Displaying items by tag: alternatives

The combination of tighter money and falling valuations have led private equity sales of portfolio companies to their lowest levels since 2009. Now with some signs of thawing in markets, private equity firms are looking to exit positions and return money to investors.

It’s led to a negative cycle for the industry. The lack of exits has adversely impacted investors’ willingness to pledge money for new funds which has hampered the industry’s ability to make deals. 

According to Per Franzen, the head of private capital for Europe and North America at EQT AB, “Private equity players have to face reality at some point. They need to invest remaining capital and go back to the market to raise new funds, which means a need to drive exits and improve distributions.” Reportedly, some big deals are on the horizon such as Hellman & Friedman looking to sell its energy data platform, Enervus, KKR exiting car park operator, Q-Park, and Carlyle finding a buyer for luxury watch parts manufacturer, Acrotec Group

Another consideration is upcoming elections which could complicate efforts to exit positions. This increases the urgency to make moves in the first half of the year. There are also expectations that private equity could be looking to take advantage of any dislocations or discounts as the industry has $1.4 trillion in cash on the sidelines. 

Finsum: Private equity firms are looking to exit positions in the coming months in order to return cash to investors. 

Aeon conducted a survey of pension funds, insurance asset managers, family offices, and wealth managers. Among the findings was that a majority plan to increase their allocation to active fixed income funds over the next 2 years. Currently, about 17% of respondents have less than 10% of their portfolios in active fixed income strategies, while 20% have between 50 and 75% of their portfolio in active fixed income. Overall, respondents are willing to trade liquidity for greater returns and diversification. 

The survey also indicates that 13% of respondents plan to ‘dramatically’ increase exposure, while 81% plan to do so ‘slightly’. In terms of return expectations, 55% are looking for between 3 and 5%, while 36% are looking for between 5 and 7%. 

In terms of alternatives, there was nearly unanimous consensus that the asset class would continue to grow as 74% see a slight increase over the next 2 years, while 16% see a dramatic increase. 

Another area of agreement is that these allocators are looking for fund managers with a ‘broad mandate’ to invest in several credit markets. The respondents also shared the view that they would be increasing allocation to private credit with 24% looking to ‘dramatically’ increase, and 67% seeing a slight increase. 

Finsum: Aeon conducted a survey of institutional investors. Among the findings was a consensus agreement that allocations to active fixed income strategies would materially increase over the next 2 years. 

Natixis Investment Managers and CoreData Research conducted a survey of 11,000 investors. One of the most interesting results was that those who were invested in model portfolios were less stressed, had more confidence, and trust in their advisors relative to individuals not invested in a model portfolio. 

11% of model portfolio clients felt stress while 23% of non-model portfolio investors were stressed. Similarly, 45% of model portfolio investors felt confident about their finances, compared to 24% of non-model investors. Further, 78% of model portfolio investors saw volatility as an opportunity. In contrast, only 47% of non-model portfolio clients felt the same way. 

Only about half of the respondents were invested in a model portfolio despite the benefits. Currently, about 51% of wealth managers and RIAs offer third-party model portfolios. However, it does present an opportunity for advisors as it frees up more time for financial planning, client service, and prospecting. 

Ronnie Colvin, the founder of Fractional Planner, said “Model portfolios make life easier for the advisor because the allocation percentages and the investments in the portfolio are predetermined. So the advisor doesn’t have to go and scour the market for various investments to fill a target allocation.” He added that model portfolios can help with managing risk while also leading to a more customized experience given that there are model portfolios optimized for tax efficiency, sustainability, income, and alternatives.

Finsum: Model portfolios offer certain advantages for clients and advisors according to a survey of investors. These include increased levels of confidence, less stress, and more trust in their advisors. 

2023 has been a year defined by twists and turns that has defied the expectations of most market participants. Amid the tumult, alternative assets have been a source of resilience especially as the industry continues to evolve. According to Prequin’s Head of Private Equity Research Insights Cameron Joyce, the best opportunities are in private debt and secondaries.

In terms of various categories within the asset class, rising interest rates have been a major headwind for private equity. This has limited deal activity and exits, however there are indications that the climate could be improving as we head into 2024, while long-term investor demand remains strong. 

Similar to private equity, venture capital has also been hamstrung by tighter monetary policy in terms of exits and valuations. Real estate has also been negatively impacted by rising rates, resulting in a weaker fundraising environment and muted deal activity. It’s also become more challenging for mid-sized and smaller funds given that many investors are gravitating towards larger funds.

Private debt has been relatively strong due to its seniority in the capital stack and floating-rate structure. This has been increasingly important for companies given that banks have raised lending standards. For investors, private debt has been effective in terms of dampening volatility while delivering above-average returns. 

Finsum: Alternative assets performed quite well in 2023 amid a turbulent year for financial markets. Here’s a roundup of some of the key categories within the asset class.

Alternative investments have captured the attention of institutional investors for decades, with private equity making up the lion's share of the alts category. Today, however, private credit is making waves and grabbing its piece of the investment pie.

As recently noted by Institutional Investor, "private credit has arguably become the most powerful transformational force in the financial world since the 2008 economic crisis." This rise to prominence can be attributed to a confluence of factors. Traditional lenders, reeling from the recent banking crisis, have become more risk-averse, leaving a gap in credit availability. Stepping into this void are alternative investment managers, offering much-needed capital to businesses.

With some investment managers now packaging their private credit holdings into vehicles accessible through financial advisors, an entirely new world of opportunity has opened to individual investors, allowing them to diversify their portfolios with this exciting asset class.

Private credit presents a compelling option for advisors seeking to enhance portfolio diversification and reduce correlation. While the credit crunch of early 2023 has eased, private credit firms remain active, diligently finding new markets to deploy their capital. If this trend continues, it ensures a steady supply of investment opportunities for both institutional and individual investors.

Finsum: Learn how the surge in private credit is creating portfolio diversification options for both institutional and individual investors.