Sean Connor

A US appeals court has struck down the overreaching SEC rules that would have burdened private equity and hedge funds with unnecessary requirements. The Fifth Circuit Court of Appeals recognized that the SEC exceeded its authority by mandating detailed quarterly reports and limiting side deals. This unanimous decision is a major victory against Gary Gensler's excessive regulatory agenda, which threatens to stifle growth and innovation in the industry. The court's ruling sends a message that regulators can't bypass Congress to push their ridiculous policies. The SEC's failure to link these new rules to fraud prevention only highlights their lack of justification. It's great to see the court protect our industry from costly and intrusive regulations. This decision reaffirms that the $27 trillion private funds industry, which supports pension funds, universities, and individuals, should not be hindered by unwarranted constraints. While the SEC may consider appealing to the Supreme Court, hopefully, the courts will continue to curb such regulatory overreach.

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PE - Hedge Funds Hit by Lack of PE Exits (and one way that PE firms can boost exits) Financial Times: https://lnkd.in/edACss_X FYI - one way to get more PE exits is for the PE fund to have a domain expertise GTM and have deep knowledge on how to increase the Revenue Growth of portfolio companies which boosts cash, profits and margins. --- #pe #privateequity #business

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FundFire Alts: Hedge Funds Urged to Prepare for a Non-Compete Clause Ban A pending rule change may not survive court challenges, but managers must be ready for a range of outcomes; however, we have not seen these concerns affect hiring trends. "Firms continue to build out quantitative and technology capabilities around machine learning in large data sets, often non-financial in nature, and the implementation of large language models on the same front," George Wilbanks remarks. Great reporting by Christopher Larson! https://lnkd.in/ect6j6yu #alternatives #hedgefunds #hiringtrends

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Thanks to Paula Campbell Roberts from KKR for joining us this month on our How Should I be Positioned podcast. We great conversation about the current state of the US economy, as well as the outlook for inflation, growth, interest rates, and market volatility over the next five years. One thing that we agree on is that the US economy is in a new macro regime. This has implications for strategic asset allocation decisions, which we also discuss. Listen to the podcast for all the details. #shareubs https://lnkd.in/eJasj_EZ  

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How to counterattack short sellers and force them to cover: Wall Street has become trench warfare with bully groups of short sellers on the attack. Do you think they will cover by writing a strong Press Release? That is not the case with 80% of Newsworthy Companies. There is one sure way to ambush short sellers and that is with "psychological keywording": Unlike in the 20th century, The Markets are now run by computers/robots and AI so it's not the investors to get your stock to cover, it is all AI and just a few words will in fact cause the short sellers to become your best friend. www.kinsleystreet.com

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MSO earnings season starts this week, with eight of the top ten US operators reporting. Consensus analyst expectations are for the top ten MSOs to show a Q/Q 2.62% contraction in revenue and adjusted EBITDA to decline 6.18%. (1/3) The top ten MSOs' Y/Y revenue is expected to grow by 3.20%, and AEBITDA is expected to expand by 17.30%. Analysts predict the highest Y/Y revenue growth for Ascend Wellness Holdings (CSE: AAWH.U / OTCQX:AAWH) at +22.40%, and Cresco Labs is predicted to have the best Y/Y improvement in AEBITDA at +62.00%. Finally, here are some of the companies reporting this week: May 7: Ascend Wellness Holdings (CSE: AAWH.U / OTCQX:AAWH) May 8: Green Thumb Industries (GTI), Verano, MariMed, Inc. May 9: Curaleaf, Trulieve, TerrAscend, Cannabist, Jushi Holdings Inc. Source: FactSet

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There is a lot of talk about the PE industry not delivering the exits they promised. PitchBook succinctly put it with the title “Behind the J-curve” in its recent in-depth analysis of distribution activity in private market funds. Another side of that story, particularly relevant for secondary buyers like us, is that many private market funds hold their assets at seemingly inflated valuations. TVPI numbers look great for most funds, but they can’t monetize their holdings anywhere near their current NAV, indicating their estimate of “fair market value” is way too optimistic. There is always a market, the price may just not be where you wish it. To a large degree, the reluctance to exit companies results from having them marked too high. Assets were aggressively written up to look good in the short-term, impressing LPs with “paper gains” to raise the next, much bigger fund. #secondaries #privatemarkets

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On the latest iCapital x Alt Goes Mainstream Monthly Alts Pulse, iCapital Chairman & CEO Lawrence Calcano and I welcome a special guest - Hightower Advisors Managing Director, Head of Alternative Investments Robert Picard - to discuss the operational challenges and solutions in private markets. In this episode, Lawrence, Robert, and I discuss: * How wealth platforms like Hightower and infrastructure operating systems like iCapital are creating straight-through-processing solutions across the lifecycle of a private markets investment for the wealth channel. * The importance of bringing alts directly to the advisor’s desktop. * Why improving the experience for advisors in private markets is critical to increasing adoption. * Why it’s important to build across the continuum of needs for different types of high-net-worth investors. * The importance of customization and differentiation with private markets solutions for advisors. * What is the biggest unlock to enabling greater flows of capital into private markets? * What are the implications of opening up the alts superhighway? Thanks Robert for joining us on the show for a fantastic discussion!

