March 2024

The wind was behind equity markets in February, particularly in the US, where many of the biggest tech stocks reported bumper results. All the main hedge fund strategies had a good month, with the HFRI Fund Weighted Composite up 2.5% and the Asset Weighted Composite up 1.4%. Equity Hedge led at 3.2% with no underlying strategy in the red.

A consolidation of sorts is taking place in private markets, with PitchBook counting some 27 GP stakes deals in the last quarter of 2023, either as minority or majority transactions. Interest has risen especially among middle-market firms. For GPs, selling a stake provides liquidity needed to fund higher commitments.

In September 2023 Blue Dot Capital published its inaugural snapshot of the ESG programs and practices of the ten largest private equity firms by the PEI 300 ranking. Analysis shows wide variation in how those firms structure, resource, integrate and report on ESG, though all ten are signatories of the Principles for Responsible Investment.

ESG credentials and strategy are the biggest influencers when it comes to making fund investment decisions, according to Ocorian research among alternative fund managers across the UK, US and Europe. Almost all, 98%, agree it will become harder to launch new funds without a strong ESG focus, with 39% strongly agreeing.

Developments in sustainable finance regulation have come thick and fast, the most seminal being the Sustainable Finance Disclosure Regulation in 2021. The European Commission review is based on the premise that the regime is not operating as intended, and proposes minimum standards or a new set of product labels.

Fund managers continue to see divergence of approach to ESG on each side of the Atlantic, putting strain on their ability to satisfy an international client base. Many UK managers are preparing mandatory climate-related financial reports by 30 June, while the anti-greenwashing rule comes into force on 31 May 2024.

The big fund raise of the month was EQT hard closing EQT X at €22 billion of total commitments, the largest ever fund from the Stockholm firm and 40% larger than EQT IX. The fund has already made several investments and follows other EQT mandates with a broad focus on healthcare, technology and IT in Europe and North America.

CVC Capital Partners continues to pull in investors, attracting $6.8 billion of total commitments for its sixth Asia fund against a $6 billion target. The vehicle is looking for control, co-control and partnership investments in high-quality businesses across core consumer and services sectors. CVC has been active in Asia since 1999.

Growth equity pioneer General Atlantic is acquiring a minority stake in Partners Capital from external shareholders and various founding partners. These are two giants, with General Atlantic running over $80 billion and around 500 employees, and Partners Capital $50 billion with 350. Regulatory and client approval is still needed.

Goldman Sachs and Mubadala have agreed a $1 billion private credit deal for investing in Asia, with Bloomberg reporting the focus will largely be India. Asia is increasingly of interest as an under-invested frontier for private credit, with both the US and Europe seen as saturated. Mubadala already invests alongside Ares and Blue Owl.

DFO Management, the family office of Michael Dell, has become the first external investor to back 5C Investment Partners, the newly launched credit-focused alternative investment firm, taking a passive stake. Founded by former Goldman Sachs duo Tom Connolly and Mike Koester in September last year, 5C will focus first on the US.

In line with its peers Carlyle has launched a European open-ended, semi-liquid private credit fund for wealthy individuals. It is an entry point for European investors to access Carlyle credit strategies and follows the North American equivalent. Preqin puts a quarter of Blackstone assets in this channel.

A feather in the cap for London was the decision by Blackstone to stick with the city for its new European headquarters, with construction starting this month on the footprint of its previous space at Lansdowne House. Recycled steel, ground source heat pumps and solar panels feature, and headcount will double to more than 600.

Blackstone is restructuring its GP stakes business with the loss of its head, Mustafa Siddiqui, who has decided to leave the group. The unit, which takes stakes in other private equity firms, is being folded into the Strategic Partners unit, run by Verdun Perry, which today manages around $70 billion in secondaries.

Third Point is branching out beyond its more natural event-driven market as it looks to build a private credit arm this year, joining multiple other funds across private equity and hedge looking to the space. Heading the business is Christopher Taylor, previously chief executive of Madison Capital Funding, now Apogem Capital.

Eisler has announced aggressive expansion plans, with the Financial Times writing that the London-based manager is planning to raise between $1 billion and $1.5 billion and add 25 portfolio managers, taking its total to around 120. The move follows the opening of a Dubai office and the hire of Jeff Russel from Balyasny.

Elliott Investment Management is moving into commodities, launching a new business called Hyperion that is looking to invest at least $1 billion in undervalued mining businesses. Hyperion has a broad mandate across base and precious metals and metals tied to electric vehicle production, and is headed by Sandeep Biswas.

