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Alternative Investments

Jan 29
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$65 billion dry powder for secondary private equity

By Alternative Investments

There’s $65 billion in ‘dry powder.’

The secondary market for private equity is at record levels, and only getting bigger.

That’s the big takeaway of a survey of more than 70 professionals who are in the business of buying and selling stakes in existing private equity funds conducted by the private capital advisory group of Evercore Partners. From the results:

Mountain climbing: The level of dry powder (i.e., committed capital) for secondary buyers is at a record high of $65 billion, which is up from an already-sizable $56 billion in June 2015. Another $40 billion of secondary fundraising is targeted for 2016. Of the current amount, more than 80% is controlled by the top 20 buyers.

Where in the world? North America remains the most attractive region, followed by Europe and Asia.

Deal types: 39% of respondents said they would focus primarily on LP interests, 17% of directs/GP liquidity opportunities and the remaining 44% expressed no preference. In 2014, around 71% of volume was for buyout-related assets, followed by real estate (14%) and venture capital (6%).

Indebted: In 2015, leverage became more important. A quarter of deal volume was leveraged at the SPV level (compared to 17% in 2014), while LTV levels hit 40% (vs. 30%).

Crystal ball: The majority of respondents expect between $35-$40 billion in secondary volume this year, with around half saying that macro developments will be the driving factor (which is apparently separate from “public market performance”—which was the driving factor for 15% of respondents).

(Source: Fortune)

Jan 28
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Size of Global Real Estate

By Alternative Investments

The total value of all developed real estate on the globe reached US$217 trillion in 2015, according to calculations by international real estate adviser, Savills. The analysis, published today for the first time, measures the entire developed property universe including commercial and residential property as well as forestry and agricultural land.

The value of global property in 2015 amounted to 2.7 times the world’s GDP, making up roughly 60% of mainstream global assets and representing an important store of national, corporate and individual wealth. Residential property accounted for 75% of the total value of global property.

Overall, the biggest and most important component of global real estate value is the homes that people live in, totalling US$162 trillion. The sector has the largest spread of ownership with approximately 2.5 billion households and is most closely tied with the fortunes of ordinary people. Residential real estate value is broadly distributed in line with the size of affluent populations: China accounts for nearly a quarter of the total value, containing nearly a fifth of the world’s population. Yet the weight of value lies with the West, over a fifth (21%) of the world’s total residential asset value is in North America despite the fact that only 5 per cent of the population lives there.

The trend for western nations to dominate real estate is most pronounced in commercial markets, where nearly half of the total asset value resides in North America. Europe makes up over a quarter while Asia and Australasia contain 22 per cent, leaving just 5 per cent for South America, the Middle East and Africa.

Not included in the global calculation is the value of informal neighbourhood commercial properties: workshops, workspaces, shops and small business premises which are not part of the high quality commercial real estate universe that constitutes global property markets, but which are important components of economic growth and prosperity, especially in emerging markets.  They are almost impossible to value at a global level but have huge potential for future investment as economies mature and real estate markets develop within them, adding to the global stock.

This year, for the first time, the value of agricultural land and forestry is also included in the Savills measurement of total world real estate at an estimated US$26 trillion, of which around 30% is corporately and institutionally invested. Most agricultural and forestry land is owned by non-investing entities, operators and occupiers, especially in emerging economies where this is a sector with great potential for further growth and investment.

Global real estate universe in comparison Table: globalrealestatecomparison

Breakdown of developed global real estate’s total value Table:  breakdowndevelopedrealestate

(Source: www.savills.com)

Jan 27
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Alternative Investments AUM

By Alternative Investments

Money management tracker Preqin reported that total assets held by alternative investment managers reached $7.4 trillion globally in 2015, up 10.1% from the prior year, according to Pensions & Investments. Hedge fund industry assets rose 6.7% to $3.2 trillion in the first eleven months of 2015. Hedge funds reported net inflows totaling $71.5 billion in the first six months of 2015, but experienced net outflows totaling $4.8 billion for the five-month period ended November 2015. 

(Source: Prequin)

Jul 28
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Real Assets A Crucial Component In Endowment Portfolios

By Alternative Investments

Real Assets, which consist of real estate, commodities, energy, infrastructure, natural resources and master limited partnerships are utilized by many of the nation’s wealthiest endowments, but individual investors can also benefit from incorporating real assets into their portfolios. Prateek Mehrotra MBA, CFA, CAIA, CIO of ETF Model Solutions outlines how real assets can provide greater portfolio diversification and protection against periods of high inflation better than traditional stock and bond portfolios in this month’s REALASSETS ADVISOR magazine.

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

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 12
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Private Equity vs. Public Equity YTD Returns through 6/30/2014
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)

Nov 10
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Key Findings from a recent Hedge Fund Industry Report as of September-2014

By Alternative Investments

Highlights from a recent hedge fund industry report:

  • 65% of hedge fund industry capital comes from institutional investors.
  • 4,600 institutional investors allocate capital to hedge funds.
  • Regional breakdown of allocators are as follows: 54% USA, 27% Europe, 7% Asia, 5% Middle East, 4% Canada, 3% ROW.
  • 87% of investors are maintaining or increasing their allocations to hedge funds in the next 12 months.
  • When asked what they’re looking for from hedge funds, 59% are seeking uncorrelated returns, 56% are seeking risk-adjusted returns, 46% seek reduced portfolio volatility, 7% are seeking high returns.
  • 84% of institutional investors feel return expectations have been met or exceeded in the past 12 months.
  • 80% of institutional investors believe portfolio risk would increase if they ceased investing in hedge funds.
  • When bench-marking performance, investors believe traditional benchmarks such as the S&P 500 are irrelevant, preferring to use strategy-specific hedge fund indices to measure performance.
  • Mean allocation to hedge funds by investor type: Endowment = 19%, Family Office = 20.3%, Foundation = 17.6%, Insurance Company = 2.3%, Private Sector Pension = 10.5%, Public Sector Pension = 7.7%, Sovereign Wealth = 7.0%.
  • Largest impediment to investing in hedge funds: difficult to source good funds was cited by 23% of institutional investors.
  • 67% of investors seek annualized returns of between 4% and 6%.
  • 3% seek returns of 10%, another 3% seek returns in excess of 10%.
  • 4% of investors plan to reduce their hedge fund exposure in the next 12 months whereas 19% believe they’ll increase and 68% suggested no change.
  • In Q3-2014, 179 new hedge funds launched, up 11% versus Q2-2014.

(Source: Prequin)

Oct 28
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How To Invest Like The Ivy League Endowments with ETFs

By Alternative Investments, ETF Related

Seeking Alpha published an article by Prateek Mehrotra outlining how ETFs can help investors build institutional quality portfolios diversified into liquid alternative investments designed to improve long-term risk adjusted returns. The article summary

  • The country’s largest endowments aim to preserve capital while producing income and appreciation with less correlation to the stock market regardless of market conditions.
  • Performance among Ivy League endowments and retirement plans that invest like them varied widely last year but in the long run, they posted stellar risk-adjusted returns.
  • You can invest like an Ivy League endowment yourself with a basket of ETFs offering exposure to all of the major asset classes in their portfolios.

The entire article can be read on the Seeking Alpha website.