This document summarizes our views on the major Alternative Asset classes. It is provided for discussion purposes and do not provide any assurance or guarantee of future market returns. We do not expect clients to use this as a recommendation for Asset Allocation. Please note the content is for FOR INSTITUTIONAL INVESTORS USE ONLY.
The Hedge Fund industry continued the positive trend from the previous quarter. Credit-related strategies led the way with equity and event driven managers contributing to a solid Q1 for the industry. Total hedge fund industry capital surged to an all-time high in Q1 2021.
Over Q4, the sector saw a sharp rebound in deal making as the US economy further recovered from COVID-19 related impacts. The swift recovery led to restarting deals that were previously put on hold in H1 2020, leading to a record amount of activity over Q4. A key driver behind many of the large exits in H2 2020 came from the recent deluge of SPACs, which led to a significant increase in the amount of realizations generated via public listings compared to 2019. While fundraising figures declined from 2019, the segment remained strong with record dry powder. As markets continue to recover, we expect some form of normalization in the near-term as valuations and activity should return to pre-pandemic levels.
US Venture Capital firms continued to remain immune to COVID-19 related impacts due to the sector’s large exposure towards biotech, software and technology related fields. While investment activity remained consistent with prior quarters, the sector saw a sizeable jump in exit activity over Q4. Similar to their private equity counterparts, exit activity was boosted from the recent increase in the use of SPACs and the completion of a number of large IPOs that were previously delayed due to the pandemic. Mega funds and large financing rounds were the primary drivers behind the resilience in investment activity and fundraising over the last twelve months.
In 2020, investors focused on COVID-19 resilient sectors and this trend is expected to continue in H1 2021. This sector polarization trend is also seen in multiples. Exit activity picked up in Q4 2020 and is continuing the trend in 2021. Fundraising contracted slightly in Q4 2020, but was still strong.
Asia Private Equity experienced a strong rebound in Q4 for investment and exit, signaling further improvement in the private equity environment in H2 2020. Particularly, investments made in 2020 were actually higher than those in 2019 as many GPs took advantage of market opportunities caused by the pandemic. Fundraising was down but is expected to pick up in coming quarters with funds holding closes in H1 2021.
Natural Resources saw muted activity due to the combined effects of less demand of energy because of the pandemic and the move towards sustainability. The energy sector continues to consolidate. Agriculture posted low income in 2020, but it is expected to increase in 2021. Timber shows trends similar to agriculture. Metals are showing signs of a bullish market.
Infrastructure fundraising was strong in 2020 despite COVID-19. Energy transition and digital infrastructure remain the key themes in the sector. Larger funds dominating the fundraising market appears to be an established trend.
The impact of vaccine roll-outs coupled with both monetary and fiscal stimulus has been to raise confidence levels in the credit markets in both the US and Europe. While still elevated by historical standards, the trajectory continues to be for lower default rates.
Deal volume surged in Q4 in the U.S and Canada. The European market was characterized by stronger restrictions in Q4 to contain the pandemic. The U.K. market was resilient despite the second wave. The Asian real estate market showed strong investment activity in Q4. The Australian real estate market appears to be returning to pre-COVID‑19 levels.
Please follow link for information on indexes https://www.mercer.com/content/dam/mercer/attachments/private/nurture-cycle/gl-2020-investment-management-index-definitions-mercer.pdf
This presentation is for sophisticated investors only and accredited or qualified investors only. Funds of private capital funds are speculative and involve a high degree of risk. Private capital fund managers have total authority over the private capital funds. The use of a single advisor applying similar strategies could mean lack of diversification and, consequentially, higher risk. Funds of private capital funds are not liquid and require investors to commit to funding capital calls over a period of several years; any default on a capital call may result in substantial penalties and/or legal action. An investor could lose all or a substantial amount of his or her investment. There are restrictions on transferring interests in private capital funds. Funds of private capital funds’ fees and expenses may offset private capital funds’ profits. Funds of private capital funds are not required to provide periodic pricing or valuation information to investors. Funds of private capital funds may involve complex tax structures and delays in distributing important tax information. Funds of private capital funds are not subject to the same regulatory requirements as mutual funds. Fund offering may only be made through a Private Placement Memorandum (PPM).
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