according to people familiar with the matter. The proposed new Asset Management Association of China rules would require hedge funds and venture capital funds to raise at least 10mn Yuan before registering a product, ending the popular practice of starting with smaller amounts, the people said, declining to be identified because the draft hasn’t been publicized. Private equity and asset allocation funds would have to raise higher amounts under the plan.
Private equity and the new science of growth
More private equity investors are facing the “winner's curse” as they are forced to bid acquisition prices up to unprofitable levels as a growing number of competitors with capital overhang chase a limited number of quality deals. The “winner's curse” is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item because of incomplete information, emotions, competition or pressure from LPs to put money to work or any other number of factors. How are investors using marketing, branding and growth platforms to improve returns and overcome this curse?
Source: Forbes Insights
Preqin’s recently released 2019 Global Private Equity & Venture Capital Report contains detailed results of surveys with both fund managers and investors to understand the impact high asset valuations may have on future returns.
The $770bn private debt market is ready for consolidation
Some of the world’s largest investment firms are preparing for a shakeout in the $770bn market for private debt, making it a prime target for takeovers. Private equity managers, many of whom had piled into lending when banks cut back risks after the 2008 financial crisis, say the market has become so competitive that it will be increasingly difficult for smaller firms to raise money.
Take a look at the Preqin 2019 Global Private Debt Report for more information on competition within the market based on detailed surveys with fund managers and investors.
Private debt a key component of Africa’s growth matrix
For the past 20 years the combined efforts of African governments, development agencies and the private sector have sought to deepen capital markets via the establishment of stock exchanges to facilitate access to alternative sources of capital to bank lending. Initially, these initiatives were supported by privatization programmes and regulatory incentives such as tax breaks, which led to formerly state-owned businesses and multinationals securing local listings. However, the growth and development of these markets has stalled in recent years.
Source: Business Day
Real estate funds suffer pre-Brexit surge outflows
The UK real estate fund industry might be in trouble. Investors are pulling money out of UK real estate funds even faster than in the aftermath of the 2016 Brexit referendum, according to global funds transaction network Calastone. Calastone’s latest Fund Flow Index (FFI) shows the net outflow of capital from property funds is now equal to that in 2016-2017, when acute liquidity shortages meant many funds suspended redemptions (i.e. selling by investors) altogether for a time. Yet, the outflow is now taking place much more quickly than then.
Source: Property Funds World
Venture capital has a gender problem. Here’s what needs to change to help fix it
For many women in venture capital, there’s no question the industry has a gender disparity problem. Venture capital partnerships “have historically been built by men,” investor Ophelia Brown tells CNBC. That trend of male-dominated funds hasn’t budged much. Female partners are still a minority, at 9%, and most of the venture capital dollars are going into male-founded start-ups. Brown says limited partners need to take more risks and back new female-focused funds.
For more information on female representation across other alternative asset classes, take a look at our more recent research.
US alternative asset platform Alto secures $2.8mn through seed funding round
Alto, a technology platform for investors to add alternative assets to IRAs has secured $2.8mn through its seed round in order to expand its offering and integrate additional investment platform partners. Alto enables users to establish a self-directed IRA and to invest their savings in real-world assets like private companies, real estate, and even the building or restaurant. The company noted that it has taken the “headaches, paper cuts, and general frustration” out of alternative investing so you can focus entirely on the excitement of fuelling the people, projects, and passions you know and trust. The round’s investors include Jake Gibson, co-founder of NerdWallet, Foundation Capital, Sequoia’s Scout Fund, Amplify.LA, and First Check and Green D Funds.
Source: Crowdfund Insider
Large ticket deals drive rise in private equity investments in India this year
For India-based start-ups, 2019 has been a great start to the year, with increased funding. In February alone, private equity and venture capital investments grew 14% with investments worth $1.96bn happening in India. The month of January had seen a total of $1.71bn investment for start-ups and businesses alike. The funding in February grew by 40% when compared to investments in February 2018. With India’s rising number of unicorns and relaxed norms for angel tax, the country is set to see funding deals across stages.
Source: Business Insider India
Read more about the private equity & venture capital industry in India in Preqin’s recently released report.