April 2024

March was another strong month for markets as central banks played ball and there were few negative surprises. The HFRI Fund Weighted Composite was up 2.5%, with Macro coming out on top at 3.9%, its first outperformance in many months, followed by the equity managers. The Equity Hedge Index returned 2.4%, led by Energy and Basic Materials.

Fund financing is getting more interesting, with general partners looking to raise cash for a host of reasons. Net asset value financing, a facility that originated in Europe, is gaining traction in the US. 17Capital estimates the market could grow beyond $700 billion by the end of the decade from $100 billion today.

The democratisation or retailisation of private markets and funds is this year's hot topic. Much of the activity has focused on the US but interest has increased in Europe because of recent changes to the ELTIF in the EU and the LTAF in the UK. Neither regime is the finished article, and both struggle with liquidity.

Democratisation refers to making available to private investors certain asset classes traditionally accessible only by professional investors. One option employed by large players is the European Long-Term Investment Fund, whose strict operational and substance requirements attracted criticism, prompting the ELTIF 2.0 reform adopted in February.

Unspent capital sitting in private markets and the influx of high-net-worth investors have fund managers preparing for a trillion-dollar tsunami. As volumes increase, managers are already struggling with distribution, fund accounting, onboarding, KYC and AML compliance and reporting. Reconfiguring asset servicing means replacing legacy technology.

With traditional managers reporting assets falling, the alternatives space has seen steady growth and broader interest from retail and high-net-worth investors. Firms still need to hire rosters of new talent to support the new distribution channel, and are tackling it by hiring people who can sit across multiple functions.

Nestled in the heart of the Indian Ocean, where crystal-clear waters meet powder-white sands, lies the enchanting Cora Cora resort in the Maldives, a true gem of paradise awaiting those seeking luxury, tranquility, and unparalleled beauty.

Hunter Point Capital raised $3.3 billion for its first General Partner stakes fund, the New York firm exceeding its initial $2.5 billion target and claiming the largest ever debut GP stakes fund dedicated to private market strategies. The fund invests across private equity, private credit, real estate and infrastructure and holds eight partnerships.

Arctos closed its second sports fund at $4.1 billion. The Dallas-based manager opened the fund two years ago and immediately raised $1 billion from initial investors. Around 30% has already been invested in Utah Jazz, Harris Blitzer Sports Entertainment, Paris Saint-Germain FC and the Aston Martin Aramco Formula 1 Team.

An interesting new hedge fund is Hunterbrook Capital, which will trade on proprietary news articles and has raised $100 million. The fund trades on scoops from its own investigative reporters at media arm Hunterbrook Media, a broader version of what Hindenburg Research and others already do, though it may come unstuck on compliance.

London-based Kimura Capital has announced a new commodity hedge fund, working with the team from Gaspara Asset Management that includes former Trafigura traders. Kimura Gaspara Fund1 is investing in energy transition, with new infrastructure projects and supply and demand imbalances creating what they see as opportunities. It launched with $150 million.

According to the 2023 Annual Global Private Market Fundraising report from Pitchbook, secondaries fund raising had a stellar 2023, totalling $78.3 billion across 72 funds. Only 2020 has surpassed that figure, at $84.8 billion. The numbers are skewed to the large players, with four funds accounting for 60.7% of the total.

European capital markets are watching the CVC Capital Partners float closely. Sky News broke the story, with the Luxembourg-based firm set for an Amsterdam listing in early May and targeting a valuation of over $15 billion. CVC has postponed once before citing market conditions and is setting expectations carefully this time.

The potential threat of large language models taking over from hedge fund managers has been questioned by Citadel founder Ken Griffin. Speaking to CNBC he said LLMs will impact the industry in entry-level junior positions and productivity improvements, but that human fund managers will continue to have the edge for the time being.

Having sold its investment in AC Milan two years ago to RedBird for $1.3 billion, Elliott Management is now being investigated by an Italian court. At the heart of the case is whether Elliott did indeed exit the position, with prosecutors saying it may still control the club. The allegations are denied by Elliott.

