Yale's $41.4 billion endowment (as of June 30, 2024) Source: Yale.edu
May 21
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Average holding time for companies sold in 2015 is 5.5 years, Preqin reports

By Alternative Investments

Highlights from the report:

  • In 2014, the average holding period peaked at 5.9 years for companies exited.
  • Last year, 1,686 exits valued at a total of $442 billion took place, indicating that general partners were still capitalizing on suitable exit opportunities for their investments.
  • The lowest average holding period was 4.1 years for deals sold in 2008.
  • European companies sold this year had the longest average holding period, 5.7 years, compared with 5.3 years for North America companies sold in 2015.
  • Since 2006, energy and utilities companies have had the shortest average holding period, 4.3 years, while companies in the industrial sector and consumer and retail had the longest one, 5.3 years.
  • Deals of $1 billion or more underwent the biggest change in average holding periods since 2006, from a low of three years in 2008 to a high of seven years in 2014.
  • Average holding periods for deals in the $250 million-to-$999 million range increased from 3.2 years in 2006 to 6.4 years for portfolio companies fully exited in 2014, and for deals of less than $250 million, it increased from 3.5 years in 2008 to 5.8 years in 2014.

Source: Prequin

Apr 17
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EWM Monthly Commentary: Spring Seeds of Hope

By Uncategorized

After a long and difficult winter, many investors are wondering whether the Spring thaw will bring with it enough sustenance to reinvigorate the economy. First quarter data was less than upbeat, and despite a modestly positive start to April, several questions remain:

  1. Has oil reached a bottom?
  2. Does the US dollar have enough support to continue its upward trajectory?
  3. Has the Federal Reserve Bank (Fed) planted enough seeds for domestic growth?

Oil prices continue to weigh heavily on the stock market, as the price for a barrel of crude has precipitously fallen from a peak of $98 in September 2014 to $56 as of yesterday’s close. It dipped as low as $45 dollars a barrel in March but has rebounded back in recent weeks, supported by a strengthening in fundamentals and a tightening in supply.Global quantitative easing along with impending interest rates hikes have buoyed U.S. dollar strength.

The 10 year yield fell to 1.9% yesterday (4/16/15), hovering near all-time historical lows. Prior to 2011, the last time the 10 year yield was under 2% was February 23, 1951. Since that time, it has fluctuated regularly between 1.43% and 3.75%, falling below 2% on 357 of 1,073 trading days over the past four years.

As the Fed lays the groundwork for raising rates, it will have to consider when and at what pace. Although Janet Yellen did not rule out a June hike in the March meeting, the consensus handily favors September. Inflation is expected to remain low, and job growth slowed in March— driven in part by cuts in the energy sector which has historically been a key driver in non-farm job creation. Nonetheless, unemployment remains relatively stable at 5.5%, and the first quarter marked twelve consecutive months of job gains in excess of 200,000—the longest streak in nearly two decades.

So the big question is, does the recovery have legs, or will the engine stall? The signals are mixed. Following Wednesday’s disappointing industrial production numbers, estimates of real GDP growth fell to as low as 0.1% according to Atlanta Federal Reserve’s new GDPNow1 indicator; this comes in sharp contrast to GDP growth of 2.2% in Q414. Industrial production has been on the decline for the past three months, and March’s decline of 0.6% marked the largest decrease since 2012. A strong U.S. dollar is crippling exports, and weak oil prices have encumbered the operations of energy stalwarts.

On the positive side, consumer spending remains high, and housing starts are on the rise. Residential housing rebounded last month, although by less than expected.  The stock market is showing areas of opportunity, particularly in small- and mid-cap, with healthcare demonstrating solid gains.  It is worthwhile to note that at this juncture last year, Q1 2014 GDP also contracted, but the economy quickly recovered making positive strides for the rest of 2014. Although first quarter growth may similarly stall, the long term picture should remain robust, as we decelerate from an above trend environment to one of more moderate growth.

1 – The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. The GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release.

