The pattern with respect to allocations by institutional investors to hedge funds since 2009 is somewhat different from that of allocations to private equity. As Preqin’s report explains, many institutions have long been familiar with hedge funds, their learning curve has flattened out so to speak, and they have established a target allocation for hedge funds considered as an asset class.
Guest columnist John Bhakdi looks at the future of venture capital in this final segment of a three-part series.
Guest columnist John Bhakdi looks at structured seed capital
Recent and ongoing transformations in the PE industry and its institutional contexts have created a demand for a more robust infrastructure: mid or back-office functions are the weight-bearing beams of PE firms.
A new paper in the Journal of Investment Management claims that five sophisticated high-profile institutions could have made better use of the PE portion of their portfolios over the period 1999 to 2010 had they applied the insights of the founder of modern portfolio theory, Harry Markowitz.
If PE managers want to raise money in the present environment, they have to be very clear with their potential investors about how their strategy will work, and they have to pay attention to what those investors are trying to tell them. Further, it might help if neither side in that equation pays too much attention to consultants.
Acceptance of the higher levels of volatility as a fact of life means that careful ongoing attention to risk has become the means of operations. In the United States specifically, 31 percent of institutions say that they monitor their risk budget daily to keep the overall amount of risk in the portfolio under check: more than half (53 percent) say that they do such monitoring on a weekly or monthly basis.
There is good news to report about the renewal of PE activity in the Asia-Pacific region in 2011, and the new McKinsey paper reports it. One potential worrying sign, though, is that in some areas, notably Southeast Asia and India, businesses aren't exiting the PE market for the public world. Indeed, Southeast Asia recorded no initial public offerings at all in 2011.
In a study of its own portfolio the Kauffman Foundation found that only twenty of 100 venture funds “beat a public-market equivalent by more than 3 percent annually”.
The reason for the increased interest in alternatives, McKinsey says, isn’t that the alternatives’ managers are slashing the price of their services. It is, rather, a discontent with the return to be gained from traditional investment. “Even with downward pressure likely over the next few years, revenue yields for institutional alternative products should remain well above the 35 bps average earned on today’s traditional institutional products.”
The survey also asked that the asset managers state where their total assets are invested, using four geographical categories: Europe; Central/North America; Asia Pacific; Other. Commodity funds were easily the most heavily invested in C/NA, to the extent of 94 percent of their portfolios. Private equity funds are 61 percent invested in C/NA, and PE FoFs also have the majority of their portfolios there, at 54 percent.
A veteran of hedge funds and private equity, Jeff Joseph offers some comments to the U.S. Securities and Exchange Commission on the JOBS Act and what this legislation has the potential to mean to the global alternative investment community.
A recent Kauffman Foundation Study draws daunting conclusions regarding their 20 year experience in the venture capital sector. AARM Founder, Gitanjali Swamy, believes Good Venture exists and shares a road map to help investors find attractive pockets of investment opportunities in venture. What do you think about the future of venture capital in the United States?
AllAboutAlpha talks to Jalak Jobanputra, MD at RTP Ventures on the mobile payments market, which is set transact over US$1 trillion by 2016.
A deeper look at alternatives with Dr. Bob Swarup, a world-renowned expert and commentator on alternatives and financial markets as well as being a visiting fellow at London School of Economics.
Industry watchers are watching the tug of war between private equity GPs and LPs. Surprisingly, LPs don't want to dictate terms, if Canada offers any evidence. They want equality. And all the rest: a decent track record, a stable team and a successful strategy.
It looks like the pension funds are worse off than if they had stuck to vanilla bonds and stocks, not least because of the management fees they pay to alternative investment managers.
Consultants expect that managers' need to generate steady income in a low interest rate environment will drive a lot of portfolio turnover in 2012, inclusive of the movement of alternatives into core positions within portfolios, and it will drive one-time U.S. focused investors and managers to look abroad. Meanwhile, pensions are retreating toward passive mandates.
The Grant Thornton paper maintains that the asset management industry achieved "performance and operational efficiencies" during 2011, and this sounds like the sort of marginal adaptation that play a large part in Charles Darwins' writings, to which GT's Winstoin Wilson alluded. But ... the report also treats the regulatory environment as a meteor, capable of wiping out even the best-adapted of pre-collision dinosaurs. So "the Darwinian process" is an odd label for what it describes.
Lisa Suennen of Psilos Group discusses the new wave in healthcare venture capital: improved care quality while reducing costs.
