AGM Alts Weekly | 5.21.23
AGM Alts Weekly #2: Making private markets more public, every week.
👋 Hi, I’m Michael and welcome to my weekly newsletter, the AGM Alts Weekly. Every Sunday, I cover news, trends, and insights on the continuing evolution and innovation in private markets. The Alts Weekly features the AGM Index of publicly traded alternative asset managers.
Join us to understand what’s going on in alts so you and your firm can stay up to date on the latest trends and navigate this rapidly changing landscape.
Welcome
Welcome to the AGM Weekly Newsletter. We’ll be sharing relevant news articles, commentary, an Index of publicly traded alternative asset managers, and recent podcasts and thought pieces from Alt Goes Mainstream.
This week, I’m writing to you from Cary, North Carolina, where I traveled to see the NWSL’s Angel City FC play on the road against the NC Courage last night. We got a point on the road against a tough to break down North Carolina team that leads the league in clean sheets.
The intersection of sports and finance is a trend that continues to feature in the alts world as sports is undergoing its moment of “private equitization.” We’ve seen the likes of RedBird Capital acquire AC Milan, Blue Owl’s Dyal HomeCourt invest in a number of NBA franchises, and Dyal record their first exit with Mat Ishbia’s $4B purchase of the Phoenix Suns.
And I suspect this is only the beginning of funds investing more into sports teams as investors view sports teams — from a business perspective — as unique, one-of-one media and entertainment properties. The “Welcome to Wrexham” docuseries on Hulu about Rob McElhanney and Ryan Reynolds’ purchase of Wrexham AFC and the “Angel City” docuseries on HBO about a majority female led ownership group launching a professional soccer team in Los Angeles are two recent examples of such trend.
As sports and investing increasingly intersect, we’ll continue to cover how and why many of the world’s largest private equity firms (like $60B AUM Sixth Street Partners and $12.5B AUM Avenue Capital Group — more on that below) see sports as an investable opportunity.
AGM Index
AGM has created an Index to track the leading publicly traded alternative asset managers.
Some of the industry’s largest alternative asset managers are publicly traded — and their net inflows can serve as a window into how private markets are being perceived by investors and allocators who are allocating capital into alternative investments.
[Editor’s Note: We added EQT and Partners Group to the Index this week. These firms have $128.2B and $135.4B of AUM, respectively, and deserve inclusion in the Index. Thanks to one of our readers, Fernando, for highlighting the need to include EQT].
AGM News of the Week
Articles we are reading
📝 EQT launches global portfolio for individual investors | Dominic Chopping, Private Equity News
💡Individual investors have been sidelined from private markets in part due to some structural issues, such as long lockup periods / illiquidity, complex investment terms, and high minimum investment thresholds. Swedish private equity firm EQT has launched EQT Nexus, a new global portfolio that gives individual investors access to its investment strategies through a single fully-funded investment and a simple, single layer of fees. EQT Nexus will invest in the private equity firm’s strategies spanning mature buyouts to early-stage investing, with an emphasis on EQT's private equity and infrastructure strategies. It will also co-invest in companies alongside EQT's funds.
Editor’s Note: EQT joins the growing number of alternative investment firms and investment platforms who are working to innovate on investment structure to break down the barriers for more investors to access the asset class in a way that works for their investor profile and needs. Just last month, we saw Warburg Pincus join KKR and Vista in partnership with iCapital on the iDirect Private Markets Fund to provide accredited investors access to co-investment opportunities sourced by these three managers at a $25,000 investment minimum into the iDirect Private Markets Fund. The iDirect fund will have no capital calls, simplified 1099 tax reporting and quarterly tender offers. This type of product structuring innovation is important if more individual investors are to enter the alts space. Creating the right structures and post-investment processes that map to the needs of individual investors can be a major driver for increased participation from these investors and their advisors into private markets. As an industry, we need to be mindful of what product structuring may do to fees and net-of-fees returns, but all in all, this is a positive development for the alts space and investors.
