AGM Alts Weekly | 8.20.23
AGM Alts Weekly #15: 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. I share relevant news articles, commentary, an Index of publicly traded alternative asset managers, job openings at private markets firms, and recent podcasts and thought pieces from Alt Goes Mainstream.
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Good morning from Washington, D.C.
“Data is the new oil,” declared British mathematician Clive Humby in 2006. Like oil, data itself may not be useful in its raw state. But that doesn’t mean it lacks value. Like oil, data needs to be refined and processed to be made into something useful. Like oil, data’s value lies is its potential. And this week, MSCI made a move that signals the potential of data for private markets.
We saw one of the world’s largest financial data companies, MSCI, a $41B company, make a big bet on private markets.
We now have yet another unicorn alts business: MSCI bought Burgiss for over $1B.
Burgiss, which boasts over 1,000 clients, provides investors with private asset data, analytics, and software. Offering coverage of over 13,000 funds that have collectively invested $15T across various private markets strategies, Burgiss is a leader in private markets data and analytics.
This week’s transaction, where MSCI acquired the remaining 66% of Burgiss for over $697M, represents a major development for private markets.
For private markets infrastructure to continue its evolution that will ultimately look more like public markets, data and analytics must be at the center of this transformation (see below for an infographic from MSCI’s presentation on the acquisition).
Standardization of data and performance in private markets will make it easier for investors to evaluate, allocate, and monitor alternative investments, which will, in turn, enable investors to make better and more informed decisions around asset allocation across public and private markets.
The next step for alts is investors figuring out how to include alternatives across their entire portfolio — and the acquisition of Burgiss by one of the world’s largest financial data providers is emblematic of why this is such a core focus for industry players.
As allocators move beyond the 60/40 portfolio, data and analytics become front and center. MSCI understands the importance of this evolution in asset allocation. A quote from their press release about the Burgiss acquisition encapsulates their thinking: “MSCI will also enable investors to compare performance and risk across both private and public asset classes, which will facilitate more efficient asset allocations.”
Why is this acquisition such a big deal? It’s the beginning of a bigger tectonic shift happening in private markets.
All we need to do is follow the money … some of the world’s largest alternative asset managers and exchanges — Blackstone, Fidelity, Hamilton Lane, Carlyle, Nasdaq — have all invested in the next wave of financial data companies focused on transforming private markets data and analytics.
It’s no surprise that some of the industry’s largest ingestors of data — Blackstone, Hamilton Lane, Fidelity, Carlyle, Nasdaq — see value in transforming the post-investment process of private markets.
Investments into 73 Strings (Blackstone, Fidelity International Strategic Ventures), LemonEdge (Blackstone), Canoe (Blackstone, Hamilton Lane, Fidelity’s F-Prime, Carlyle), Chronograph (Carlyle, Nasdaq) signal that a market structure evolution is very much under way. These companies are all taking post-investment manual processes and creating more transparency and efficiency across private markets for many of the industry’s largest GPs, LPs, and investment platforms.
Some were wondering aloud this week if the Burgiss acquisition was too rich. Perhaps on its face it seems that way based on the revenue and EBITDA multiple paid. But with the prize of private markets so big and only growing, time may very well prove both MSCI and other industry leaders who are building and investing in the private markets data and analytics space right.
Data done right will transform alts market infrastructure and the industry’s biggest players are putting their money where their mouth is. So follow the money … actually, follow the “smart money.”
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.
AGM News of the Week
Articles we are reading
📝 Pricey or Not, MSCI’s Deal for Burgiss has merit | Michael Thrasher, Institutional Investor
💡Institutional Investor’s Michael Thrasher dives into the data deal that happened in the alts space this week: MSCI buying the remaining 66% of Burgiss, valuing the company at $1.05B. With a projected $90M in 2023 revenues and a roughly 15% EBITDA margin, that makes for a 12x revenue multiple and 70x adjusted EBITDA multiple. Morningstar analyst Rajiv Bhatia said it’s “pretty expensive. Even if you do factor in some growth.” But Bhatia and Thrasher both note that the deal is a bet on the continued growth of private markets. MSCI CFO Andrew Wiechmann acknowledged that the deal was strategic for the firm and their clients, in large part due to the increasing requirement to provide insights and analytics as more investors allocate to private markets: “With investors increasingly allocating to private assets to achieve uncorrelated and differentiated returns, this combination positions MSCI to provide private asset investors with the next generation of insights into drivers of performance and risk, standard frameworks, tools to size and define these markets, and systematically build portfolios.” Burgiss, which boasts over 1,000 clients (mainly pensions, endowments, and investment consultants), provides investors with private asset data, analytics, and software. They offer coverage of over 13,000 funds that have collectively over $15T invested across private equity, private real estate, private debt, infrastructure, and natural resources, providing natural synergies with MSCI, which is known for its indexing, analytics, and ESG ratings for public equities, but has also been making a concerted effort to cover private markets.