Source:  https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm

Mar 11
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Endowment Index™ Named A Finalist for Index of the Year for 2014 by ETF.com

By News

March 11, 2015 08:53 AM Eastern Daylight Time

APPLETON, Wis.–(BUSINESS WIRE)–The Endowment Index™ (symbol: ENDOW) calculated by Nasdaq OMX®, has been honored as a finalist for “Index of the Year” by ETF.com for 2014. The rules-based Endowment Index™ tracks the performance of the average university and college endowment portfolio. The Index represents the investable opportunity for managers of portfolios that utilize the Endowment Investment Philosophy® by incorporating alternative investments within their asset allocations. The Endowment Index™ was co-created by ETF Model Solutions LLC and its affiliate, Endowment Wealth Management, Inc.

ETF.com’s Index of the Year is awarded to the index that has done the most to provide new ways of considering investment strategies, opportunities or ideas. The five finalists were selected from approximately 50 nominees. The other Index of the Year finalists are: Bloomberg Dollar Index, EMQQ Index, MSCI ACWI Low Carbon Target Indexes and the S&P 500 Index. The winner will be announced at an awards dinner, which takes place March 19 in New York City.

Matt Hougan, President of ETF.com commented: “The ETF.com Awards aim to recognize the firms that are driving the ETF business forward and creating better outcomes for investors. The Endowment Index™ certainly meets that definition, offering a standardized benchmark that incorporates equity, fixed income and alternatives exposure into a coherent whole. I’m pleased to see them nominated for our Index of the Year award. They are certainly one of the more intriguing, innovative and important new indexes out there.” Founded in 2001, ETF.com (formerly IndexUniverse) offers investors trusted insights through its leading publications, events, analysis and data.

ETF Model Solutions, LLC designs ETF-based investment solutions for advisers, institutions, retirement plans and individual investors based upon the Endowment Investment Philosophy®. The firm is the investment manager for the Endowment Multi Asset ETF Collective Investment Fund, a Collective Investment Trust (CUSIP 26923F105) available for use in 401(k) Plans.

Info: www.ETFModelSolutions.com or www.EndowmentIndex.com

Disclosure: You cannot invest directly in an index. Indexes do not have fees. Award recognition does not qualify as an endorsement of any particular index, investment, or investment strategy. ETF Model Solutions, LLC does not make any solicitation payments to award sponsors in order to be nominated or to qualify for nomination of an award.

Contacts

ETF Model Solutions, LLC
Tim Landolt, Managing Director
920.785.6012
Tim@ETFModelSolutions.com

Feb 19
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2,209 Private Equity Funds Seeking $811 billion

By Venture Capital

Palico released new data showing that there currently are 2,209 private equity funds targeting $811 billion. That’s a new record in terms of number of funds, topping the 2,043 funds that were seeking $787 billion last February. For dollars, today’s aggregate target remains lower than the all-time high of $884 billion being sought by 1,590 funds back in 2009.

Jan 20
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2014 VC Investment Tops $48B

By Alternative Investments, Venture Capital

Venture capitalists invested $48.3 billion in 4,356 deals in 2014, an increase of 61 percent in dollars and a 4 percent increase in deals over the prior year, according to the MoneyTree™ Report by PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. In Q4 2014, $14.8 billion went into 1,109 deals. Internet-specific companies captured $11.9 billion in 2014, marking the highest level of Internet-specific investments since 2000.  Additionally, annual investments into the Software industry also reached the highest level since 2000 with $19.8 billion flowing into 1,799 deals in 2014. Dollars going into Software companies accounted for 41 percent of total venture capital investments in 2014, the highest percentage since the inception of the MoneyTree Report in 1995. “With the fundraising environment improving in 2014 and non-traditional investors increasingly joining venture capital firms in later-stage funding rounds, more capital was deployed to the startup ecosystem in 2014 than any year since 2000,” said Bobby Franklin, President and CEO of NVCA. “

Read the full article here: http://bit.ly/EWM2014VCInvestment

(Source: PWC)

Dec 18
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U.S. Inflation Watch-November 2014

By Inflation Watch

The Labor Dept. reported yesterday that the index of consumer prices was down 0.3% in November and was up 1.3% year over year vs. 1.7% in October. Much of the decline was due to falling gasoline prices which make up about 5% of the index and were down 11% year over year. This was the biggest one month drop since December 2008.

Excluding food and energy core CPI rose 0.1% in November and 1.7% year over year.