📝 Don’t be a buckethead | Christopher Schelling, Institutional Investor
💡The traditional asset class system of categorizing investments can be limiting when it comes to alternative investments, which are difficult to fit into traditional asset class silos. As a result, investors may miss out on opportunities to invest in potentially high-return assets. A better way to think about alternative investments is to focus on their underlying risk and return characteristics. The traditional asset class system is slowly starting to break down as investors become more familiar with alternative investments. This is a positive development that will allow investors to access a wider array of investment opportunities that meet their specific needs and objectives, regardless of asset class.
Editor’s Note: The 60/40 is no longer. We’ve covered the trend that has seen allocators and alternative asset managers recount how they have moved away from the traditional 60/40 portfolio in search of higher returns. CalSTRS CIO Chris Ailman said on this podcast that many large institutional investors are — and have been for some time — really managing an 80/20 (80% equity / equity-like, 20% fixed income / fixed income-like) portfolio, not a 60/40 portfolio. KKR released a report in March 2023 where they believe that a different macroeconomic regime for investing requires a different portfolio construction — a 40/30/30 portfolio (with a 30% allocation to alternatives). These two examples of many more within the allocator community highlight Schelling’s astute point that arbitrarily putting investments into certain buckets limits how an allocator can construct a portfolio, which matters more than ever in the current macro environment.
📝 GP Stakes Investing Remains Robust | Michael Thrasher, Institutional Investor
💡 While down markets and rising interest rates have impacted private markets and created headwinds for GPs fundraising for their new funds, Morgan Stanley’s Michael Shedosky and others say that now is a good time to be in the business of making GP stakes investments. Asset managers have a need for or a desire for capital — and, as Mustafa Siddiqui, Senior Managing Director and Head of Blackstone’s GP Stakes business says, “there is a whole generation of alternative asset managers institutionalizing and maturing.” Siddiqui adds that “a GP stakes investor could be a good partner for those firms because they can offer more than just capital — they can provide support and advice for scaling the business.” Siddiqui expects there to be at least 20 GP stakes deals done in 2023 and there will be more in the coming years.
Editor’s Note: GP stakes investing provides another way for investors to gain exposure to private markets — but with a different return stream than traditional private equity. Many GP stakes funds have a revenue share or current yield component associated with them, so it often provides a fixed income return that’s indexed to the growth in AUM of an asset manager. This type of investment could be a great way for the wealth management and HNW channel to gain exposure to private markets but effectively bet on the ability of a fund (or portfolio of funds) to raise capital and grow AUM. We've observed that the wealth channel appears to want access to private markets but are sometimes concerned about illiquidity features of closed-end private equity or venture funds, so investing in a GP stakes fund provides current income and features of liquidity (which many closed end alternatives funds lack) while also providing exposure to private markets. [We’ll be covering this space more over time as we’ll have some exciting announcements in the near future.]
📝 Avenue Capital’s Marc Lasry launching sports investment fund | Erin Arvedlund, Pensions & Investments
💡 Marc Lasry, Co-Founder & CEO of Avenue Capital Group ($12.5B AUM) said on Wednesday at SALT’s iConnections conference that he is launching a sports fund, Avenue Sports Fund, that aims to put money into women’s sports teams in the U.S., basketball teams in Africa, and others sports teams in Asia. Lasry’s announcement comes on the heels of him selling his stake in the NBA’s Milwaukee Bucks for $3.5 billion after buying the team roughly a decade ago for $500 million. Lasry highlighted some of the features of investing in a sports team at a conference, remarking, “as more people watch sports, you’ve got a media company, not just a sports team.” He went on to say that “it was one of the best investments and most fun thing [he’s] ever done.”
