June 2023

Hedge fund indices were marginally negative in May, the HFRI Fund Weighted Composite -0.2% and Asset Weighted flat, a good result given the turmoil around the US debt ceiling. Equity Hedge was flat, with Technology the best sub-sector at +3.8%. Event-Driven fell -1.1%, Macro -0.2%, and Relative Value was marginally positive. India led the regions at +5.4%.

Rapid advances in technology have had far-reaching impacts on the alternative asset market, historically less accessible to individual investors given its complexity and high barriers to entry. Demand for structured products and derivatives has surged. Marex Solutions has developed Agile, a derivative pricing and execution platform built to make that process transparent.

Private capital markets have seen unprecedented growth in transaction volume and deal complexity, yet the industry still depends on manual processes and a technology stack that has not kept pace. Discussions with hundreds of insiders point to two urgent challenges: streamlining labour-intensive manual processes, and managing data across an investment's lifecycle.

Since the pandemic served as a catalyst for digital transformation, sophisticated new technologies have been deployed with increasing velocity. Funds will harness application programming interfaces to improve reporting, data transparency and compliance, freeing managers to concentrate on investment strategy and client service. Digital currency accounts help manage FX volatility.

Artificial intelligence is rapidly transforming private capital markets. Natural language processing, machine learning and predictive analytics are being used to analyse large volumes of data from financial statements, news, social media and industry reports, helping investors identify trends and assess risk. Challenges include bias and the need for human judgment.

EQT is buying Dechra Pharmaceuticals for £4.5 billion, below the initial April offer of 4,070p per share, following a material profit warning in May. Abu Dhabi Investment Authority is investing alongside EQT. Completion is subject to shareholder approval and antitrust regulators. UK private equity deals have been thin this year, so the sector greeted the news with relief.

Apollo is another US private equity firm hunting for high-quality, undervalued UK businesses. There has been plenty of coverage of UK value but little action, and Apollo has shown it can afford to be picky, having pulled the plug on John Wood Group and THG. It has now signed an agreement with construction firm United Living. Terms of the sale were not announced.

Permira has taken control of Italian fashion house Gruppo Florence, acquiring the stake from VAM Investments, Fondo Italiano d'Investimento, Italmobiliare and Gruppo Florence. With Permira's resources and operational expertise behind it, the aim is to build the brand further and consolidate products and service leadership.

New Relic, the San Francisco-based web tracking and analytics company, is up for sale and seeking more than $5 billion. According to Reuters the early front runners, Francisco Partners and TPG, have both ruled themselves out after failing to raise the required finance. Disappointing results that saw the share price drop 7% have not helped the process.

EQT has announced a private-wealth platform with the launch of EQT Nexus, a global portfolio investing across the Swedish firm's strategies from mature buyouts to early-stage. In line with EQT's focus it carries a bias towards private equity and infrastructure and will co-invest alongside EQT funds. Nexus is led by a recent joiner from Partners Group.

CalPERS has bolstered its private equity exposure over the past few years. According to the Financial Times the public pension plan is reviewing existing PE investments totalling $52 billion, having increased the allocation in 2022/23 from 8% to 13%. Its 2030 goals focus on illiquid investments and in-house capability, including a new deputy CIO for private markets.

Private equity firms are trading at discounts of more than 30% to net asset value, writes MoneyWeek. Investec data puts valuation gaps in private equity trusts at 18% to 54%. It is not only the firms trading at discounts: some portfolio investments are being sold below their IPO price, an example being Bumble, where Blackstone sold shares at $22.80 having listed at $43.

Franklin Templeton is buying Putnam Investments from Great-West Lifeco, a typically acquisitive move that adds to its retirement business and increases assets by a further $136 billion. The deal continues the build-out of the firm's alternative offerings, given higher fees and longer-term retirement money. Great-West Lifeco will allocate $25 billion to Franklin's alternative funds.

Once the dust had settled on Man Group announcing Robyn Grew as its new chief executive, Bloomberg's Barry Ritholtz got the first podcast interview, covering how a barrister came to run the world's largest listed hedge fund. Taking over from Luke Ellis in September, Grew will build on the firm's quant businesses including AHL and look to develop a US presence.

Brahman is shutting its stock-picking hedge funds after 30 years, the latest established fund to close its doors. The $1.1 billion fund lost money over the last two years, writes Bloomberg. Brahman Capital Corp. will, however, continue to run its long-only fund.

European managers are increasingly looking to the US to build their business. Ruffer opened a New York office, Lansdowne Partners bought CRUX with its US family office ties, and Marshall Wace has hired KKR's global head of private wealth in New York to head up North America. That KKR also owns 24.9% of Marshall Wace makes the move all the more interesting.

