AW Monthly: Credit, VC prepped for a 2023 surge
Alternative investment allocators and managers have kickstarted another busy year even as many market observers have predicted the decline of both investment allocation and deal activity as the world prepares for a possible recession.
There now seems to be widespread disagreement whether a prolonged recession will even occur as uncertainty reigns supreme. What impact this will have on alternative investments is still unclear, as more institutional investors continue to lower their allocations to public equities in favor of credit strategies, venture capital and private equity. Real estate and real assets have also benefited, as have infrastructure strategies.
What is clear is that diversification is still rising in popularity as a method to provide portfolio gains in an era of prolonged economic uncertainty. Here's an overview of how managers and investors kicked off the year.
Susan Barreto
Editor,?Alternatives Watch
NEWS
New Enterprise Associates (NEA) closed two of its funds with $6.2 billion in investor commitments at the end of 2022, making it the largest pool of capital in the firm’s history to fuel investment in tech and healthcare companies.
The pair of funds mark a first for the $25 billion global venture firm in that one is dedicated to early-stage investing and the other to venture growth-stage opportunities.
Audax Private Debt closed its second direct lending fund with $3 billion of committed capital, building up its platform in the space to $4.5 billion, officials said.
Audax Direct Lending Solutions Fund II (DLS Fund II) is focused on providing debt capital to middle market companies providing senior secured unitranche and stretch senior financings. The offering, officials said, is complementary to other financing solutions under the $20 billion firm’s umbrella. Actively investing through its second fund, the firm has issued $1.6 billion of loan commitments to date.
New York firm Atalaya Capital Management closed its eighth Special Opportunities Fund (ASOF VIII) at its hard cap of $1.8 billion.
Investors in the latest fund include the?Florida State Board of Administration?($150 million) and the?New Hampshire Retirement System?($50 million).
FEATURES
The hedge fund industry just recorded its?worst annual performance?since 2018 — and yet, there seems to be increased interest in sourcing for the positive gains that macro strategies and trend-following funds logged in 2022.
After the global financial crisis, pension boards embraced crisis risk offset (CRO) strategies and risk parity. Now that neither have performed as expected, some allocators are looking to risk mitigation strategies (RMS) portfolios as a new home to their hedge fund strategies, according to experts.
Toronto-headquartered Castle Ridge Asset Management specializes in self-evolving artificial intelligence-powered investment strategies, running customized high Sharpe funds for sophisticated institutional investors and sovereign wealth funds globally.
The firm’s flagship equity market neutral vehicle is powered by a proprietary machine learning platform system called W.A.L.L.A.C.E. AI, which mimics Darwinian evolution by continually adapting to changing market environments.
In Jackson, Mississippi citizens spent Christmas with low water pressure or no water for days due to freezing pipes, but that was nothing compared to the initial water crisis brought on by the city’s aging infrastructure earlier in 2022.
For many, the plight of citizens in that state’s capital has shown the fragility of the utilities bringing the most basic of necessities for daily life: water. In 2021, the much-politicized Bipartisan Infrastructure Law passed as the White House pointed out that 10 million households in the U.S. lack clean drinking water.
INVESTORS
The $443 billion California Public Employees’ Retirement System (CalPERS) allocated $1 billion to longstanding asset management firms TPG and GCM Grosvenor with the purpose of identifying and support the next generation of investors in the private markets.
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Each firm will handle $500 million. TPG, through its TPG NEXT fund, the firm’s strategy dedicated to investing in diverse alternative asset managers, and GCM Grosvenor through its Elevate strategy will use their long-standing expertise and reputation to identify and cultivate the next generation of investors.
The University of California investment office (UC Investments) plans to buy an additional $500 million of Blackstone Real Estate Income Trust Class I common shares, following the purchase of $4 billion of BREIT shares earlier this?month.
The new investment is slated to close on March 1 and like the previous allocation has?a 6-year minimum hold period. Blackstone said it would also contribute an incremental $125 million of its current BREIT holdings into the strategic venture.
Back in September, NY State Comptroller Thomas DiNapoli said, “Inflation and supply chain issues are continuing to impact the financial world and we expect a challenging investment environment for the foreseeable future. Still, the fund is highly diversified and built to weather the ups and downs of the markets.â€
Accordingly, the $233 billion New York State Common Retirement Fund continues to grow its alternative investment portfolio, committing $1.2 billion per the announced activity at the end of 2022.
PEOPLE
The $7.8 billion private equity firm Sun Capital Partners appointed Marc Keirstead as chief financial officer, bringing with him over three decades of financial experience primarily at institutional investment offices.
Previously Keirstead served most recently as CFO in the private equities department at Abu Dhabi Investment Authority (ADIA). Keirstead previously held the role of director of investment finance, private investments at the Canada Pension Plan Investment Board; before that, he oversaw financial and investment performance reporting, transaction and control processes at Ontario Municipal Employees Retirement System Capital Partners.
Seattle-based alternative asset management firm Silver Creek Capital Management hired Jessica Hans to focus on investments across non-corporate debt and real assets as a managing director.
Hans had been investment director at UC Investments, the $168 billion investment office focused on the endowment and retirement plans at the University of California. She was a senior member of the investment team and managed investment portfolios across alternative asset classes, including private equity, real assets and private credit. Earlier in her career, she held roles at?The Blackstone Group,?Credit Suisse?Securities (USA) and Bain & Company.
Investcorp appointed Suhail Shaikh to the role of co-head of the $50 billion firm’s private credit business alongside Mike Mauer. Current Co-Head Chris Jansen will take on an advisory role with plans to retire later this year after ensuring a smooth transition.
Shaikh brings along with him $200 million in assets under management and three team members from his previous firm, Alcentra. The additions grow the Investcorp private credit team to 14 professionals and team-managed assets to roughly $500 million, officials said.
RESEARCH
Institutional investors pondering the challenges awaiting them in the quarters to come have slowed their alternative investment allocations, especially compared to activity logged at the end of 2021.
According to the December 2022?Alternatives Watch Research?Investor Scorecard, allocators placed $7.8 billion in assets across the private markets spectrum, compared with $11.9 billion in allocations in December 2021. Also, notably, more activity has been logged within real estate, real assets and infrastructure with roughly 42% of allocations last month going into those sub asset classes.
Private market fundraising was led once again by private equity and venture capital firms that saw inflows of over $46 billion in December 2022, according to the?Alternatives Watch Research?Manager Scorecard.
The asset class segment dominated the total fundraising efforts for the month that totaled $57 billion. Much of this had to do with Thoma Bravo’s announcement of having attracted over?$32 billion?across three funds in what was a busy year for the software-focused private equity giant.
Divided by asset class,?Alternatives Watch?tracked a total of roughly $3.6 billion in deals publicly announced in the five-day period for the week ending Jan. 13.
Private equity: $1.9 billion?
- Summa Equity’s thematic-focused impact fund has backed Velsera, a newly-formed precision medicine company. The terms of the transaction were not disclosed.