Editor’s Note: Avenue launching a sports focused investing fund continues the steady drumbeat of the institutionalization of sports as an investment. We’ve covered the financialization of sports dating back to 2021 on Alt Goes Mainstream, talking about the “Sports Stack” and how investing in sports teams, and women’s sports in particular, is an increasingly compelling value proposition for investors. Increasingly, private equity funds are investing into sports teams. And for good reason. There is a real investment opportunity in the sports world, particularly in sports that are experiencing meaningful growth in fans, sponsorship, and media, putting sports like women’s soccer and basketball squarely in the crosshairs of investors’ views. The NWSL, the women’s professional soccer league in the US is case in point. Sponsorship revenue grew 87% last year, with the league averaging 37 sponsorship deals per team, more than any other women’s sport (CNBC). Teams in the NWSL that were selling for $3-4M in 2019, such as the OL Reign, are likely now priced at a value of at least $50M given that the SF expansion team paid a $53M expansion fee this year, an investment which was led by $60B AUM Sixth Street Partners (whose sports investments have included Real Madrid, FC Barcelona, and the San Antonio Spurs). The media opportunity in women’s sports is just as compelling — Just Women’s Sports, a content platform focused exclusively on women’s sports, was a mere Instagram account run by former Stanford soccer player, Haley Rosen, four years ago. Today, JWS now reaches 75 million people per month. Lasry, who knows how to build and run championship sports teams and knows how to generate a return on investment while doing so, is on to something here.
📝 TPG pushes into credit investing with $2.7B deal for Angelo Gordon | Antoine Gara and Sujeet Indap, Financial Times
💡 TPG has agreed to buy debt and real estate manager Angelo Gordon for $2.7B as the US private equity group diversifies into credit-based investments with its first major acquisition since going public last year. The acquisition of Angelo Gordon, one of the largest investors in private credit markets and a savvy distressed debt player, will amount to $970M in cash and the remainder in stock through an issuance by TPG of 62.5M new shares. Angelo Gordon, which manages $73B in assets, will join a platform at TPG which has over $137B in assets. [Note: The transaction also includes an earnout based on Angelo Gordon’s future financial performance, valued at up to $400 million, which is why the AGM Index above cites a $3.1B figure].
Editor’s Note: An acquisition in the credit space doesn’t come as a surprise due to three major trends we’ve covered at AGM: 1/ the increased focus on private credit investments in the current market environment of higher interest rates, 2/ large alternative asset managers taking a platform based approach across asset classes in private markets to grow AUM, and 3/ large alternative asset management platforms seeing the opportunity in the HNW and individual investor channels as a way to raise additional capital to grow AUM as part of the continued mainstreaming of alts. I’d expect that we will see more consolidation in the asset management space as big platforms look to become bigger and grow their AUM through diversification of investment strategies.
📝 Percent lands $30M investment to connect investors with private credit | Kyle Wiggers, TechCrunch
💡 Percent, founded by Nelson Chu in 2018, aims to modernize private credit by connecting investors, borrowers, and underwriters. The company's recent success includes significant revenue growth over the past two years and a $30 million Series B funding round, bringing their total funding to $48.2 million. Percent's software-as-a-service (SaaS) solution enables investors to find and compare private credit deals. Chu emphasizes the merits of private credit and asserts that Percent simplifies investment discovery, offering access to diverse securitized investments for institutional and accredited investors [Editor’s note: Nelson was featured on a past episode of the Alt Goes Mainstream podcast. Congrats Nelson on the latest milestone for Percent!].
Editor’s Note: Let’s give credit where it’s due. Private credit appears to be in vogue now and we expect investors to ramp up allocations to private credit in the current market environment. Last month, Blackstone’s CEO Stephen Schwarzman characterized the current environment as a “historic opportunity for capital deployment [in private credit]” and TPG’s acquisition of Angelo Gordon (covered above) is another example of investors viewing private credit as an opportunity. It’s conceivable that a meaningful portion of the capital inflows into private markets, particularly from the individual and HNW investor community, could be allocated to private credit solutions over the next year or two.
