February 2025

January saw shifting geopolitics, with conflicts and strategic rivalries reshaping alliances and driving volatility in equity markets. Amid the turbulence hedge funds had a strong start to the year, with the HFRI Fund Weighted Composite Index rising 1.4% and the Asset Weighted Index up 1.7%. Multi-strategy managers led the way.

Trump 2.0 is clearly reshaping ESG in the US amid a fast shifting regulatory landscape, but we think it is unlikely to stop the momentum of the sector. Federal support may weaken while the sector itself remains deeply entrenched in global markets. Bloomberg Intelligence valued the market at over $30 trillion in 2022, projected to surpass $40 trillion by 2030.

The recent, well publicised struggles of Saba Capital in the GBP 269 billion UK investment trust sector highlight that activist campaigns do not always succeed. Proposals were resoundingly defeated at Baillie Gifford US Growth Trust and Keystone Positive Change, with 65.6% and 60.5% voting against. The battle became one of perception rather than performance.

As the world seemed to be getting used to FOMO-type investing in artificial intelligence and the data centers that power it, along comes DeepSeek-R1, a start-up out of China with a low-cost, efficient AI application, sending investors into DeepShock. By my back-of-the-napkin calculations I count some 53 allocations or fund formations in the data-center ecosystem in seven months.

Private equity fundraising timelines hit a record 19 months in 2024 as managers prolonged closings to support investors dealing with liquidity issues. The cycle pressures mid-market and smaller managers with lean investor relations teams. Firms are increasingly adopting integrated platforms that unify investor interactions, compliance, marketing and reporting.

A chart in the Financial Times showed distributions to paid-in capital for global private equity funds back to 2007. Vintages between 2007 and 2014 returned significant distributions to LPs, while 2019 to 2022 vintages are tracking more than 75% lower at a comparative stage. PE funds were sitting on a record 28,000 unsold companies worth more than $3tn.

Private equity is undergoing a significant transformation, driven by evolving market demands. Nothing highlights this more than the institutionalisation of small to mid-sized firms, which has involved establishing new channels and teams to engage different investor types, such as consultant relations teams, new wealth channels and product development.

In a new report, Peregrine Communications and Boston Consulting Group consider what asset managers should be doing to tap into the growing retailisation of private markets. Global financial wealth is projected to grow around 5% annually through 2030, potentially reaching $350 to $400 trillion, while retail investors are expected to triple allocations to 10-12%.

Paris-based Ardian closed two major funds, underscoring its position in secondaries and mid-cap private equity. ASF IX closed at $30 billion, up from its $19 billion predecessor and the largest secondaries fund to date, with half already deployed across 17 transactions. Ardian Expansion Fund VI closed at EUR 3.2 billion, up 60%.

Insight Partners raised $12.5 billion for its 13th flagship fund, Fund XIII, short of its $20 billion target but an impressive raise in a tough venture capital environment. The total includes a dedicated buyout co-invest fund and Opportunities Fund II, aimed at high-growth software companies globally, taking assets under management past $90 billion.

Ares Management closed its sixth European direct lending fund, Ares Capital Europe VI, with EUR 17.1 billion in commitments, surpassing its EUR 15 billion target and hitting its hard cap. That makes it the largest institutional direct lending fund globally by LP equity commitments, a 53% increase over its predecessor.

Thoma Bravo closed its third private credit fund, Credit Fund III, with $3.6 billion in commitments including anticipated leverage, more than double its initial $1.75 billion target. The fund focuses on direct lending to sponsor-backed companies, emphasising senior-secured debt. Nearly $1 billion has already been deployed across 20 transactions.

Allianz Global Investors closed its inaugural private debt secondaries fund, Allianz Private Debt Secondaries Fund, at EUR 1.5 billion, surpassing its EUR 500 million target. Launched in September 2022, it gives institutional clients access to secondary private debt across the US, Europe and Asia, with a successor strategy planned for mid-2025.

Teaming up with its Lexington Partners business, Franklin Templeton launched Franklin Lexington Private Markets Fund, an open-end fund focused on secondary private equity investments. It launches with $904.5 million and provides access to a diversified portfolio of secondary transactions and co-investments. Lexington was acquired in 2022.

Former Blackstone executive Mustafa Siddiqui launched a new private equity secondaries firm, SQ Capital. Capitalising on growing demand for secondary investments, the firm is focused on acquiring stakes in middle-market private equity funds primarily under $5 billion, targeting the US and Europe.

Private equity fundraising continued its downward spiral in 2024, a third consecutive year of decline. S&P Global Market Intelligence reported global funds raised approximately $680 billion, down 30% from $966 billion in 2023 and the lowest since 2015. Only 1,783 funds closed, a 40% decrease. EQT secured the largest fund of the year at $22.7 billion.

