International Equities Lose their Lust, Hedge Fund Appeal Wanes and Germany's Recession Sends Signals in this Week's Edition...
Take a Lap Around the Industry
Wall Street Dips as Powell Doubles Down on Inflation Battle (Reuters)
SEC Charges Audit Firm Markum for 'Systemic Control Failures' in SPAC Work (MarketWatch)
Cava's Mediterranean Chain Soars 117% in Market Debut (CNBC)
Privatization Surges as IPO Climate Remains Challenging (Bloomberg)
Investor Interest Shifts to U.S. Stocks as Global Equities Lose Appeal
U.S. stocks are once again outpacing their international counterparts, with the S&P 500 having risen 14% this year, beating the "MSCI All Country World ex USA" Index's 8.5% gain. Investors have shown a renewed interest in U.S. stock funds, producing three consecutive weeks of net inflows. Meanwhile, global stocks are experiencing a decline in interest, with the largest weekly net outflow in global equity funds since October 2022. The dominance of U.S. stocks can be attributed to their perceived stability and strong balance sheets. The surge in interest is fueled by the growing excitement surrounding artificial intelligence (AI), with companies like Nvidia, Meta and Tesla experiencing substantial gains. Optimism about the U.S. economy remains high due to robust consumer spending, a strong labor market and a stabilized banking sector. However, the Eurozone faces a recession, and China's economic reopening has encountered obstacles. While U.S. stocks continue to dominate, there are still promising growth opportunities in international markets, particularly in countries like Japan and Mexico where economic rallies show no signs of slowing down.
"A rising tide lifts all boats, and that’s what you’re seeing in Japan...In the U.S., there’s a very quick narrow stream moving through a smaller body of water, while the rest of the ocean stands still."
Todd Jablonski, Principal Asset Management
Private Funding Pulse Check
Rose Rocket, a platform transportation management software, has recently raised $38M in their Series B round, with the participation of Addition Capital, a family office based in London, U.K.
Ray Dolby's Family Office, Dolby Family Ventures, has invested in a $30M Venture funding round in Sharrow Marine, a Philadelphia-based nautical and aeronautical design firm
In a recent Series B round, Dorilton Capital Family Office participated in an investment totaling $20M in Blackbird.AI, a threat intelligence company that provides mission critical solutions with narrative & risk intelligence
Jefferson River Capital has joined a $50M Series E investment round in PM Pediatric Care, a specialized urgent care practice trained in treating newborns through college-age patients
Hedge Fund Appetite Stagnant as Family Offices Seek Diversification
According to a recent UBS survey, a majority of family offices plan to further increase their direct private equity allocations in the next five years, while a smaller share intend to boost exposure to private equity funds of funds. Real estate and private debt are also on their radar for potential expansion. Family offices have gained substantial negotiating power in the current fundraising landscape, allowing them to secure investor-friendly terms due to their agility in deploying capital without the need for extensive investment committees or governing boards. Diversification is a key goal, but the potential for higher returns from private markets remains the primary motivator. Additionally, family offices see private funds as a hedge against inflation and high interest rates. The appetite for hedge funds is relatively stagnant due to higher fees and underwhelming market returns, resulting in 26% of respondents seeking to decrease their exposure to the asset class.
"Large family offices often employ public markets trading professionals who manage in-house strategies which are in many cases akin to hedge fund exposure...While the average allocation to hedge funds remains low, we have seen improving sentiment around this asset class with low correlation strategies such as macro and market-neutral trading where managers are looking to take advantage of the increased opportunity set across rates and currency trading."
Sara Naison-Tarajano, Goldman Sachs
Germany's Recession Sends Ripples Through Eurozone
Germany's recent plunge into a recession has sent shockwaves across the Eurozone, raising concerns about the region's economic stability. As one of the largest economies within the Eurozone and a key driver of growth, Germany's downturn carries significant implications for both the country itself and its neighboring nations. The revised data reveals that, in 2023, Germany is among three economies within the OECD to experience a recession. The recent economic downturn in Germany calls for deeper analysis, but it also emphasizes the interdependence of global economies and the susceptibility of the Eurozone to economic setbacks. The repercussions of Germany's recession extend beyond its borders, affecting trade, investment and overall market sentiment. The current economic setback in the Eurozone calls for strategic measures to be taken by policymakers in order to stimulate growth, build investor confidence, and mitigate any potential spillover effects on other member countries. Observers and market participants will closely monitor developments in Germany and the Eurozone, seeking signs of recovery and assessing the effectiveness of policy responses in navigating this challenging period.
"Higher interest rates will continue to weigh on both consumption and investment and exports may also suffer amid economic weakness in other developed markets. Our forecast is for further contractions in the third and fourth quarters."
Franziska Palmas, Capital Economics
Challenges Persist for AI Startups in Accessing Crucial Training Data Sets
According to a report by Bullpen Capital, data has become increasingly crucial for success in today's landscape, with the value shifting from model building to data itself. Venture funding for generative AI startups focused on finance and healthcare has grown from $4.8B in 2022 to $12.7B in the first five months of 2023. However, these startups face challenges in accessing necessary training data sets. Some are forming partnerships with data-rich enterprises, but concerns about data ownership and access rights persist. Startups employ strategies like training separate models for each client using their exclusive data. Yet, gaining client trust, ensuring data security, and navigating intellectual property complexities remain ongoing obstacles. Established tech giants have a leg up with their customers' trust, whereas startups are in a constant battle to acquire exclusive data sets, leading to an "arms race" of sorts.
"We’ve seen lots of pitches from companies who may well be pursuing a brilliant application of AI, but they don’t have access to data that will give them the ability to build a powerful application, let alone proprietary data that will help them have competitive moats in their business."
Birmingham, AL-based RIA Waverly Advisors, LLC has acquired Silicon Hills Wealth Management from Austin, TX, bringing Waverly's total AUM to $6.1B (BW)
LPL Financial has announced it has acquired an advisor team from Advisor Group subsidiary Royal Alliance, bringing in roughly $230M in advisory (FAIQ)
Sowell Management, a North Little Rock, AR-based RIA is expanding its presense in Arkansas with the acquisition of Sector Grid Advisors and its $120M of assets (BW)
Written by:
Andrew Popp | Sr. Research Associate
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