Strategic Revisions Hit PE, SMA Usage Gains Ground Among Institutions and Profit Manipulation Looms Across Emerging Markets in this Week's Edition...
Dear Readers,
As we publish the 100th volume of the FINTRX Family Office & RIA Weekly Roundup Newsletter, we want to extend a heartfelt thank you to each of you. Your continuous engagement and support have been instrumental in reaching this significant milestone. Together, we've built a community deeply invested in sharing insights and trends that shape our industry.
Thank you for being part of our journey. Here’s to the next hundred!
Take a Lap Around the Industry
Dubai Airport Hit Hard by Unexpected Torrential Rain and Floods (WSJ)
Rate Cut Hopes Deferred on Wall Street, Possible Delay Until March 2025 (CNBC)
Top Wall Street Executives Optimistic About Renewed IPO Activity (Bloomberg)
Prologis Signals Downturn in Industrial Real-Estate Sector (WSJ)
Strategic Revisions Shape the Future of Private Equity Investments
As the private equity sector braces for a transformation in the face of shifting economic tides, investors are faced with the critical task of aligning their strategies with the emerging landscape. The insights provided by NEPC's Capital Market Assumptions report are essential for guiding investors through these evolving market dynamics. According to the report's results shown below, private equity is expected to deliver robust returns in both the 10-year and 30-year horizons, outperforming traditional asset classes such as global equity, US Treasury Inflation-Protected Securities (TIPS), and core real estate. This predictive insight suggests a compelling narrative, despite the tightening of monetary policy and the consequent cost of capital increases, private equity retains its allure, promising higher yield potentials over the long term. Investors are now at a critical juncture, where smart investment decisions and strategic buyout choices hold greater importance than ever. Private equity emerges as the key player in delivering consistent performance amidst a shifting economic landscape.
"A significant component within private equity, driving the historic and forecasted outperformance, is the illiquidity premium. This, in its simplest form, implies that investors should be compensated for the risk of holding illiquid assets over a prolonged period. While the illiquidity premium may be less than it was 20 years ago due to increased competition and greater efficiencies, NEPC believes that private markets will continue to outperform public markets over a medium-to-long-term time frame."
NEPC
Private Funding Pulse Check
Securing $3M in Series B funding, Veremark, a B2B background screening and reference checking platform, has received backing from Singapore-based Vulpes Investment Management
Maynard Webb's family office, Webb Investment Network, recently took part in a Seed funding round, investing $3.6M in PeerDB, a software company providing a way to replicate data from Postgres to Data Warehouses
Snappy, an all-in-one gifting platform eliminating friction and guesswork, has successfully closed a $25M Series D funding round, with participation by Saban Capital Group
An AI-powered business intelligence technology company, Clientell, has attracted a $2.5M Seed investment from Artha India Ventures
Wells Fargo Advisors has successfully recruited a six-person private wealth team from Morgan Stanley in Beverly Hills, managing approximately $1.2B in client assets
The AGR Wealth Management Group, previously affiliated with Morgan Stanley and now part of Wells Fargo, generated $9M in annual revenue
This move is part of Wells Fargo's broader strategy to strengthen its recruitment and retention capabilities
Lisa M. Amster, a leader of the newly acquired team, brings over two decades of financial experience, having worked with prestigious institutions such as Goldman Sachs and Barclays Capital before her tenure at Morgan Stanley starting in 2012 (AdvisorHub)
Institutional Investors Shift to Hedge Fund-Like Strategies with SMAs
Pensions and endowments are increasingly adopting a strategy reminiscent of large hedge funds' multi-strategy approach, steering away from traditional collective investment pools and towards individually managed "pods." This method, led by institutions like the University of Texas Investment Management Co. and the State of Wisconsin Investment Board, controlling a substantial $230B combined, allows them to customize investment strategies through separately managed accounts (SMAs). By managing their funds separately, these institutions can directly oversee their trading exposures, optimize execution costs, and set personalized risk limits. Michael Jordan, CEO of Walleye Capital’s Dockside Platforms, highlights this trend as a shift towards a more nuanced investment approach previously dominated by hedge fund giants. As a result, institutions are not just saving costs but are also gaining transparency into the trades, enabling them to replicate successful strategies independently and bolster their investment portfolios.
"Sophisticated allocators want to invest more like multi-manager hedge funds...They’re saying, ‘Let me take some learnings, practices and structures of these firms to inform how I invest'."
Michael Jordan, Dockside Platforms
Beneish M-Score Signals Red Flags in Emerging Markets
In the midst of increased financial oversight, the implementation of the Beneish M-Score in emerging markets takes on greater importance. The M-Score, a statistical model designed to detect earnings manipulation, points to potential concerns in countries like Argentina and Turkey, where the scores have recently crossed the threshold that suggests possible financial statement manipulation. This development comes at a time when emerging market equities have notably underperformed compared to their U.S. counterparts. The MSCI Emerging Markets Index, which tracks the equity market performance of these regions, has reported a modest 1-year return of 2.37% and a more concerning 3-year negative return of -5.05%. This stark underperformance not only raises questions about the intrinsic health of these economies but also may partially explain why some of the countries within this index are showing signs of potential earnings manipulation, as they grapple with the pressures of maintaining investor confidence amidst challenging economic conditions.
"You cannot take it to court and say, ‘Look, this company has a big M-Score and must be a fraud...But statistically, this fits the profile of a manipulator."
Dr. Charles Lee, Cornell University
Former UBS Executive Steps Down from $8 Billion Family Office
Edoardo Spezzotti, a former UBS Group AG executive, has retired from his role as CEO of Ergeny, the Monaco-based private investment firm managing the assets of Stefano Pessina and his wife Ornella Barra. Pessina, the chairman of Walgreens Boots Alliance Inc., amassed a fortune valued at $7.2B, partly due to Spezzotti’s strategic guidance. Spezzotti, who had a significant impact on global finance through various roles including vice-chairman of UBS’s wealth-management division, has been succeeded by Gregory Doyle, formerly of Kruger Inc. This transition marks the end of a pivotal chapter in Pessina's financial empire, which saw substantial growth from a $22B deal for Alliance Boots facilitated by Spezzotti's insights in 2007. The family office, known for its diversified investments across sectors like health care and energy, continues under new leadership, reflecting the dynamic nature of private wealth management.
"Ergeny invests in public and private equities as well as fixed income on behalf of Pessina and his 70-year-old wife, who chairs the family office and holds an executive role at Walgreens Boots Alliance. The family office doesn’t focus on any specific sector but pays attention to certain themes such as food and water, energy transition and health-care innovation..."
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