AGM’s 2/20: Data is front and center as private markets undergo a transformation from pre- to post-investment. Analytics and insights are a core part of creating a functioning market structure. We saw this transformation happen in public markets, and now it’s happening in private markets. The fact that MSCI, one of the world’s largest financial data providers, views private markets as a big growth area signals the growing importance of the post-investment space within alts. As Michael notes in his piece in II, perhaps the price paid by MSCI is not so rich if we think about the future growth trajectory for private markets. Many of the world’s largest private markets firms are investing into data businesses transforming private markets infrastructure, so watch this space.
📝 July was Strongest Month on Record for Advisor M&A, Fidelity Reports | Ryan W. Neal, Investment News
💡 Wealth management M&A continues to go from strength to strength. July marked the strongest month ever for RIA M&A, according to a report by Fidelity. Nineteen RIAs with a total of $29.6B in AUM, as well as one broker-dealer with $6.5B in AUM were part of deals last month. The number of deals increased 19% from June of this year, and increased 46% year-over-year. The amount of assets involved in deals was up 32% from June and 43% year-over-year. The largest deal last month was Pathstone’s acquisition of $17B multi-family office Veritable from Affiliated Managers Group. Strategic acquirers were responsible for doing deals for 82% of the assets, and private equity firms were involved in sixteen out of nineteen deals. Laura Delaney, Fidelity’s Vice President of Practice Management and Consulting, said, “Although strategic acquirers continue to execute the majority of transactions in this competitive landscape, we continue to see a handful of first-time acquirers breaking through, which points to the health of the RIA M&A marketplace.” Despite a record month, however, it’s unclear whether July is an indication that the recent M&A slowdown — because of rising interest rates — is over, or if the month was an anomaly. Delaney added that “August’s activity … should be a good litmus test as to whether we may start to see an activity pull-back due to the 2023 interest rate environment.”
AGM’s 2/20: Wealth management M&A is alive and well. The continued focus of private equity firms on this space is driving consolidation in the wealth space. Many private equity-backed platforms are focused on growth — and they are willing to pay up in order to grow AUM. Anecdotal conversations with those in the industry indicate that some platforms are paying upwards 15-20x EBITDA multiples for wealth management businesses. While that may be a rich price to pay, it also is emblematic of the opportunity that platforms and their investors see to grow their platforms. Alts are also playing a role in the growth of the wealth management industry. Many private equity-backed RIA and wealth management platforms see alts as a way to differentiate and add value to the UHNW client base. This represents yet another revenue opportunity, particularly for the hybrid / dual (read: RIA and brokerage) platforms, which is part of what’s driving this consolidation opportunity. It’s clearly a great time to be a wealth manager who is looking to grow a practice or retire and sell into a larger platform after years of running a business. The big question? Will this M&A spree continue — and will it continue at the prices that are being paid?
📝 Cadre in Talks to Sell to Yieldstreet | Lucinda Shen, Axios
💡New York-based alternative investing platform YieldStreet is in talks to acquire real estate investing company Cadre, according to reports by The Information. Cadre, which pools capital from investors, many in the wealth channel, to invest into apartments and office buildings, has faced challenges competing with real estate private equity funds. While a source close to Cadre said the deal is “still too speculative at this stage” for solid valuation numbers, The Information reports that the deal could be a $100M all-stock transaction. This would be a significant cut to Cadre’s valuation of $800M six years ago. The firm, which was co-founded by Ryan Williams and Jared and Josh Kushner, has raised more than $130M from investors including a16z, Founders Fund, and General Catalyst. Rising interest rates and office vacancies have both contributed to a challenging environment for real estate startups in the past few years.