Investors have been pulling money from the hedge fund space, with a record $11.6 billion out of the door in April, according to eVestment data, which described the redemptions as broad-based. Multi-Strategy funds continued to see inflows. Managed Futures saw the largest net outflows in almost three years, and Macro funds continued to see redemptions.

On a far smaller scale to the Franklin Templeton and Putnam deal, London-based Lansdowne Partners is buying CRUX Asset Management for an undisclosed sum. CRUX, a long-only active manager set up in 2014, transfers all its funds covering Asia, Europe and the UK and $1.1 billion of assets to Lansdowne's $7 billion business. Stephens took a minority stake in CRUX last year.

It has been a decade since Pierre Andurand launched Andurand Capital Fund, and this year has been all about the lows. He took another 9.4% hit in the Andurand Commodities Discretionary Enhanced Fund in the first three weeks of May, with Bloomberg reporting the fund down around 46% this year. Not long ago he was predicting oil above $140; it is now around $70.

No edition of The Alternative Investor is complete without an Elliott Management story. This month it is Goodyear, the US tyre maker, which has received the whole Elliott nine yards of presentation, letter and website. The activist says Goodyear has meaningfully and consistently underperformed and wants leadership change and an operational review.

Another Elliott story is its position in Deutsche Wohnen, the DAX-listed property company. The activist has taken exception to a special loan to its controlling shareholder, a concern ISS also shares. Elliott believes the money could be used elsewhere, while ISS is concerned about possible conflicts of interest. ISS is also siding with Primestone Capital at Brenntag.

Short investors in Nvidia have lost not only their trousers but their socks and boxers, $2.5 billion alone on the 25 May mark to market according to S3 Partners data, as the stock shot up over 30%. That followed better-than-expected results which saw the major tech stocks bounce. Nvidia's valuation has since broken the trillion-dollar barrier.

Carl Icahn may be on the back foot at Icahn Enterprises with Hindenburg Research breathing down his neck, but that has not stopped him taking on another fight. This is with Illumina, a position he first invested in during 2016 as an undervalued business. Icahn argues the company is poorly managed, calling the $7 billion Grail acquisition inexplicable and unforgivable.

Brits enjoy poring over the Sunday Times Rich List, and this year hedge fund managers made up 19 of the 350 entrants with a combined net worth of £36 billion. Leading the pack were Michael Platt, Sir Chris Hohn and Chris Rokos. Platt is now in the top 10 with £11.5 billion, while Hohn has £5 billion, double last year's figure, with TCI benefiting from the rebound.

JPMorgan's global head of alternative investments, strategy and business development has given his views on where the greatest opportunities sit in private markets: core private equity, where public market volatility is creating openings; secondaries, as high-quality institutional funds come to market; growth equity and venture capital; infrastructure; and private credit.

London-based real estate manager Tristan Capital Partners is looking to raise €750 million from institutional investors for its second debt fund over the next two quarters. The Article 8 fund will provide floating rate loans of up to 75% LTV to European markets. It comes months after Candriam took a 31% stake in the business. The first fund is close to fully deployed.

Family office reports released in recent weeks are consistent on the interest in private markets. BlackRock's Global Family Office Report shows a strong preference for private markets, with offices planning to maintain or increase exposures, particularly to private credit and private equity direct deals. Goldman Sachs' Eyes on the Horizon points to more aggressive allocation.

HM Treasury has published the draft text of a Memorandum of Understanding establishing a framework of financial services regulatory cooperation between the EU and the UK. Described as robust and ambitious bilateral cooperation, it rests on preserving financial stability, market integrity and investor protection, and establishes a Joint EU-UK Financial Regulatory Forum.

The SEC announced on 5 May that it had issued its largest ever award to a whistleblower. The award of nearly $279 million more than doubles the previous highest amount of $114 million issued in October 2020. The information did not prompt the investigation but expanded the scope of misconduct charged. Payments come from an investor protection fund financed by sanctions.

The CFTC filed a complaint on 11 May against a Chicago-based registered commodity pool operator and its principal, along with eight other entities under the principal's control. The complaint charges defrauding more than 50 people in a Ponzi-like scheme that took in more than $6 million from around October 2019, and making false statements to the NFA.

The SEC on 11 May charged HSBC Securities (USA) and Scotia Capital (USA) for longstanding failures to maintain and preserve electronic communications. In settlement the firms agreed to pay penalties of $15 million and $7.5 million respectively. The CFTC concurrently issued an order against Scotia Capital and an affiliate, imposing combined penalties of $15 million.

In early May the Securities and Commodities Authority of the United Arab Emirates issued written confirmation that Cayman funds may again be registered with the SCA for private offering in the UAE, following the ceasing of such registrations in February 2023. Managers must appoint a locally licensed promoter and pay an initial registration fee of AED 12,000.