June 2024

With US equities hitting new highs, May was an impressive month for equity-weighted hedge funds as the HFRI Fund Weighted Composite closed up 1.3%, but top of the leaderboard were the crypto managers. Equity Hedge rose 2.5%, taking the year-to-date figure to 6.1%. Best performing overall was the HFR Cryptocurrency Index, up 13.6%.

At the Milken conference, conversation turned to whether continuation funds, also referred to as GP-led secondaries, were not just gaining traction as a strategy for private-equity sponsors but winning acceptance as one benefiting GPs and LPs alike. Industry estimates put completed deals at as much as $40 billion in 2023, with over $150 billion in the market so far.

The 2019 Rose Review of Female Entrepreneurship highlighted a persistent gender funding gap, reporting that women receive around 2% of venture capital funding globally, a figure that has barely changed in almost 10 years. If women started and scaled businesses at the same rate as men, £250 billion of new value could be added to the UK economy.

It is now nearly table stakes for a large GP to have some type of insurance component to its growth strategy. The current wave of convergence began in 2008 when Apollo set up Athene to acquire and originate annuities whose premiums could be invested in higher returning portfolios. The most prevalent focus is fixed and fixed index annuities, a $3.3 trillion US market.

One of the biggest total fundraises of the past month is the $20 billion raise by Goldman Sachs Asset Management for senior direct lending. The figure includes $13.1 billion for West Street Loan Partners V, $550 million for co-investment vehicles and $7 billion for large-cap managed accounts. Goldman is targeting a $300 billion private credit business.

Carlyle Group is the latest private equity house to build Japan exposure, closing its largest-ever Japan-focused buyout fund at $2.8 billion. Carlyle Japan Partners V is more than 70% larger than the previous vehicle and only started fundraising a year ago. It will look for equity investments of between ¥20 billion and ¥50 billion.

Another Asia-focused fund to close is the EQT Private Capital Asia Mid-Market Growth Fund, which raised more than double its target at $1.6 billion in total commitments. The strategy invests in high-growth mid-market companies across Asia. Existing investors in the flagship large-cap buyout funds accounted for over 80% of commitments.

According to reports, Patient Square Capital is looking to raise a $6 billion healthcare fund. The firm was launched in 2020 by Jim Momtazee, a 21-year KKR veteran, and is based in Menlo Park, California. Its previous fund closed at $3.9 billion, and Goldman Sachs has been named as one of the LPs committed to this vehicle.

The latest UBS family office report combines the views of 320 single-family offices across seven regions. It shows significant shifts in strategic asset allocation during 2023, with North America still the most prominent regional allocation and Asia Pacific gaining. Chief concerns are geopolitical conflict, climate change and high debt levels.

It is not every day that private equity firms spread the wealth, but it is going on behind the scenes. Blackstone plans to grant equity to most employees in its US buyouts, starting with the 18,000 at Copeland. KKR took the lead in 2011 and is a founding member of Ownership Works, which now includes 19 firms but not Blackstone.

Are markets ready to embrace a new wave of alternative listings? Bill Ackman is asking the question as he looks to list Pershing Square, with late 2025 mooted as the earliest. He has just sold a 10% stake valuing the business at $10 billion, a bullish figure given AUM of $16.3 billion. Ackman and 17 other partners own the firm.

Jim Simons died on 10 May 2024 at the age of 86, a legend in mathematics, hedge funds and philanthropy. He broke codes for the National Security Agency and ran the maths department at Stony Brook before founding Monemetrics in 1978, which became Renaissance Technologies. The Medallion Fund averaged 66% gross returns a year for over 30 years.

Elliott Investment Management has taken a stake of over $1 billion in industrial firm Johnson Controls. Analysts suggest Elliott could be looking to remove chief executive George Oliver, who has overseen stock gains of almost 90% in five years, in line with the S&P 500 but lagging peers. Reuters reports Soroban Capital has also been building a stake.

Another business in the Elliott spotlight is Texas Instruments, where the firm recently announced a $2.5 billion investment in the Dallas semiconductor business. Elliott believes shareholder returns have underperformed peers, with recent expansion pressuring free cash flow, and proposes a dynamic capacity management strategy.