After a glowing profile in The Times, Robyn Grew is not having it all her own way at Man Group. In her first full-year results the firm reported what it described as a solid set of results, yet profits were down 56%. Assets grew to $167.5 billion from $143.3 billion, though a large chunk came from the Varagon acquisition.

Tiger Global is increasingly getting its mojo back and is preparing to return to front-foot technology investing, according to the Financial Times, after its well-reported pull-back following poor performance. Last year was described as a solid recovery year, up 29%, although the firm took part in only 27 deals.

Small hedge funds continue to be acquired by larger players, the latest being Kirkoswald, run by Greg Coffey, potentially buying EMSO Asset Management, the emerging market fixed-income manager. A combination of $8 billion and $5 billion of assets creates a $13 billion player with significant macro business.

It is always sad to see long-standing hedge funds close, the latest being Weiss Multi-Strategy Advisers, which is shutting its doors after 46 years. The New York fund managed over $3 billion as of the middle of last year and was up 6% for the year. Founder George Weiss wrote to clients saying he had decided to conclude the journey.

Venture capital fundraising has been a hairy environment over the last year, with Private Equity News figures showing total deal size falling to $243.8 billion in 2023, the lowest level since 2017. Artificial intelligence was the one shining light, accounting for $50 billion of that investment.

With Bitcoin breaking $69,000, then promptly falling 8%, crypto funds are again making big returns. Bloomberg reports the recent market surge saw many managers struggling to keep up as they traded through the night. Interest has also surged in the recently launched bitcoin ETFs, led by the BlackRock product.

1 January 2024 was the effective date of a new rule under the Corporate Transparency Act requiring domestic and foreign corporations and similar entities registered to do business in the United States to report beneficial ownership information to FinCEN. The Act includes 23 exemptions, some applying to asset managers.

The National Futures Association released a list of regulatory obligations that tend to be common deficiencies during examinations of Commodity Pool Operator and Commodity Trading Advisor members. These include the self-examination questionnaire, digital assets, third party service providers and cybersecurity.

The SEC has adopted new rules expanding the definition of dealer and government securities dealer in the Exchange Act, which will require many unregistered persons to register with the SEC and FINRA. Two qualitative tests were adopted, each of which would make a participant a dealer.

The SEC and CFTC have combined to adopt amendments to Form PF, the confidential reporting form for certain SEC-registered advisers to private funds, and agreed a memorandum of understanding on sharing the data. The amendments enhance reporting by large hedge fund advisers and remove aggregate reporting.

FinCEN has proposed a rule broadening the definition of financial institution under the Bank Secrecy Act to include certain investment advisers, requiring them to establish anti-money laundering and counter terrorist financing programmes and report suspicious activity. It would extend to registered and exempt reporting advisers.

The SEC announced settled charges against sixteen financial firms, including broker-dealers and investment advisers, for failing to maintain and preserve electronic communications over an extended period. The investigation found widespread use of unapproved off-channel communications at all levels of authority.

The SEC charged a Houston man with insider trading for using material nonpublic information gained from eavesdropping on his wife, a mergers and acquisitions manager. He is alleged to have learned that BP had agreed to purchase TravelCenters of America, accumulating 46,450 shares and selling for a profit of more than $1.76 million.

The National Futures Association has permanently barred a member and commodity pool operator located in Doral, Florida from membership and from acting as a principal of a member. The default decision followed findings of materially false information, failure to comply with reporting rules and failure to cooperate.

The FCA is proposing to change its approach to enforcement by announcing action at an earlier stage of proceedings, recognising that the deterrent effect is greater the closer it is to the misconduct. It intends to publish earlier information about investigations it has opened, using a flexible public interest framework.

The FCA publication addresses trading by organised crime groups and how firms can mitigate the risks, noting that such groups account for a substantial component of suspicious trading in UK and internationally listed equities. Characteristic activity includes trading before M&A announcements and use of umbrella accounts.

On 13 February the FCA reported its quarterly authorisations metrics for October to December 2023, noting that nine metrics are green, six amber and, improving on the previous four quarters, none red. The regulator maintains that 97.8% of applications across all metric areas were determined within the statutory deadline.

On 7 February 2024 the European Parliament approved the text of AIFMD II, which revises certain parts of the original directive. It enters into force 20 days after publication in the Official Journal, with member states having 24 months to transpose. Among other things it tackles delegation, conflicts of interest and liquidity risk.