Reports we are reading
📝 Survey Results: The State of Venture Capital in 2023 | Juniper Square
💡 After surveying nearly 100 venture fund professionals about their plans for the rest of the year, Juniper Square found that 63% of VC firms plan to raise capital this year despite the headwinds caused by the collapse of Silicon Valley Bank. In efforts to limit the caution taken by LPs, almost half of the VCs surveyed said they want to increase investment in LP reporting to facilitate the flow of information between them and their investors.
📝 State of Private Markets: Q1 2023 | Kevin Dowd & Peter Walker, Carta
💡 The transformation of the venture capital industry over the past year has been stark. Total venture capital raised by startups plunged 80% from Q1 2022 to Q1 2023. Venture deal count fell 45% over the same span. Overall, Q1 was the slowest quarter for both capital raised and deal count since 2017. There are, however, signs of a venture spring. Valuations from seed to Series C ticked up from recent lows. Median round sizes mostly stabilized. But these green shoots were overwhelmed by the decline in total rounds across all stages.
Interviews we are watching
🎙 The Rise of LP Syndicates | Andreas Munk Holm & David Cruz e Silva, EUVC
💡Andreas Munk Holm and Dave Cruz e Silva from EUVC, the pioneers of LP syndicates in Europe, hosted a live discussion on Thursday with Marc Penkala of altitude and Joachim Laqueur of Acrobator that I joined where we discussed how LPs can be value add partners to GPs and what LPs look for when evaluating fund managers.
Andreas and David led a lively discussion about something that’s less often discussed: how can LPs help GPs. As both GPs and LPs at Broadhaven Ventures (we invest directly into FinTech companies and invest as LPs into other funds), we have always taken the approach that fund managers are founders too. GPs are founders of asset management businesses, where they have two customers: LPs who invest into their fund and founders who they back. We think it’s important to help GPs build their asset management businesses just as we do as a VC helping founders build their companies.
We also discussed the importance of being a specialist in the current venture market, who to uncover and determine when a fund manager has an “edge,” and why emerging managers can outperform.
Thanks Andreas and David for inviting me to participate on your live show and pleasure to share the (virtual) stage with you, Marc, and Joachim.
The latest on Alt Goes Mainstream
Recent episodes and blog posts on Alt Goes Mainstream:
🎙 Hear Seyonne Kang, Partner and member of the private equity team at $134B AUM StepStone, discuss how the VC industry is dealing with today’s venture market. Listen here.
🎙 Hear Chris Ailman, the CIO of $307B CalSTRS, discuss how he manages a portfolio with ~40% exposure to private markets. Listen here.
🎙 Hear 44th Vice President of the United States and Chairman of Cerberus Global Investments Dan Quayle share his insights on geopolitics and investing. Listen here.
🎙 Hear Mark Anson, the CIO of $28B Commonfund, discuss why he thinks size discipline and sector focus lead to outperformance in VC. Listen here.
🎙 Hear Filip Dames, Founding Partner at leading European Seed VC Cherry Ventures, share why he’s so excited about the European venture ecosystem right now. Listen here.
🎙 Hear Graham Elton, Partner & Chairman of EMEA Private Equity at Bain & Company discuss how the $3.7 trillion in dry powder in private equity will get put to work. Listen here.
📝 Read why now is a great time to be a founder or VC in Europe in a post that I wrote on “The Continued Rise of European Venture.” Read here.
Thank you for reading. If you like the Alts Weekly, please share it with your friends, colleagues, and anyone interested in private markets.
Subscribe below and follow me on LinkedIn or Twitter (@michaelsidgmore) to stay up to date on all things private markets.
If you have any suggestions, would like me to feature an article, research, or would like to recommend a guest or topic for the Alt Goes Mainstream podcast, reach out! I’d love to include it in my next post or on a future podcast.
Special thanks to Jack Knibb and Riley Robinette for their contributions to the newsletter.