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I hope you’re all doing well. In my first newsletter, I promised to keep these intros short and sweet. Then, I promptly forgot about that. 🙂
To get things back on track, I launched our new Industry Perspective as a place to share my thoughts on the industry (and an occasional venting session like this month’s) in a format better suited for it. We’ll publish them periodically as the spirit moves me.
We’re also planning a few changes to the newsletter in the coming months. Keep an eye out for more actionable information and deep dives into the strategies and managers we invest with.
Lastly, we recently launched a landing page for advisors and family offices to sign up to receive monthly performance updates for our funds.
Sign up for our monthly performance updates here.
And, as always, feel free to reach out and let me know if there’s anything you’d like to see included (or removed) from the newsletter. I aim to serve.
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: Significant dispersion in performance across strategies with positive performance from macro strategies leading gains.
➕ Macro strategies led gains, with the HFRI Macro Asset Weighted Index surging 2.6% in April, driven by commodities and discretionary thematic funds as markets priced in persistent inflation.
➕ Equity hedge funds declined in April driven by losses in healthcare, tech, and quant strategies amid the general risk-off sentiment.
➕ Fixed income relative value arbitrage funds gained on higher rate expectations, while the largest funds outperformed smaller funds overall.
➕ According to HFR data, performance dispersion was high, with the top decile up 5.9% but the bottom decile down 8.4%, reflecting the strategy divergence.
Private Equity: Focus on stabilization and strategic adaption.
➕ PE deal activity is showing signs of stabilization. While the record deal activity of 2021 is unlikely to be reached again soon, the market appears to be finding its footing with steadying deal flow and slightly elevated deal counts in early 2024.
➕ Fundraising remains muted with longer closing times, indicating that investors are still committing to private equity but are taking more time to commit capital.
➕ Exits continue to be a challenge, with PE firms increasingly relying on continuation funds and other strategies to provide liquidity and facilitate exits.
➕ The secondaries market is expanding with growing specialization and significant deal volumes. This market segment is expected to remain a critical component for liquidity and strategic portfolio management in 2024.
➕ PE valuations show a modest recovery, with trailing 12-month EV/EBITDA multiples rising at the end of 2023, indicating a potential bottoming out after a significant decline in 2022 and 2023.
Private Credit: Addressing higher default rates and evolving deal structures amid high interest rates.
➕ According to Private Debt Investor, Fundraising in Q1 2024 fell to $38.8 billion, following a year of relatively low fundraising in 2023. A low number of fund closes contributed to this decline.
➕ Private credit funds are increasingly taking market share from banks, particularly for large LBOs. This trend is driven by private credit’s ability to offer certainty of closing.
➕ Default rates in the leveraged loan market are on the rise, reaching 3.5% in April 2024, according to Pitchbook.
➕ Private credit deal structures are evolving with a greater emphasis on equity contributions and more conservative leverage ratios.
➕ Borrowers are also facing higher coupons on floating-rate debt, prompting a shift in financing strategies to adapt to the high-interest-rate environment.
Commercial Real Estate: Continued optimism from private opportunistic investors during ongoing market correction.
➕ While overall investment volumes have declined, the pace of decline has slowed, suggesting potential stabilization. Most primary markets are experiencing year-over-year declines in investment volume.
➕ Despite overall declines, the office sector saw a year-over-year increase in Q1 2024 due to significant mergers and acquisitions activity.
➕ Institutional and REIT investors have become net sellers, while private investors have increased activity.
➕ Cross-border investment in U.S. commercial real estate has seen a significant decline. Inbound investment fell year-over-year in Q1 2024, with the office sector leading.
➕ Price trends are showing resilience in some sectors. Industrial properties have seen price increases, while office property prices have declined, reflecting broader market challenges and sector-specific adjustments.
Worth your time
Our monthly recommendation of books, articles, research, and announcements we found 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.
➕ Aggregation of Aggravation: Third Wire Industry Perspective. Is it just us, or is the amount of conflicting information being published about alternative investments getting out of hand? Everyone’s anticipating an epic level of your client’s wealth to flood the industry over the coming years. So, unfortunately, that also typically means a flood of questionable investments, advice, content, and general noise. We’re trying our best to help you sort through it.
➕ M&A in Wealth Management: Cerulli Associates. Who doesn’t love a good Cerulli white paper? Especially the ones that only cost you some contact information.
➕ Why Does Private Equity Get to Play Make-Believe With Prices?: Institutional Investor. This one may have slipped through the cracks during the news cycle that day. There was a bit going on in D.C. the day this was published back in January. In any case, the concept showed up in our news feed recently via a post from Millbank Dartmoor Portsmouth, and thought we’d track down the original article from Cliff Asness and share.
➕ Out of Options: Navigating an Era of Fiscal Dominance, Rate Cuts, and Debt Monetization: Wellington-Altus. Sharing something interesting that landed in our feed this month. An insightful piece that highlights the U.S.’s looming fiscal dominance dilemma, where mounting debt levels could force the Fed into unconventional measures like debt monetization. “Those who fail to learn from history are condemned to repeat it.” Amen, James Thorne, Amen. 🙂
➕ Last week, Reid Hoffman posted a video where he interviewed his digital twin: Bloomberg Live. Built with publicly available technologies. Ethay orldway isway ettinggay eirdway iendsfray.
Disclosure:
This newsletter is for informational purposes only and does not constitute investment advice. All investments, including those in equity, debt, and alternative assets, carry certain risks, notably potential liquidity and transparency issues associated with many private investments. These risks should be considered in the context of an individual investor’s objectives and risk tolerance.
The views expressed are those of Third Wire as of the date of publication and are subject to change. The information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed.
Past performance is not indicative of future results. Investors are advised to consult with qualified financial, legal, or tax advisors before making any investment decisions. Third Wire does not accept liability for any loss or damage arising from the use of this newsletter.
By subscribing to this newsletter, you agree and acknowledge that Third Wire is not liable for any decisions made based on the information provided herein.