The private equity secondary market surged past $150 billion in transaction volumes in 2024, a sharp increase on 2023 according to numbers from Jefferies and Lazard. Growth was fuelled by LPs seeking liquidity amid a slowdown in M&A and IPOs, driving a rise in LP-led transactions, while GPs increasingly used continuation funds.

According to With Intelligence, hedge fund assets are on track to exceed $5.5 trillion by 2030. The expansion opens up significant opportunities for service providers as funds look to scale, introduce new strategies and adapt to evolving regulations, creating openings for prime brokers, fund administrators and consultants.

Global funding for AI start-ups surged to $131.5 billion in 2024, a 52% year-over-year increase, while funding for non-AI start-ups fell 10% to $237 billion, according to PitchBook. Growth was driven by high-profile rounds including the $6.6 billion raise of OpenAI at a $157 billion valuation and the $10 billion Series J of Databricks.

The Abu Dhabi Investment Authority partnered with Innocap Investment Management to provide managed account platform services for segments of its hedge fund and equity investments. An ADIA subsidiary will gradually acquire up to a 10% stake in Innocap. With $80 billion in assets across 340 funds, Innocap will open an Abu Dhabi office this year.

The acquisition by Apollo Global Management of Argo Infrastructure Partners expands its assets and strengthens its distressed asset investing capabilities. The deal highlights the readiness of Apollo to scale through acquisitions as it aims to double assets under management to $1.5 trillion by 2029.

Bloomberg ran the story that Fortress Investment Group and Lighthouse Investment Partners are merging their global multistrategy hedge funds. The newly formed fund will be managed by Lighthouse chief executive Sean McGould and Jeffrey Runnfeldt, who runs the Multimanager Group of Fortress. A single fund offers better economics and operational efficiencies.

Securitize partnered with Apollo to launch the Apollo Diversified Credit Securitize Fund, providing tokenized access to the Apollo Diversified Credit Fund. Available on Aptos, Avalanche, Ethereum, Polygon and Solana, it uses blockchain technology and Wormhole interoperability, with investors participating through Securitize Markets.

The launch by Goldman Sachs of the Capital Solutions Group highlights a broader trend among major banks pivoting toward private credit as a growth area. With the private credit market nearing $2 trillion, banks see an opportunity to capture deal flow traditionally dominated by non-bank lenders.

The response of FCA chief executive Nikhil Rathi to a Christmas Eve letter from the Prime Minister, Chancellor and Secretary of State acknowledges the need to take greater risks and rigorously prioritise resources. He offers a stocktake of recent initiatives and highlights proposals in the pipeline on capital investment, digital innovation and regulatory burden.

The Short Selling Regulations 2025 were introduced to the UK Parliament in January, a significant shift from the framework inherited from the EU. Public disclosure of individual short positions above 0.5% is eliminated, with the FCA publishing aggregated net short positions instead. The private notification threshold remains at 0.2%, and sovereign debt falls out of scope.

The FCA published a Final Notice objecting to the proposed acquisition of Olampicaran Limited, a small payments firm, on the grounds that the acquirer showed a lack of professional competence and failed to comply with legislative requirements. He had acquired a regulated firm before without notifying or seeking FCA approval.

The FCA fined Arian Financial LLP for failing to ensure it had effective systems and controls against financial crime. Arian executed over-the-counter equity trading of around GBP 37 billion and GBP 15 billion in Danish and Belgian equities for clients of the Solo Group. The Upper Tribunal reduced the proposed fine. It is the seventh FCA cum-ex case.

The SEC, together with the CFTC, extended the compliance date for amendments to Form PF adopted on 8 February 2024. The date moves to 12 June 2025, three months later than the original 12 March 2025. The amendments enhance the ability of the Financial Stability Oversight Council to monitor systemic risk and bolster SEC oversight of private fund advisers.

The SEC announced settled charges against Two Sigma Investments and Two Sigma Advisers for failing to address known vulnerabilities in their investment models and for related compliance and supervisory failures. The firm voluntarily repaid impacted funds and accounts $165 million and agreed to pay $90 million in civil penalties.

The SEC announced charges against nine investment advisers and three broker-dealers for failures to maintain and preserve electronic communications. The firms admitted the facts and agreed to pay combined civil penalties of $63.1 million. Penalties ranged from $4 million to $12 million, while one self-reporting firm agreed to $600,000.

The SEC charged Connecticut-based Navy Capital Green Management with making misrepresentations related to its anti-money laundering procedures and for compliance failures. The firm represented to investors that it was voluntarily complying with AML due diligence laws despite those laws not applying to investment advisers. It agreed to a $150,000 civil penalty.