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First of all, Happy Holidays, and thank you for subscribing to our humble newsletter. I hope we have a chance to get to know each other better in the coming year.
I recently reviewed some research conducted by Cerulli and SIFMA called “The Evolving Future of Wealth Management.” It only cost me an email address to download and probably a follow-up sales call and a future of automated emails from Cerulli. There’s a lot of good information in it though, so, imho it’s worth it.
What appears to have shocked some—but didn’t surprise me at all—was that the demand from investors for more ‘hands-on’ advice is increasing. Despite all the robos, generative ai, and whatever other tech is out there, people still prefer to seek out professionals. They want to know someone is looking out for their best interests, and they don’t mind the costs associated with it.
Also, in the ‘not surprising’ category:
— Finding the right advisor to trust is a key concern.
— Fiduciary alignment is increasingly important.
— Personalization is important.
I may have ruined the plot for you. But you should still read it.
Even in our ‘Brave New World,’ there is a desire by individuals for personal connection and tailored guidance. This rings true, especially in fields like wealth management and alternative investments, where trust and individual attention are paramount.
As we leave this year behind and step into the new one, I never imagined a research report from Cerulli would take me down this rabbit hole of introspection. Turns out it was a helpful reminder that while it can sometimes feel like our industry is not much more than a tech race, the personal touch remains key. It’s still a relationship-driven business.
Again, wishing you a wonderful holiday season and a prosperous New Year!
Best,
Dan
Alternative Talking Points
We review the latest monthly reports and industry analyses across the private markets, boiling them down into a few easily digestible points to share with your clients. Contact us if you’d like more depth.
Hedge Funds: Gains in November were driven by the rally in equities and bonds.
➕ Equity Hedge funds led the strategy performance, particularly in sub-strategies like Quantitative Directional, Technology, Fundamental Value, and Healthcare.
➕ Event-driven strategies, which encountered challenges in October, also posted strong gains in November.
➕ Wide performance dispersion between top-decile and bottom-decile managers in November as measured by the constituents of the HFRI 500 Fund Weighted Composite, highlighting that manager selection is critical to investment success.
Private Equity: Adapting to macro and geopolitical headwinds and shifting investor focus
➕ Multiple reports of slowing fundraising in 2023, although 2022 was a record year for private equity funds, and AUM in private equity is still expected to grow at an annualized rate of ~10%.
➕ Shift in allocations from venture funds (which have been over allocated in recent years) to more buyout-focused strategies in specialty sectors like industrial and healthcare.
➕ The high-interest rate environment is shifting how private equity managers use debt, with a notable increase in use of Capital Call Lines of Credit (CCLOCs).
Private Credit: Favorable outlook but cautious of increasing risks.
➕ Private credit managers continue raising substantial capital, while some investors are keeping an eye out for the relaxed structural protections and weaker covenants in loan agreements that typically come with increased market competition.
➕ Many expect private credit managers will increase lending to private equity deals faster than banks over the next couple of years.
➕ While current returns are promising, with yields between 11% to 13% in the direct lending market, the performance of these investments during a real downturn remains an unknown factor.
Commercial Real Estate: Navigating challenges while on the lookout for opportunities.
➕ Industrial properties like warehouses and distribution centers remain strong, largely due to the growing e-commerce sector. In a similar vein, the rising need for data center properties is being driven by advancements in artificial intelligence technology.
➕ About 19% of performing Commercial Mortgage-backed Securities (CMBS) conduit loans maturing next year have a high default risk, but they are still attracting investors due to yields of 10% or greater.
➕ Despite challenges, the cyclical nature of commercial real estate presents opportunities for investors with strong financial positions to capitalize on market fluctuations due to geopolitical tensions, inflation, and interest rate hikes.
Worth Your Time
Our monthly recommendation of books, articles, research, and announcements we find interesting, important, or just plain entertaining enough to share. Sometimes we’ll have a lot. Other times, not so much. The objective is to share things that are useful, not filler.
➕ Regulatory & Compliance 101: Looking Beyond Diversification to Potential Tax Benefits of Investing in Liquid Hedge Funds. Third Wire Insights. Our monthly self-serving plug for our latest blog post. This one tells a gripping short tale about an advisor’s cross-country flight, 1256 contracts, how clients investing in liquid hedge funds could benefit from the 60/40 tax rule, and living your best? in-flight life. It also sports a hilarious illustration generated with DALL·E.
➕ Hedge Fund Performance Dominates Over Last 5 Years. CAIA Association. Coming in 1st place for this month’s No Brainer Award, this article actually says (and we quote), “…there is significant potential for increased performance for investors who can identify strategies that will outperform or select top-tier managers within a specific strategy.” Umm. You don’t say? 😉 Joking aside, worth a read.
➕ 2024 Examination Priorities. SEC. Link to the full report released by the SEC’s Division of Examinations. Marketing practices, compensation arrangements, duty of care, and duty of loyalty. Check. There’s more. You should download a copy and give it a scan.
➕ Asset managers better watch out: outsourcing rules are coming to town. Opalesque. We’ll forgive Opalesque for the cliche X-mas-themed title. This proposed new rule will likely have broad impacts across the industry if passed. In particular, we’re hoping it prompts you to take a closer look at who your alternative investment partners are outsourcing their investment due diligence processes to. Shameless Plug: We conduct ours in-house.
➕ LPs stay bullish on PE. PitchBook. In case you need someone to tell you again, the private equity thesis for institutional investors remains the same as it has for decades, i.e., optimistic about PE’s long-term performance vs public equities and they look to it for continued diversification from public market assets. Nobody’s treading any new ground here but the article has links to a few surveys and Pitchbook’s Q3 Global Private Market Fundraising Report (and data) for the relatively low cost of your email address.
➕ Assessing the Implications of a Productivity Miracle. Bridgewater. Well, because we think more people should be paying closer attention to the implications of generative AI, in general. And, we’re willing to do our part to help people understand that it’s not all hype. You didn’t hear it here first, but you did hear it here, too.
Disclosure:
This newsletter is for informational purposes only and does not constitute financial, investment, legal, or other professional advice. The information, opinions, and forecasts contained herein are current as of the date of this publication and are subject to change without notice. The information presented in this newsletter has been obtained from sources believed to be reliable, but its accuracy, completeness, and relevance to your personal situation cannot be guaranteed.
Investments and strategies mentioned may not be suitable for all readers and may have different implications for different people. We highly recommend that readers seek advice from qualified professionals before making any investment decisions. Past performance is not indicative of future results, and no representation or warranty is made regarding the accuracy or completeness of the information contained herein.
Third Wire Asset Management, LLC (‘Third Wire’) does not accept liability for any loss or damage arising from the use of this newsletter. By reading this newsletter, you acknowledge and agree that Third Wire is not responsible for decisions made based on the information provided herein.