Elliott Investment Management has raised $8.5 billion for its latest dry powder fund. Business Insider lifted the figure from a 30 April investor letter, reporting that Elliott can call these funds at any time over the next two years. The firm today manages $65.5 billion.

It is tricky not to make this an Elliott edition, but the firm is once more building a sizeable stake in SoftBank. Its previous position, in 2020, totalled $2.5 billion. What Elliott really wants is a $15 billion buyback.

There have not been many multi-billion dollar launches over the past few years, so it was encouraging to see Taula Capital Management launch on 1 June with $5 billion. Set up by former Millennium Management portfolio manager Diego Megia, the fund has been backed with $3 billion from Millennium and closed to new money on its first day.

Over the past year multimanager hedge funds have shown growing interest in commodities, as the sector goes through a cyclical upturn and becomes more volatile. Bobby Jain has said up to 20% of the $5 billion he is raising will go into commodities. Brevan Howard has announced a $750 million push, and BlueCrest and Millennium are expanding trading teams.

As alternative managers look to broaden their investor base, there is a material increase in the number and type of products being made available. A good example is the strategic partnership announced by Capital Group with KKR, a hybrid public-private markets solution. The first two strategies are public-private fixed-income offerings expected to launch in the US in 2025.

The Starwood Capital property fund has put up tighter gates as it seeks to stem outflows. Gates were initially applied in October 2022 limiting redemptions to 2%, but the liquidity problems have not gone away and the gate is now tightened to 0.33% of net asset value. The $10 billion fund wants to avoid a firesale and is also cutting management fees.

According to data from bitcoin brokerage River, the largest US hedge funds hold $2.6 billion in bitcoin ETF shares. Filings show that both Millennium and Elliott are holding bitcoin ETFs, with 13 of the top US hedge funds investing in this market.

On 22 May 2024 FCA Chair Ashley Alder addressed the Bloomberg Buy-side Forum on the ambitious agenda of the regulator for UK asset management. UK managers are responsible for £11 trillion of mainstream assets and £2 trillion of alternative assets. Using the Smarter Regulatory Framework the FCA intends to modernise regulation, including AIFMD reform.

On 9 May 2024 the FCA published Market Watch 79, focussing on failures in market abuse surveillance owing to issues with data and automated alert logic, and on a peer review of firms testing front-running surveillance models. In extreme cases firms have remained unaware of surveillance failures for two years or more.

Stuart Bayes, a site manager at plastic manufacturer RPC Group, was convicted in March 2024 of two offences of insider dealing after an eight-week trial at Southwark Crown Court, and on 10 May was sentenced to 18 months imprisonment suspended for two years. He traded ahead of the acquisition of British Polythene Industries, realising a profit of some £132,000.

Failures in the systems and controls of Citigroup Global Markets led to US$1.4 billion of equities being mistakenly sold in European markets. A trader intending to sell a basket worth US$58 million made an inputting error, creating a basket worth US$444 billion. Controls blocked US$255 billion but not the remainder. The FCA fined the firm £27,766,200.

In a joint proposal with the SEC, FinCEN has proposed a rule that would require SEC-registered investment advisers and exempt reporting advisers to establish, document and maintain written customer identification programs. The rule would require risk-based procedures for verifying the identity of each customer, consistent with requirements for broker-dealers.

The SEC adopted rules amending Regulation S-P, requiring registered investment advisers to adopt written policies concerning unauthorized access or use of customer information. Firms must create a written incidence response program and notify affected individuals no later than 30 days after becoming aware of a breach. Larger advisers have 18 months to comply.

All NFA Members must complete the Member Questionnaire annually. The NFA has announced modifications under Compliance Rule 2-52, effective 15 October 2024. Members responding no to certain questions will be treated as inactive, displayed as such in BASIC and subject to a new semi-annual filing requirement.

The SEC announced settled charges against Hudson Valley Wealth Management and its founder for failing to disclose conflicts of interest and making misleading statements. From 2017 to 2021 the firm advised clients to invest in films produced by a company that paid the founder over $500,000. The firm was fined $200,000 and the founder $750,000.