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At the most recent FOMC meeting, central bank policy makers communicated that the string of recent firm inflation prints have not fundamentally changed their outlook for inflation or monetary policy. The credit markets are not pricing in a contraction of growth. Although headline pricing across most sectors of the fixed income market appear rich, beneath the surface a very different story exists across industries, capital structures and sectors. Read our specialty fixed income outlooks for the 2nd Quarter of 2024: https://bit.ly/4b8PEWt

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Liquidity War Against CRE Continues As Fed Goes Illiquidity Long On Redemption WaterFall Few CRE investors, regional banks & US citizens realize that all wars are banker wars. From early 2021 the central bank have been at war against commercial real estate & regional banks leverage concentration on CRE as the basis of wealth creation versus Wall Street derivative products & private equity.The June 2021 Fed gave specific instructions after refunding the largest banks with liquidity after the 2020 pandemic & 2008 GFC to restrict CRE lending. However, after a temporary pause,big banks could begin stock buyback risk against bank reserve. And upon J Powell losing the Basel III reserve regulation to bank lobbyist who advise Congress they extended interest rates out to September & probable beyond.In the on again off again credit liquidity crisis of deglobal leverage capture & design. Approximately $2.75 trillion in commercial mortgage loans will mature between 2023 & 2027 (Trepp.com,) leading to difficult decisions for lenders & borrowers facing layoffs & decreasing CRE syndication waterfall & redemptions. There are 4000 small to medium banks at risk & 700 sitting on the tail of a QT donkey.I don,t think there is loan crisis but there is leverage,liquidity & long bond crisis. The $15B Starwood Real Estate Income Trust said it fulfilled 63% of investor redemption requests in November after the repurchase requests exceeded a 2% limit, reaching 3.2% of net asset value. Blackstone had noted that it has monthly withdrawal limits of 2% of net asset value & quarterly limits of 5% of NAV. It received $1.8B in redemption requests.Blackstone allowed investors to withdraw $1.3bn in November,43% of the redemptions. It’s clear why they would do this. Real estate is not a liquid asset.A fund can’t easily sell shares to raise capital if necessary. Since prices & transactions volumes are flat. In both cases,Asia where investors tend to use higher levels of leverage & many faced margin calls over turns in their domestic markets was the source of many of the redemption requests. Financial Times,reported that 70% of the redemption requests to Blackstone came from Asia, non-US investors make up only about 20% of the fund’s assets. Mansa Musa of BGG says "there should be a limit on how much leverage investors can use going into a non-liquid investment fund would likely be empty, because the investors could use leverage elsewhere, leaving themselves vulnerable, as apparently happened in this case. The regional bank space is facing is a lot of pressure on USTs,liquidity, with funding costs moving higher. At the same time, regulators are asking many regionals to increase reserves & keep more cash on hand.“I think that leaves us [in] a place where regional banks facing slow growth & less loans. The result is that many borrowers will be unable to obtain a mortgage large enough to fully pay off the existing loan as the Fed pretend & extend QT, but with no flow for CRE.

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Important article by Antoine Gara in FT on Starwood's SREIT redemptions and liquidity concerns. Honored to be included in the article, hope this helps investors become mindful of their liquidity needs and product structure. Full article: https://lnkd.in/dqUYybwi

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Secondaries and structured liquidity solutions provide creative portfolio management tools for both sponsors and investors as they alleviate the duration mis-match problem particularly exacerbated by the sustained high base rate environment. 

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Second Round Success: Strategies for Sophomore Venture Capital Funds Raising a sophomore venture capital fund presents unique challenges, particularly for first-time fund managers who need to prove their investment thesis and operational capabilities beyond their initial fund. While securing funds from existing investors (re-ups) is common, the endeavor remains daunting due to high market expectations and the inherent pressures of maintaining or exceeding the first fund's performance. For instance, Pentathlon Ventures , focusing on early-stage B2B SaaS startups, has set a target of $55 million for its second fund, aiming to invest in 25 companies. Similarly, DigitalDx Ventures, a woman-led firm emphasizing health technology, seeks to significantly increase its fund size up to $150 million for its sophomore effort, after raising around $24 million in its debut fund. Another example is Crane Venture Partners which successfully raised $140 million for its second fund, focusing on open-source, AI, and developer tools critical for digital infrastructure. These examples illustrate both the ambition and the scale of efforts required to successfully navigate the challenges of raising a sophomore fund. https://lnkd.in/gtfZAQv6 #venturecapital #funding #capitalfunding #scaling #startups #strategy #ventures