With gasoline prices expected to fall further this index is most likely on a downward path in the near future. One metric to watch is wage growth. A separate report Wednesday showed Americans’ wages are picking up as the labor market strengthens. Americans’ real average weekly earnings rose 0.9% in November from the prior month. That reflected a 0.6% rise in inflation-adjusted hourly earnings and a 0.3% increase in the average workweek.

(Source: WSJ)

Dec 03
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Some facts about the state of the U.S. Retail Industry

By General

The retail industry is a sector of the economy that involves individuals and companies engaged in the selling of goods and services to consumers. The outlook for retail sales in a given year has a great deal to do with the financial resources of the average U.S. citizen. Consumer spending accounts for roughly two-thirds of our annual gross domestic product (GDP).1 Currently, in the U.S., we are experiencing cheaper fuel prices, rebounding stock prices and job gains on pace for their strongest year since 1999.2 This, in turn, may provide consumers with more disposable income to spend on one of the great American pastimes, shopping.

» Total U.S. retail sales grew to $4.53 trillion in 2013 up 4.2% from 20123, outpacing GDP growth of only 2.2%4. In addition, retail accounted for 27.0% of nominal U.S. GDP, up from 26.8% in 2012. That share has been on the rise consistently since a drop-off in 2009, when consumer confidence was at a low after the recession.5 Consumer confidence closed October 2014 at its highest level (94.48) since October 2007 (95.24), as measured by the Conference Board’s Consumer Confidence Index.

» The Bureau of Economic Analysis reported that wages and salaries, which tend to drive consumer spending, increased 5.1% in September 2014 from the year-earlier level.6

» Declining gasoline prices, as the U.S. is currently experiencing, tend to boost real consumer income more than most other price declines. Therefore, more money is available to spend on other things.7

» Online holiday sales in November and December 2014 are anticipated to increase by 13% to an all-time-best $89 billion. It is estimated that 3.4 million consumers will buy online for the first time this holiday season.8

1UnitedStatesConect.com

2Bloomberg

3,5eMarketer

4IMF

6,7Barron’s

8MarketWatch

(Source: First Trust)

Nov 24
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What are Business Development Companies (“BDCs”)?

By Alternative Investments

BDCs have been around since the 1980s but have recently multiplied. More than 50 of them are now listed, with a combined market capitalization in excess of $35 billion (see chart).

Growth of BDCs

BDCs are allowed to borrow as much money as they raise from shareholders, usually through fixed-rate bonds, so the total amount at their disposal is approximately $70 billion. The industry’s total valuation is only a quarter of Citigroup’s, and were they to lend out this entire sum, it would equal just 4% of America’s commercial and industrial loans. In reality, some of their money is invested in shares and some goes into property, so their impact is even smaller.

Still, BDCs are big enough to be receiving attention from businesses hungry for capital and willing to pay interest of 10% or more to get it, as well as from investors hungry for dividends, which can also exceed 10%. That is more than four times the dividend on the average stock and more than double the yield of even a junk bond.

The high payout comes with a caveat, however. Because BDCs are classified as a fund, they pay no corporate tax, unlike a bank. To preserve this status, they must distribute 90% or more of their income each year. As a result, building up their capital base is a slog. So too is finding good customers for loans, since they do not offer the prosaic products like current and payroll accounts through which banks typically acquire their customers. Many BDCs specialize in financing the acquisitions of private-equity firms. That helps to keep down costs, as they make big loans to just a few customers. But it can also suppress returns, as there is lots of competition to back private-equity deals.

Although BDCs limited borrowing makes them safer than banks, they also suffer from higher defaults. As a result, when the financial markets become volatile, and in particular when the market for high-yield debt wobbles, their shares slump and they struggle to raise capital.

Another quirk is that all but a handful of BDCs do not have internal managers; instead, they farm out their management to nationally independent firms. The managers’ compensation under such deals is often opaque but lavish. Indeed, charges akin to the “2 and 20” that hedge-fund managers once typically extracted (a management fee of 2% of assets and a performance fee of 20% of profits beyond a certain threshold) remain common.

We use BDCs within our Global Multi-Asset Income Model and Private Equity Model as an Alternative Fixed Income and Mezzanine Debt allocation, respectively.

(Source: The Economist)