November 2023

October brought geopolitical and macroeconomic uncertainty and hedge funds were largely down, with the HFRI Fund Weighted Composite -1.4%. Equities took most of the pain, the HFRI Equity Hedge (Total) index -2.0%, with Energy/Basic Materials the worst sub-strategy at -2.7%. Event Driven fell -2.4% and the Activists almost -5.5%. India was the only regional gain.

Wall Street has been falling in love with celebrities on stage, screen and the playing surface: big fan bases, big revenue numbers and plenty of ways to amplify content for profit. Ares Management raised $3.7 billion last year to invest across sports leagues, teams and related franchises, while Carlyle Global Credit has deployed more than $3 billion into sports, media and entertainment.

Canada Life, M&G and St James's Place have all recently closed or suspended open-ended property funds. Since the FCA consulted in 2020 on imposing notice periods, three years without a decision has led investors to redeem pre-emptively. AREF sets out five measures, largely aimed at channelling more defined contribution pension money into the asset class.

Property yields have risen over the last 12 months on the back of gilt yields, and with debt significantly more costly, attractive levered returns are harder to achieve. Most research houses agree that short-term total returns will be driven by income rather than capital growth. Multi-Let Industrial has performed exceptionally over the last decade and continues to show resilience.

A perfect storm has hit the office sector, with Brexit, Covid and the Ukrainian and Israeli wars affecting both occupational and investment sentiment. Minimum Energy Performance Standards always had potential to shake up the sector as older, less performing buildings became redundant. Prime offices with the best credentials have fallen up to 20% and the gap to the rest has widened.

Prices of prime property in the capital held steady in the second quarter of 2023, falling just 0.2 per cent, with values down a modest 1 per cent over the year against a 3.5 per cent fall outside London. Cash buyers accounted for 71 per cent of prime central London deals year to date. Savills counts 390 properties above £5 million changing hands in 2023.

Polish GDP growth has outpaced most of western Europe and the post-pandemic turnaround has been fast, leading Guy Hands to suggest that by 2030 Poland will be wealthier than the UK. Inflation has run at around 15% over two years and real asset values have fallen by between 10-30%, which now presents good value for investors who can see beyond the current trials.

High inflation and rising interest rates proved strong headwinds in 2023, yet the European logistics market has shown remarkable resilience. Take-up of 13.2 million square metres in H1 2023 compares with 11.7 million in the same period of 2018 and 2019. A survey with Savills of more than 250 market participants found 42% viewing the environment as more favourable than six months earlier.

Investors continue to head for the biggest brands. EQT held a final close for EQT X, expected to complete in Q1 2024 at or around a EUR 21.5 billion hard cap, above the original EUR 20 billion target set in December 2021. Warburg Pincus closed WPGG14 at $17.3 billion, its largest ever fund and above a $16 billion target.

Elliott Investment Management is raising $7 billion for distressed opportunistic investing, one of the largest fund raises in the space and the firm's tenth drawdown vehicle. Elliott had been quiet, so a new position rather than a raise of this scale was the expectation. Having pulled in $13 billion last year, the target looks comfortable.

Private credit assets are on track to hit the $2.25 trillion Preqin predicts. Ares closed the oversubscribed Ares Pathfinder Fund II at $6.6 billion, 80% larger than its predecessor. Institutional investors, family offices in particular, value the social story: Ares donates 5-10% of carried interest profits to health and education charities.

Carlyle came up short on the $22 billion target for flagship Fund VIII, closing at around $14.8 billion after two years of fund raising for the US-focused vehicle. In the current environment that reads as a success, but with peers hitting record closes it is a harder case to make internally, and there is an air of disappointment.

Brookfield has hit $6 billion for its third infrastructure debt fund, Brookfield Infrastructure Debt Fund III, now the world's biggest infrastructure fund, focused on renewable energy and more than double the size of its predecessor. It includes over $400 million of discretionary co-investment capital. Goldman Sachs West Street Infrastructure Partners IV closed at $4 billion.

The latest annual report from Abu Dhabi Investment Authority shows increased appetite for private equity, a move similar to many US endowments though still small as a share of the total portfolio. ADIA, the fourth largest sovereign wealth fund with assets approaching $1 trillion, has raised its private equity allocation to 10-15% from 7-12%.

KKR Next Generation Technology Growth Fund III raised approximately $3 billion in commitments, with around $400 million coming from KKR employees, the firm's largest raise in this space. Investments are likely to be minority positions of $50 million to $250 million; earlier holdings include Darktrace, ForgeRock and Lyft.

A specialised private credit retail fund is coming from Blackstone and Abu Dhabi Investment Company, known as Invest AD and a subsidiary of Mubadala, Abu Dhabi's second-biggest state fund after ADIA. The Invest AD Blackstone Private Debt Fund is a UAE feeder to Blackstone's US and European private credit strategies.

Another sovereign wealth and private capital tie-up in the co-investment space. Mubadala took a minority stake in Silver Lake in 2020, giving Silver Lake added firepower and Mubadala access to proprietary deal flow that has included Waymo and Jio Platform. Their latest potential joint investment is a takeover of Endeavor Group, market cap around $11 billion.

At the Future Investment Initiative in Riyadh there was a general air of pessimism. Jamie Dimon of JPMorgan raised the US fiscal deficit and the risk of an expanding war, Bridgewater founder Ray Dalio the widening divide between rich and poor. Carlyle chief executive Harvey Schwartz saw more headwinds than tailwinds, but also incredible alpha opportunities.