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Interesting article from Douglas Appell in Pensions & Investments about the post-ZIRP, “higher for longer” interest rate environment that boils down to advocating for the pursuit of satisfactory investment outcomes that are relevant to asset owners’ actual spending needs and goals, rather than continuing the historically common practice – and expected future folly – of tethering one’s equity beta to that of an equity benchmark whose performance from today’s elevated levels is widely expected to be sluggish and insufficient to fund minimum liabilities (ie: payout rates, actuarial hurdles, spending goals, etc.).   Quoting the inimitable Ben Phillips, “In that world, the relevant benchmark becomes the client’s required cash flows.”   Fresh perspectives and new ideas are warranted. Satisfactory outcomes not benchmarks.

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Add this WSJ article to the cacophony of exasperation being expressed by private equity investors (LPs) frustrated by the absence of liquidity provided by PE operators (GPs). A conundrum not likely to be resolved soon, and likely to dampen the realized returns ultimately received by LPs (asset owners). With foreseeable public market equity returns (as defined by a market index) widely expected to be insufficient to fund asset owners’ minimum required funding thresholds (ie: often estimated to be spending plus inflation approximating 7-8% per annum), are then 10-year US Treasuries yielding roughly 5.50% likely to be the best performing asset in an asset owners’ portfolio? If yes, then asset owners’ have a looming funding shortfall - especially absent changes to doctrinaire equity style-box and index-tracking implementation dogmas.   A fresh perspective on public market equity implementation that focuses on satisfactory investment outcomes that are relevant to asset owners’ actual spending needs and goals, rather than continuing the historically common practice – and expected future folly – of tethering one’s equity beta to that of an equity benchmark whose performance from today’s elevated levels is widely expected to be sluggish and insufficient to fund minimum liabilities (ie: payout rates, actuarial hurdles, spending goals, etc.). Such a change in public equity perspective comes without ratcheting-up illiquidity, non-transparency, leverage or alts-like fees & expenses. Heather Gillers

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Now on substack: our research paper on BREIT's liquidity and valuation, along with the story of this research being stifled for a whole year. https://lnkd.in/gH6BW8TX

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Over 240 firms added 450+ strategies to the Nasdaq eVestment platform in 1Q24 for visibility with consultants, intermediaries, and investors. The newly marketed strategies were added by firms domiciled across 30 unique countries spanning from Australia to Singapore to Switzerland, and 28% indicated integration of ESG considerations into their respective investment processes. From a geographic standpoint almost 200 were broadly diversified (i.e. had a global investment focus) in nature, however, in total the newly promoted strategies spanned over 30 different regions across #balanced, #equities, #fixedincome, #hedgefund and #realestate capabilities. Please see the link below for further details… (managers please do contact the Nasdaq eVestment team should you have questions regarding optimizing presence/visibility, opportunities, and relevant trends/insights of those areas where your firm has expertise!).

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Every day the markets are trying to predict how many rate cuts we’ll have this year and when they will happen. I recently sat down with Joseph LaVorgna, Chief Economist of SMBC Nikko Securities America, Inc., and asked him what Powell would do. (https://lnkd.in/e9HbXXeD) I appreciated Joe's uniquely nuanced perspectives as we discussed the tools Chair Powell has at his disposal. When there’s this much disagreement among economists about what the Fed should do, Joe reminds us that sometimes it’s Wayne Gretzky who has the answer. Many thanks, Joe, for an illuminating conversation. Joe's frank analysis of our economic policy is essential viewing for market participants. I encourage you to watch the entire conversation on our site. https://lnkd.in/e9HbXXeD #expertconversations #capitalmarkets #federalreserve #economics #interestrates

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If you think portfolio risk management is just about diversification, think again. This article sheds light on some surprising strategies that challenge common perceptions. Here are some thought-provoking takeaways: - Did you know that reducing the number of investments in a portfolio can sometimes actually decrease risks? It's all about strategic selection. - Contrary to popular belief, actively managing risk doesn't necessarily mean more frequent trading. In fact, a hands-off approach can be a smart move. - One of the key points discussed is the importance of understanding the correlation between investments, a factor often overlooked in risk management strategies. - Asymmetric risk and the role it plays in portfolio management is explored, offering a fresh perspective on balancing risk and return. - Ever considered tail risk hedging? This article dives into this lesser-known strategy that can enhance risk management effectiveness. Share your thoughts and feelings on these unconventional risk management strategies. https://lnkd.in/ecgSpH93