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10 Investment Must Reads This Week

The approval process for spot Ethereum ETFs is running into some roadblocks, reports FX Empire. Mergers & Acquisitions looks at the benefits and drawbacks of long-hold funds vs. secondaries. These are among the investment must reads we found this week for wealth advisors.

  1. The Approval of Spot Etherium ETFs Is Not Going as Planned “The U.S. Securities and Exchange Commission (SEC) remains concerned that cryptocurrencies are often involved in fraud, which may cause speculative bubbles and cause investors to start considering this currency type safer after approval. Spot Bitcoin ETFs were only approved after the U.S. Court of Appeals ruled against it in August 2023, which essentially forced it to take action. ‘As a basis, we have that the U.S. SEC is still conservative in its views,’ said Kar Yong Ang, the Octa broker’s financial market analyst.” (FX Empire)
  2. Stanger: Non-Listed BDCs Post Seventh Consecutive Quarter of Growth, Still Trail Traded BDCs “Non-listed business development companies had a combined aggregate net asset value of $67.9 billion as of March 31, 2024, a year-over-year increase of 55%. The heavily credit-focused Stanger NL BDC Total Return Index once again hit an all-time high, growing 2.9% in Q1 2024 and 12.7% over the trailing 12 months. This marks its seventh consecutive quarter of growth, and its best 12-month performance since Q3 2021.” (The DI Wire)
  3. 3 Assets That Might Not Diversify as Well as You Think “Diversification is a core principle of sound investing. A portfolio that includes assets with different performance characteristics often leads to better risk-adjusted returns than one that relies on a single asset class. But building a diversified portfolio can be easier in theory than practice. Indeed, many asset classes often touted as good portfolio diversifiers may not live up to their reputation in practice. In this article, I’ll dig into three areas that may not provide as many benefits as expected when combined with other assets in a portfolio.” (Morningstar)
  4. ‘No Free Lunch’ for Advisers in Alternatives “Speaking with Money Management, [Morningstar] global chief investment officer, Dan Kemp, said the higher risk ratings on these strategies meant advisers need to select carefully, especially for risk-averse clients or those who need to access their money easily. ‘It’s important to remember there’s no such thing as a free lunch in investment. That diversification comes at the expense of lower liquidity and increased complexity and the high returns can come with greater risk. This may be fine for some but may be troubling for others.’” (Money Management)
  5. BlackRock’s Revolutionary Fund and an Under-the-Radar Crypto Team Quick to Capitalize “The integration of blockchain technology into traditional investment avenues is likely to accelerate. As companies seek flexible capital-raising strategies beyond traditional investment banking, creating their own blockchain protocols offers an appealing alternative. This approach could revolutionize crowdsource funding and capital raising, potentially allowing retail investors to participate in early investment rounds without the stringent requirements needed for accredited investors.” (The Street)
  6. Sternlicht’s $10B SREIT Facing Liquidity Crunch as Redemptions Pile Up “Starwood Capital Group’s $10B nontraded real estate investment trust has nearly exhausted its roughly $1.6B line of credit as it seeks to pay investors looking to cash out their shares. Starwood Real Estate Income Trust, known as SREIT, has just $225M left on its credit line since it began tapping into it last year.” (Bisnow)
  7. Rising Treasury Yields Signal Investor Shift to Corporate Bonds “Investors often flock to government bonds during uncertain times as a safe haven, but this week saw a different trend. With scant economic data releases on Monday and Tuesday, investors sold off Treasuries, nudging yields higher. This shift was driven by new corporate bond sales announced on Monday, according to Mischler Financial Group's managing director. Traders now await Wednesday’s release of the Federal Reserve’s policy meeting minutes for insights on interest rate trajectories.” (Finimize)
  8. Bankruptcy Rate for Private Equity- and Venture Capital-Backed Companies Relatively High “There have been 34 private equity and venture capital U.S. portfolio companies that filed for bankruptcy in the first four months of the year. That’s nearly the same number of bankruptcy filings for all of 2021 and 2022. Last year, there were 103 bankruptcies, setting a record, according to S&P Global Market Intelligence. Private equity and venture capital portfolio company bankruptcies have accounted for 16% of total U.S. bankruptcies so far this year and all of 2023.” (Pensions & Investments)
  9. Long-Hold Funds vs. Secondaries: Who Wins? “Less than a decade ago, the private equity world was agog talking about long-hold funds with greater flexibility on exit timing than the traditional 10-year closed end vehicle. Yet today, long-hold funds attract fewer headlines than GP-led secondaries. What changed? Traditional 10-year private equity buyout funds aren’t perfect. As a fund approaches the end of its life, pressure can mount to exit its remaining holdings, even if the assets have room for more growth. Various solutions have been tried, but over the years, according to consultancy Bain & Co., secondary buyouts by rival private equity firms have become the norm, with sponsor-to-sponsor sales now accounting for nearly 30 percent of all buyout exit activity.” (Mergers & Acquisitions)
  10. Bankruptcy Judge Approves Genesis Global Plan to Refund $3 Billion to Creditors, Crypto Customers “A bankruptcy court judge has approved a plan by the cryptocurrency lender Genesis Global to return about $3 billion to its creditors and investors, including thousands of people who New York regulators say were defrauded by the company. The plan and settlement approved Friday by Judge Sean H. Lane includes up to $2 billion to settle a lawsuit by New York Attorney General Letitia James, who said the company misled investors about the risks of putting their money into a company program known as Gemini Earn.” (AP News)
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