October 2024

Big macro stories dominated September, with the Fed reducing interest rates, China stimulus and geopolitical instability in the Middle East. The volatility suited many hedge funds, with all the main strategies closing positive. HFRI Equity Hedge was up 1.2%, taking the year-to-date figure to 10.2%, while the China Index closed up 9.3%.

Private credit is taking centre stage in private markets, and muscling into a corner of it is asset-based finance, where borrowers put up a specific asset as collateral, whether physical or financial. KKR predicts the market will grow to $7.7 trillion by 2027 from $5.2 trillion, with Blue Owl paying an initial $450 million for Atalaya Capital Management.

With art being termed an asset class, the idea of collecting has been turned on its side and bifurcated into two or more subcategories. One is momentum trading, aiming at short-term ownership and maximum appreciation before a market saturates. The other is value investing, articulated by Alan Bowness in The Conditions of Success.

Luxury and investment grade sports cars often outperform gold within a portfolio, but access has traditionally been a significant barrier. Fractionalisation has cracked open the world of collector cars, with new platforms allowing investors to own fractional shares of vehicles that have increased in value by 185% over the last ten years.

The fine wine and whisky market has evolved well beyond its buy-on-release model into a serious investment category with a global client base. The wine market tilted towards buyers in 2024, while the secondary market for rare whisky remains exceptionally strong, with some distilleries seeing price rises of over 50% in casks of 25 years and over.

The watch market went through a turbulent time during Covid and the aftermath, but over the last 18 months secondary prices have settled and stabilised while retail prices have risen across all brands. Global markets in Rolex, Richard Mille, Audemars Piguet and Patek Philippe are busy again as luxury buyer demand returns to normal.

BlackRock is preparing a $30 billion AI-focused private equity fund for the Global AI Infrastructure Investment Partnership, an international partnership with Global Infrastructure Partners, Microsoft and Abu Dhabi investor MGX. In total the partnership will mobilise up to $100 billion including debt finance, investing in data centres and energy infrastructure.

Secondary fundraising has had a busy year. HarbourVest Partners closed Dover Street XI and Secondary Overflow V, raising $18.5 billion, and Stepstone Group raised $7.4 billion for its fifth Secondary Opportunities Fund. Preqin put the market at $462.5 billion at the end of 2023 and expects it to double to $980.5 billion in five years.

KKR announced the final close of its Ascendant Fund at $4.6 billion, the first North American middle market deals fund of the firm, which began fundraising in 2022 as part of its Americas Private Equity platform. Focus is on consumer, financial services, healthcare, industrials, media, software and tech-enabled services.

London-based secondaries manager Coller Capital launched a Luxembourg SICAV secondaries fund targeting non-US private wealth investors. Coller Private Credit Secondaries is being seeded with $250 million. The firm has made a big push this year into private wealth channels, with new offices in Luxembourg, Zurich, Melbourne and Montreal.

Blackstone announced a new $10 billion Asia-focused fund, its third for the region after closing the second at $11 billion in 2022. The fund will focus on Japan and Australia rather than China, with marketing kicking off in September.

We often write about big brands pulling in big dollars, which makes it seem they invariably hit target. EQT announced that its Active Core Infrastructure fund had a final close at $2.9 billion, a decent size but significantly short of the $5 billion targeted. The fund invests in core infrastructure companies in Europe and North America.

Carmignac is developing a private assets business with its first private equity strategy, Carmignac Private Evergreen. The EUR 35 billion Paris-based asset manager is looking to offer more products to the private wealth market. The semi-liquid fund, a collaboration with secondaries firm Clipway, focuses on the secondaries market via co-investment deals.

Vitruvian Partners announced the final close of its largest fund to date at EUR 7.3 billion. Vitruvian Investment Partnership V was decently oversubscribed against an original EUR 6.5 billion target, with commitments from over 200 institutions. It continues the Dynamic Situations strategy, taking London-based AUM to EUR 20 billion.

As asset managers seek to diversify their investor base, Macquarie Asset Management took a minority equity stake in D.E. Shaw Renewable Investments. DESRI is the US-focused renewable energy arm of D.E. Shaw, developing, owning and operating utility-scale solar, wind and battery storage projects. The $1.7 billion investment will fund continued growth.

At its investor day on 1 October, Apollo set a goal of doubling assets to $1.5 trillion by 2029, from $696 billion at 30 June 2024. To achieve it the firm will go toe-to-toe with traditional banks, aiming to originate $275 billion in debt annually within five years, and to double private equity AUM from $135 billion to $270 billion.

The strategic partnership between Citigroup and Apollo is a good example of investment banks aligning with the big credit players. Citigroup provides the deal flow and Apollo provides the cash, targeting $25 billion of deals in the first five years with Mubadala and Athene also participating. The focus is North America non-investment grade lending.