2011 was the year private equity managers learned to accept that what they got even if it wasn't always quite what they wanted. Investors talk about what they want and need in 2012.
Two scholars affiliated with the Center for European Economic Research, drawing upon European data between 2000 and 2008, maintain that PE backed companies do not suffer from higher bankruptcy rates than their control group of comparable companies. Their paper also addresses the relationship between bankruptcy risk on the one hand and the syndicated (or, conversely, the stand-alone) nature of a PE deal. It finds no significant relationship.
In spite of what the media might have us believe, it isn't quite the end of the world as we know it, particularly as it applies to European private equity.
A recent study, in which Steve Kaplan of the University of Chicago collaborated with Bob Harris of the University of Virginia and Tim Jenkinson of Oxford, addressed fund-level performance using data from Burgiss Group. Kaplan said this study indicates that “private equity has performed remarkably well.” In the period 1990 to 2008, a dollar in PE returned to investors 300 to 400 basis points a year more than a dollar in the equities of the S&P 500, net of all fees. This, if accepted, still leaves the question of the relationship of PE funds/firms to one another. Are they all the same?
If every fund is number one, then no one is number one. Irina Zeltser examines performance rankings in private equity.
EisnerAmper LLP's latest edition of “Pulse of Private Equity” finds that PE firms in the second half of 2011 are becoming “more sober about the potential for transactions,” compared to last year or earlier this year.
Angel investors are returning to provide seed-stage capital and job growth. slowly recovering after the financial crises of 2008 and 2009.
Managers were asked: “other than delivering expected performance, what is the greatest challenge in satisfying investors?” The results were: getting investors comfortable with infrastructure, 22 percent; providing satisfactory performance attribution data, 19 percent; providing broader education/consulting, 18 percent; providing satisfactory risk analytics, 11 percent; other, 28 percent. The residual answer produced more favorable replies, then, than did any of the pre-scripted answers.
Following the ongoing financial crises that began in 2008, financial services providers are changing the way that they do business. Preqin looks at the shifting role of the consultant and the effect that change is having on the private equity industry.
Even against the backdrop of a global recession, the top 50 fastest growing companies in the USA averaged growth rates between 3,893% and 40,882% in the three years to the start of 2011. These are rates of return which more than compensate the investor for the risk of making high-growth-young-company-investments. For some investors, alternative markets [...]
Cyril Demaria, a partner at Tiaré Investment Management in Zurich, and a former portfolio manager at Maaf Gestion, has written a book, Introduction to Private Equity, John Wiley & Sons Inc., Hoboken, N.J., 2010, 244 pp., $49.95. The subject matter is named well enough in the title. I’ll only add that Demaria uses the term “private [...]
The second in a three-part series on private equity from SEI shows that alpha is a bit slippery these days.
It is true by definition that the crowd is right in the midst of a trend, and wrong at the moment when that trend is about to reverse itself. In the Asia Pacific region, broad confidence in opportunities for private equity surely constitutes by now, a trend, even a parade. Whether it is the sort [...]
Roughly half of the private equity limited partners questioned in a June 2011 survey said they plan to commit more capital to PE funds this year than they did last.
Institutional investors have great expectations for private equity, and the right fund managers, willing to meet their “increasingly exacting standards,” will be in a position to listen to “capture part of the growing flow of assets” in that direction.
You and your neighbour are good friends and, like Dagwood Bumstead and Herb Woodley, you share tools all the time. Then one day it occurs to you that Herb has lots of tools that he isn't using, or using well. Why not, you say, make an offer on his garage and its contents. Of course, Herb will have his own terms and conditions – and maybe extract a price if the deal falls through.
Alpha isn't always where you'd expect it, especially in the crowded private equity field.
Fees for alternative investments, particularly for private equity, are a long-standing issue that likely will never be resolved, but investors and managers alike keep trying, according to a recent survey by Preqin.
If everyone is the best, then no one is the best. A look at private equity performance.
Alternatives are increasingly being viewed as a key component of portfolio construction for wealth management firms - good news for hedge funds. But there's competition from private equity.
According to the latest research, confidence in family office investing is back.
More stringent than ever, investors are demanding more for the same or less of private equity funds. Whether they'll relent remains to be seen.
A recent report on the private equity landscape paints a less-optimistic picture of where private equity is headed two-plus years after the financial crisis.
Irina Zeltser attended the US Super Returns conference, held recently in Boston, where the future of the general partner business model was up for debate.