CVC Capital Partners decided against its potential Amsterdam listing, rumoured for mid-November, putting it on hold with the possibility of revisiting next year. A listing would have been a shot in the arm for a depressed IPO market. CVC had just closed the largest-ever private equity fund at EUR 26 billion, but the external reality was too risky.

Sequoia split into three earlier in the year: HongShan for China, Peak XV for India and Sequoia for the rest of the world. According to a Financial Times source, HongShan has $9 billion of dry powder ready to deploy far beyond China and Asia and has been looking at Europe. It opened a Singapore office this year. There are no non-compete clauses between the entities.

Wilshire is buying Lyxor's US business from Amundi, a material move for the US investment management firm. Amundi had acquired Lyxor Asset Management for EUR 825 million from Societe Generale, adding over EUR 100 billion of ETF and managed account assets. Lyxor Asset Management Inc. comes with $20.8 billion, making Wilshire one of the largest managed accounts providers.

Blackstone took a further $25 billion through the door, having passed the $1 trillion marker in the previous quarter. Flows included $9.1 billion into real estate and $10.4 billion into credit and insurance, and the firm became the first alternative asset manager to join the S&P 500. Fee-related performance revenues fell 46% year-on-year.

KKR assets grew to $528 billion at the end of the third quarter from $519 billion at the end of the second, largely on performance. The traditional private equity portfolio returned +5%, credit and infrastructure +3% each and real estate +1%. The business also has $99 billion of uncalled commitments ready to be deployed.

Man Group's trading update shows assets at a record $161.2 billion, up from $151.7 billion on 30 June 2023, though most of the growth came from FX rather than net flows and performance. Investment performance accounted for $0.1 billion, with alternative strategies outperforming long-only. AHL Evolution was the best absolute return fund at +4.3%.

Blackstone chief technology officer John Stecher told PE Hub that GenAI is assisting research and analysis and providing a differentiator for portfolio companies. The firm is investing in GenAI companies, pooling data to generate investment theses, and building an in-house tool for deep company and sector analysis. Preqin counts 1,573 AI deals in Asia in 2023.

Sculptor is the sale that never ends. With an increased offer from Rithm Capital of $719.8 million and the support of Dan Och it may finally go through. Bloomberg reports claims of an abrupt double cross from shareholder Gilles Beauchemin, given that Rithm's offer is below that of Boaz Weinstein and his group of investors. Investors have also been pulling funds.

Cathie Wood is looking to break Europe, having bought a 70% stake in London-based Rize ETF from AssetCo in September, with its 11 ETFs rebranded as ARK Investment Europe. Europe is a very different ETF market, more institutional in focus, and Wood describes it as a tough nut to crack. ARK awaits regulatory approval for European versions of its ETFs before year end.

New FCA guidance reminds buy-side firms, as market sounding recipients, that they must independently assess whether a sounding has left them holding inside information that would prohibit trading. The concern is trading in the window after a disclosing market participant seeks consent but before formal disclosure is made, where the recipient can identify the instrument from other information.

On 27 October 2023 the Financial Action Task Force removed the Cayman Islands from its grey list of jurisdictions under increased monitoring, welcoming progress on anti-money laundering and counter-terrorist financing. The European Commission runs a separate process and added the Cayman Islands to its own high-risk third country list in March 2022, which it has not yet removed.

The FCA fined Equifax Ltd £11,164,400 for failing to manage and monitor the security of UK consumer data outsourced to its US parent. The 2017 breach let hackers reach the personal data of around 13.8 million consumers. The FCA found the cyberattack entirely preventable, and that Equifax did not treat the parent relationship as outsourcing or provide sufficient oversight.

The FCA fined James Staley £1.8 million and banned him from senior management or significant influence functions. The findings are provisional, as Staley has referred his Decision Notice to the Upper Tribunal. The regulator found he recklessly approved a Barclays letter containing two misleading statements about the nature of his relationship with Jeffrey Epstein and their last contact.

Investment adviser duty of care and loyalty remains a focus, with conflicts, disclosures and complex, high cost or illiquid products facing increased scrutiny. For advisers to private funds, the Division will look at portfolio management risk, adherence to limited partnership advisory board obligations, allocation and disclosure of fees and expenses, and Form PF and Form ADV reporting.

Proposed updates to Regulation 4.7 would raise the financial thresholds in the Qualified Eligible Person portfolio requirement to reflect inflation, require minimum disclosures for 4.7 pools and trading programs, and formalise relief on monthly account statements for funds of funds. At the end of FY 2022 an estimated 4,304 commodity pools claimed the exemption.

Rule 13f-2 requires institutional investment managers meeting threshold requirements to file monthly statements on the new Form SHO, with data aggregated and anonymised via EDGAR. The threshold is a short position of at least $10 million or 2.5% of shares outstanding on average during a month in a reporting issuer, and $500,000 for nonreporting issuers.

Amendments shorten Schedule 13D and 13G deadlines for investors acquiring more than 5% of a covered class of equity securities. Initial Schedule 13D filings must now be made within 5 business days and amendments within 2. Qualified institutional and exempt investors file Schedule 13G within 45 days of quarter end; passive investors move from 10 days to five business days.