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12 Investment Must Reads This Week

Observers tend to focus a lot on ETF launches, but Morningstar analyzed the more than 200 ETFs that closed in 2023. A higher interest rate environment made things tough for private equity in 2023 and that could continue this year, reports Bloomberg Businessweek. These are among the investment must reads we found this week for wealth advisors.

  1. ETFs in 2023: A Tale of Success and Failure “In 2023, there were 244 ETF closures with an average age of 5.4 years and average assets under management of only $54 million. They lost 4.8 percentage points on average over the trailing one year before liquidation—a poor showing indeed. This article will unpack the 2023 closures and draw out a few lessons for the ETF industry.” (Morningstar)
  2. Hedge Funds for the Masses Deliver Ho-Hum Returns—and Have High Costs “Across the board, the alternative funds much more resembled short to midterm bond mutual funds in their risk and return characteristics. Over all categories, the average performance of alternative mutual funds over the past 15 years was an annualized return just above 3% with volatility, or standard deviation of returns, of 4.3% (low risk and low return).” (The Wall Street Journal)
  3. Private Equity’s Horrible, No-Good ’23 Set to Continue Into ’24 “The value of initial public offerings fell almost 60% in 2023 from their peak two years ago, according to research house Dealogic. While there are some signs of a thaw in private equity activity, Blackstone Inc. President Jon Gray says any economic slowdown in the first half of the year could further snarl deal flow by boosting volatility.” (Bloomberg Businessweek)
  4. Hedge Funds’ Popularity Flags Among Allocators, per Consulting Firm “Across the spectrum of hedge funds, however, there have been investment outflows over the past couple of years, per Nasdaq eVestment, the stock exchange’s research arm. That amounts to $68 billion taken out in 2023 through September on the heels of $112 billion in 2022. That is 5.1% of  the $3.5 trillion in U.S. hedge assets.” (Chief Investment Officer)
  5. Do hedge funds make portfolios more or less risky? “Hedge funds can help smooth portfolio returns, add diversification, and grant access to parts of the market that are often off limits to many investors. Certain hedge fund strategies are also well-placed to outperform in market downturns. We see the best current opportunities in macro, multi-strategy, and credit funds.” (UBS)
  6. PGIM eyes purchase of alternative investment firm: COO “U.S. investment firm PGIM is considering acquiring an asset manager that specializes in alternative investments, aiming to expand the group's footprint in a growing sector, a top executive told Nikkei. ‘We are going to invest significant dollars,’ said Taimur Hyat, chief operating officer at PGIM. ‘We are also looking non-organically to see how to build our private alternatives capabilities.’" (NIKKEI Asia)
  7. Alts managers hope for rate cuts to spawn more deals in 2024, while battling for new money “This dearth of exits means less money through the door to LPs in the form of distributions, making investors hard pressed to commit to new funds. In the meantime, companies also have to contend with a higher cost of debt, which could cause issues not only for their private equity owners but also their private credit lenders, which might have to make concessions to prevent defaults.” (Pensions & Investments)
  8. Apollo Targets $2 Billion for Next Fund Dedicated to Secondary Credit Investments “The firm is targeting about $2 billion for its second credit secondaries fund, according to people with knowledge of the matter, who asked not to be identified discussing confidential information. The firm is expected to begin formally marketing the fund by the end of the quarter, the people said.” (Bloomberg)
  9. Fixed income: the case for active management | Fixed income market commentary 4Q23 “The appeal of individual bond investment, especially when interest rates are much higher than what we have become accustomed to over the past 15 years, is undeniable. Individual bonds promise higher semi-annual payments and a sense of direct control over investments.” (Oakmark Funds)
  10. Long/short equity set to perform in 2024 “Thanks to a potential increase for global equity volatility, long/short equity managers may expect to outperform, according to recently released research from Cambridge Associates.” (Alternatives Watch)
  11. Morgan Stanley Launches Non-Traded REIT, Senior Housing Investment Possible “Morgan Stanley Smith Barney is set to create a non-traded real estate investment trust aimed at securing a portfolio of high quality commercial real estate assets, according to a Form 10 document filed with the Securities and Exchange Commission. While not the primary objective of the REIT, known as North Haven Net REIT, the Form 10 filing that was made last month indicates that the REIT could pursue senior housingassets.” (Senior Housing News)
  12. The Private Fund Rule Debate Isn’t Over Yet “According to the brief, allocators benefit from the private fund rule by helping to eradicate some of the problems they face when negotiating with private equity firms. The brief also pushes back on claims by private equity firms that the SEC didn’t have the authority to pass the rule in the first place.” (Institutional Investor)
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