According to WithIntelligence, a quarter of the top 100 hedge funds now have a presence in the UAE, either in Dubai or Abu Dhabi, with 40 billion dollar funds operating in the DIFC and 11 in ADGM. The draw is tax treatment, access to investors, lifestyle and a timezone covering both Asia and Europe.

London-based Capricorn Fund Managers launched the first institutional manager hosted platform in the DIFC, adding another route to operate within the UAE and enabling managers to run funds under the DFSA regulatory umbrella of CFM. DIFC figures show more than 400 wealth and asset management firms in the centre, including over 60 hedge funds.

The sheer headcount of the multistrategy hedge funds is worth flagging. Pensions & Investments reported that the top four account for over 13,000 people, the biggest being Millennium with 5,800 employees, followed by Citadel at 3,000, Point72 at 2,800 and Balyasny at 1,900. The new venture of Bobby Jain employs more than 250.

There is nothing new in managers returning capital to become a family office, with Michael Platt the best-known example. Kuvari Partners, once a $2 billion manager, is the latest to make the transition. Bloomberg cites family priorities for founder Vikram Kumar, the difficulty of long-term stockpicking against the multistrategy funds, and assets below $1 billion.

Interim results at Petershill Partners revealed strong financial performance and strategic progress in the first half. The Goldman Sachs operated business reported that underlying partner firms had raised $14 billion of fee-eligible assets. Petershill also completed $205m of acquisitions, including a stake in alternative credit manager Kennedy Lewis Investment Management.

In the latest AIMA and Marex Prime Services emerging manager survey, the chief takeaway is that funds are adapting, with competitive fee models and lean operating models to stay relevant. Two-thirds of investors questioned were open to allocating to managers below $100 million in AUM, while due diligence periods have lengthened from six to eight months.

European private equity fundraising hit EUR 118 billion in the first half of 2024 according to Preqin, putting a record year in prospect. The numbers are primarily driven by big fundraises, including the EUR 22 billion of EQT for EQT X, and it remains a long slog for smaller funds. Europe-based private debt fundraising is down at EUR 14 billion.

Europe's share of global alternative assets is set to contract by 2029, again on Preqin data. The share is estimated to drop to 20% from 20.9% at the end of 2023. Preqin attributes this to lower forecast performance and slower fundraising compared with the more dominant region of North America.

The charity of Chris Hohn pledged $516 million to new charitable investments in 2023 and disbursed grants of $578 million, exceeding the $116 million of 2022, following record gains at TCI Fund Management. The Children's Investment Fund Foundation was set up 22 years ago and its endowment has grown to $5.9 billion over the past ten years.

On 9 September 2024 the FCA allowed firms temporary flexibility until 2 April 2025 to comply with the naming and marketing rules under the Sustainability Disclosure Requirements. Separately, the timeframe for extending SDR and the investment labels regime to portfolio management has been pushed back, with a policy statement intended for Q2 2025.

In a speech on 24 September 2024, Therese Chambers, joint executive director of enforcement and market oversight, set out how the FCA is adapting its approach. Investigations closed in 2023/24 took an average of 42 months and the regulator aspires to shorten that. Proposals to name firms under investigation drew feedback from 130 stakeholders.

The FCA has asked alternative investment fund managers submitting AIF002 returns to check that they have completed all relevant fields, specifically the legal entity identifier at 6A, the international securities identification number at 7A, and 209A on whether the fund offers redemption or withdrawal rights in the ordinary course.

The Financial Crimes Enforcement Network adopted a rule broadening the definition of financial institution under the Bank Secrecy Act to include registered investment advisers and exempt reporting advisers. Covered advisers must establish an anti-money laundering and counter-terrorist financing programme and file certain reports, effective 1 January 2026.

The SEC announced settled charges against twelve firms for failing to preserve electronic communications properly. All are accused of using unapproved communication methods, often entailing senior members of the firm and in many cases senior compliance personnel. The firms were charged with supervision failures and fined over $1.3 million cumulatively.

The SEC announced settled charges against a registered investment adviser for off-channel communications recordkeeping violations. The firm self-reported after a 2021 subpoena, cooperated fully and undertook remedial action, and was censured but not fined. That contrasts with a contemporaneous announcement fining eleven firms over $88 million.

The SEC announced charges against nine investment advisers as part of an ongoing sweep into the Marketing Rule. Where previous violations focused on hypothetical performance, these targeted third-party ratings, testimonials and material statements of fact. All nine breached provisions on truthfulness, substantiation and disclosure and were fined $1,240,000.

The SEC announced settled charges against former registered investment adviser Galois Capital Management and registered investment adviser ClearPath Capital Partners for failing to safeguard client assets within a private fund. Galois held crypto assets on platforms including FTX, losing around half the fund assets, and was fined $225,000. ClearPath was fined $65,000.