AGM’s 2/20: News of Cadre’s possible consolidation with YieldStreet, irrespective of whether or not it is consummated, highlights some of the challenges that will face private markets capital raising platforms going forward. Distribution focused private markets investment platforms can face challenges when the business model solely relies on ability to raise capital from investors. It can certainly be a wedge into building a business for a specific vertical within the alts space, but without the ability to provide critical infrastructure for investors to access alts or offer software solutions to customers, these businesses may face headwinds and be forced to consolidate with larger platforms on the space. Consolidation will become a theme that comes into focus in the coming years as certain platforms, particularly those that are vertically focused but have had issues with growth, get tucked into larger, multi-asset class investment platforms or incumbents looking to add diversification to their arsenal. This also brings up the point that the winners in the investment platform space will likely be those that are diversified across asset classes and are end-to-end in terms of their capabilities — single investment strategy or category platforms run the risk of being exposed to market cycles, whereas multi-strategy platforms can weather the ups and downs of investor allocation decisions across market cycles.
💡Securitize, a leader in expanding investor and business access to tokenized assets, has acquired digital asset wealth platform Onramp Invest. For the first time, RIAs will be able to offer clients investments in alternative asset classes including private equity, private credit, secondaries and real estate. Clients will easily be able to increase and diversify their portfolio through Onramp’s familiar dashboard as Securitize products begin to be integrated into the platform.
Securitize CEO Carlos Domingo said, “Our acquisition of Onramp is another big step forward in expanding investor access to top-performing alternative assets and in democratizing private capital markets. Onramp already offered RIAs easy access to digital assets, so it is a very natural extension to offer them tokenized alternative assets to complement their portfolios. Most wealth is generated in private market alternative assets and bringing Securitize and Onramp together enables registered investment advisors to give their clients access to that wealth generation.”
The acquisition follows a March partnership between the two companies that allowed RIA members to access the private equity feeder funds Securitize offers with KKR and Hamilton Lane.
AGM’s 2/20: Tokenization may be in its early innings within the alts space, but it will be a growing theme going forward. One area where the distributed ledger and tokenization make sense is in the access to and administration of private markets funds. So it’s no surprise that the likes of KKR and Hamilton Lane have begun to experiment with tokenized fund offerings for investors. There have been a number of innovations in the infrastructure that enables GPs to handle the administrative burden of allowing lower investment minimums into their funds and wealth managers enabling clients to access private markets investment opportunities, starting with feeder funds. Tokenization represents the next phase of this evolutionary process in alts and I expect we’ll see more and more platforms roll out solutions here, with the likes of iCapital and CAIS both announcing that they are working on distributed ledger initiatives for their clients.
📝 UK Launches £1 Billion Fintech Fund to Compete with Silicon Valley | Ryan Browne, CNBC
💡A new UK fintech investment fund with £1B in fresh capital has been formed to invest into growth-stage financial technologies in an effort to bolster the country’s reputation as a fintech investment hub. The fund is backed by Mastercard, Barclays, and the London Stock Exchange Group. The Fintech Growth Fund will invest between £10M and £100M into companies that range from consumer-focused challenger banks to regulatory technology firms. It’s the first of its kind in the UK, which came in response to Worldpay Vice Chairman Ron Kalifa’s government commissioned review of the attractiveness of the UK listing’s environment for tech firms. Gautam Pillai, a fintech equity analyst at Peel Hunt, said that the aim is for the fund to make its first investment by the end of the year. Pillai added that while £1B is insignificant relative to some of the sums being deployed in fintech, it’s “definitely a start.” He sees the UK, which is home to 16 of the top 200 fintech companies globally, as a hotbed of innovation. Pillai also believes that now is the right time to start a new fintech fund because the entry level for investors to take positions in privately-held mature companies has been reduced heavily. Due to rising inflation and macroeconomic weakness, many fintech company valuations have dropped. Last year, the internal valuation of Checkout.com fell 73% to $11B in a stock option transfer deal. Revolut, the British foreign exchange services giant, saw a 46% valuation cut by shareholder Schroders Capital. But the Fintech Growth Fund is not worried about the recent challenges in UK fintech. Phil Vidler, managing director at Fintech Growth Fund, said, “There’s still an active investment market in the U.K., we still have one of the world’s leading financial centers … a center for business — time, location and law — those fundamentals are still here, and similarly we’re now getting to a point where second-time founders are starting companies, and large, global venture firms touted as the best in the world are setting up here in the UK.”