Elliott Advisors has set its sights on Scottish Mortgage Trust, revealing a £600 million position in the Baillie Gifford trust. The £11 billion global growth trust has been under pressure after lacklustre returns and Elliott is calling for it to sell stakes in private companies. Conversations appear to have been relatively cordial so far.

The incumbent Disney management team came out on top in the recent proxy fight, beating Nelson Peltz, who holds a $3.5 billion position but was unhappy with the share price and succession planning. Described by the Financial Times as one of the most expensive and hard-fought proxy battles in years, Disney claimed a substantial margin.

For Pierre Andurand there was no place to hide in 2023, a miserable year with Bloomberg closely following his numbers. This year the story is more upbeat. Oil is back up and his Commodities Discretionary Enhanced fund, which has no volatility limits, was up 25.6% for the first quarter. He has also taken a position on surging cocoa prices.

The founders dispute at Two Sigma shows no sign of abating and continues to be a material risk for the firm. Still managing $60 billion, the quant firm has yet to resolve the issues between John Overdeck and David Siegel over roles, responsibilities and compensation. A regulatory filing cites the effect on retaining and attracting employees.

Legendary perma bear Russell Clark, who closed his fund two years ago, is considering a comeback. Assets had shrunk from $1.7 billion in 2015 to $200 million by October 2021, and at the time Clark wrote that he was waiting for a better moment. Speaking to Bloomberg he said he is waiting for more commitments from central banks and governments.

With interest rates looking set to fall, real estate is being talked about in increasingly upbeat tones, with positive comments from both Blackstone and Carlyle. The sector is still up against a weighty backdrop, with 2023 fundraising the lowest since 2012 at $98.8 billion across 232 closed-end funds, against $169.3 billion in 2022.

Not every investor is long crypto. According to S3, plenty of short contrarian investors still believe the rally will not last, some positioned for a pullback and others hedging actual Bitcoin holdings. Short sellers are down $1.9 billion since January, with 80% of short bets set against Coinbase and MicroStrategy.

On 1 March 2024 the FCA released an interim update to its portfolio letters concerning the Asset Management and Alternatives Supervisory Strategy. It emphasises effective governance, consumer protection through assessments of value and the Consumer Duty, and market integrity and resilience through risk management, operational resilience and valuation practices.

In the final year of its three-year strategy the FCA published its Business Plan 2024/25 on 19 March 2024, largely reinforcing earlier guidance. It reiterates the three focus areas running from 2022 to 2025 and sets top three commitments of reducing financial crime, putting consumer needs first and strengthening the UK position in global wholesale markets.

HM Treasury has published a consultation on improving the effectiveness of the Money Laundering Regulations, closing on 9 June 2024. It covers making customer due diligence more proportionate, stating that firms should focus on identifying the risks posed by the customer rather than treating due diligence as a tick box exercise in obtaining documents.

On 8 March 2024 the Treasury Select Committee published its long-awaited report on Sexism in the City, covering diversity and inclusion, barriers facing women, pay and sexual harassment. The FCA published a statement agreeing that progress on female representation has not been fast enough and that significant cultural issues remain.

The FCA has softened its stance on exchanges and professional investors wishing to invest in cryptoasset exchange traded notes. On 11 March 2024 it stated it will not object to requests from Recognised Investment Exchanges to create a UK-listed market segment for cETNs, though these would be available only to professional investors.

The SEC on 27 March 2024 adopted amendments modernising the rule that exempts internet investment advisers from the prohibition on SEC registration for smaller advisers. The amendment eliminates the de minimis client exception and requires all investment advice to be given exclusively through an operational interactive website.

The SEC announced settled charges against Delphia and Global Predictions for making false and misleading statements about their purported use of artificial intelligence. Neither adviser had technology as advanced as claimed nor used it to the extent advertised. Delphia agreed to pay a civil penalty of $225,000 and Global Predictions $175,000.

The SEC announced settled charges against HG Vora Capital Management for failing to make timely ownership disclosures before announcing its intention to acquire Ryder System. Having disclosed a passive 5.6% stake on Schedule 13G, it built to 9.9% and began drafting an offer letter, reporting only on 13 May 2022.