Highlights:

– Emerging Market Fundraising Up, But Small Funds Lose Out
– PE Fundraising is “Ballistic,” with a Record 2,199 Funds Seeking Capital

– The ultra-wealthy Pile into Private Equity

– McKinsey Says Alternatives Investment to Boom

– Some Thoughts on What Provides an “Inside Edge” in PE Investing

– PE KeyTrends Quick Question Results

EM FUNDRAISING IS UP, BUT SMALL FUNDS LOSE OUT. Fundraising statistics from the Emerging Markets Private Equity Association show fund managers raised $20 billion for emerging markets in the first six months of 2014, a 48 percent increase from the same period last year. Meanwhile, $14 billion in private equity was invested in emerging markets in the first half, up 28 percent from the same period last year. Despite the steep increase in fundraising, only four more emerging market funds closed in the first 6 months of 2014 than closed in the same period last year. Greater concentration of investor capital in large PE funds, while a generalized phenomenon, has been most pronounced in recent years in emerging markets. The resources of limited partners, who are mostly found in the money centers of Europe and North America, have been increasingly strained by the expansion of private equity investment options, particularly in relatively far-flung geographies. Without the resources for proper due diligence in emerging markets, investors are increasingly settling for well-known brands.

THE EMPEA

 

PE FUNDRAISING HAS GONE “BALLISTIC,” POSING SERIOUS CHALLENGES FOR LPS, writes peHUB. With a record 2,199 funds currently fundraising, “the sheer amount of manager triage is daunting,” observes Andrea Auerbach, global head of private investment research at Cambridge Associates. Meanwhile, Kelly DePonte, managing director with placement agency Probitas Partners, says investor resources are being “overwhelmed” by choice. Given all this, it’s not surprising that Real Deals reports that 28 percent of institutional investors “intend to increase their alternative assets investments teams during the next two years and none expect to shrink teams.”

PEHUB REAL DEALS

 

THE “ULTRA-WEALTHY PILE INTO PRIVATE EQUITY,”reports CNBC. Citing a Tiger 21 survey of 265 individuals, each with investable assets of more than $25 million, the network reports that on average 22 percent of the ultra-wealthy’s investments were in private equity in the second quarter of 2014, just shy of the 23 percent held in public equities, which captured the lion’s share of investment. Private equity investment by the ultra-wealthy has risen significantly since 2010, when it accounted for just 9 percent of total portfolio value. Today’s level matches the record for ultra-wealthy PE investment, hit during the first quarter of 2013, according to Tiger 21.

CNBC

 

McKINSEY SAYS ALTERNATIVES WILL BOOM IN THE NEXT 5 YEARS. “Investment trends come and go, so it may be tempting to think of the current rush to alternatives as a passing fad,” writes McKinsey & Co. in a 38-page report predicting market-leading growth for alternatives. After polling nearly 300 institutional investors managing $2.7 trillion, McKinsey “research clearly indicates that the boom is far from over.” Institutional investors “have not only upped their allocations to alternatives” like private equity, “but the vast majority intend to either maintain or increase them.” At the same time, retail investors “are moving rapidly into the market, as new product vehicles provide unprecedented access.” “The market meltdown caused by the global financial crisis, coupled with the extended period of volatility and macroeconomic uncertainty that followed, have left their marks and investors are now turning to alternatives for consistent, risk-adjusted returns uncorrelated to the market.” The report enumerates numerous ways traditional and alternative asset management will “dovetail, leading to a ‘trillion-dollar convergence’ that will throw up opportunities and challenges for money managers of all stripes.

McKINSEY & CO.

 

A THOUGHT PROVOKING GUIDE TO THE INSIDE EDGE IN VC & PE INVESTING.  Institutional Investor magazine columnist Ashby Monk penned this intriguing rumination on what leads to repeatable top-quartile performance in both venture capital and private equity. He zeros in on the fact “that in private markets investors can, quite legally, cultivate sources of private information that may be, in turn, exploited in the form of investments. In public markets, this wouldn’t be legal, which is why it’s so hard to find persistence in performance among public managers.” Monk cites examples of factors that lead to the inside edge in venture capital, and by extension all of private equity, discussing the importance of building investment teams with market-leading brands, networks, and organizations.

INSTITUTIONAL INVESTOR