AGM’s 2/20: We’ve written about those in the venture industry in Europe calling for further government participation over the past few months — and it appears the UK government has answered the bell. This new fund, structured as a private sector initiative with backing from some of the UKs top financial services firms, is a net positive for the UK tech sector, particularly in financial services, where London remains one of the world’s leading financial centers. While £1B alone isn’t enough to solve the needs at growth stage for UK fintech companies, it will certainly help continue to back the talented companies coming out of the country. This is further proof point that investors — whether government or VCs — believe that they can find and back winners at growth stage. We believe that UK fintech in particular has fantastic talent, particularly in B2B and enterprise. The benefit of London being a financial center means that there are plenty of talented and experienced financial services executives who can build businesses that serve financial institutions and leverage innovations in technology to do so.
📝 Now Is the Time to Buy Private Equity Secondaries | Michael Oliver Weinberg, Institutional Investor
💡There’s ample opportunity in the secondaries market. Michael Weinberg, a professional investor and adjunct professor of finance and economics at Columbia Business School, shares his views on why he believes now is the time for secondaries. The private equity secondaries market currently possesses significant supply / demand imbalances. There was over $200B in assets on offer in 2022, yet only $100B transacted. The structural, non-economic reasons why many are selling positions in private equity make for an interesting market. There have been a number of forced sellers in the market over the past year, particularly institutional LPs who have had to deal with the denominator effect that led to overallocation to private equity. Weinberg makes the case for why investors should take a close look at private equity secondaries. According to Weinberg, there’s the possibility of potentially higher risk-adjusted returns versus primary private equity investments due to discounts, elimination of the J-curve, and elimination of blind pool risk.
AGM’s 2/20: They may be called secondaries, but it appears they are a primary focus for many investors in the current market. And for good reason. The structural imbalances in the private equity secondaries market make for a strong investment case. Many LPs are looking to sell for either liquidity needs or non-economic reasons, like balancing out their denominator effect. And many GPs are looking to sell to show DPI for current or upcoming fundraises. All of these dynamics make for quite a compelling opportunity in the secondaries market. With significantly more supply than demand, there should be ample white space for secondaries funds to find enough good assets in the secondaries market. Therefore, it’s not surprising to see secondaries funds have success raising capital in this market. It’s also a good way for many newer investors to private markets to gain exposure to private equity, since it provides access to the asset class, but in a way where the limited J-curve means a shorter path to liquidity. Franklin Templeton’s acquisition of Lexington Partners also encapsulates the opportunity in the secondaries market, with a traditional asset manager recognizing the need to diversify their investment products makes sense as they bring investment products to the wealth channel. And it’s both interesting and unsurprising that it’s a secondaries strategy that they chose to acquire.
Who is hiring?
In order for alts to continue to go mainstream, we need the best talent to go into the space. Here are some openings at private markets firms. If you’d like to connect with any of these teams, let me know and I’m happy to facilitate an introduction if appropriate. If you’re a company or fund in private markets, feel free to reach out to share a job description you’d like to be listed here to highlight for the Alt Goes Mainstream community.
The latest on Alt Goes Mainstream
Recent episodes and blog posts on Alt Goes Mainstream:
🎙 Hear investing legends John Burbank and Ken Wallace of Nimble Partners provide a masterclass on investing with a macro lens from John’s background as a leading macro hedge fund manager at Passport Capital and on micro VC from Ken’s background backing some of the top emerging VCs at Industry Ventures. Listen here.
🎙 Hear $40B AUM Cresset Co-Founder & Co-Chairman Avy Stein and Director of Private Capital Jordan Stein live from the Allocate Beyond Summit discuss how private markets are changing wealth management. Listen here.
🎙 Hear Alto CEO Eric Satz discuss how anyone can invest in alternatives through their IRA. Listen here.
📝 Read how 73 Strings CEO & Co-Founder Yann Magnan and team are leveraging AI to build a modern and holistic monitoring and valuation platform for private markets in The AGM Q&A. Read here.
🎥 Watch Lawrence Calcano, Chairman & CEO at iCapital, and I take the pulse of private markets on the second episode of our monthly show, the Monthly Alts Pulse. Watch here.
🎙 Hear $18B AUM Savant Wealth’s award-winning CIO Phil Huber talk about how LPs can build a strategy for investing in private markets. Listen here.
🎙 Hear Avlok Kohli, AngelList’s CEO, talk about how they are building the company of companies that is powering private markets. Listen here.
🎙 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 Robert Picard, Head of Alternatives at $117B AUM Hightower, approaches alternative investments. Listen here.
Thank you for reading. If you like the Alts Weekly, please share it with your friends, colleagues, and anyone interested in 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.
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