Rostrum Grand Ltd

Private equity (PE) growth investments have expanded their share of deal flow, as larger buyout firms increasingly show interest in minority stakes. According to PitchBook’s latest US PE Breakdown, growth investments rose significantly in the first half of 2024, accounting for about 23% of all PE deals, surpassing leveraged buyouts (LBOs), which made up 19%. This shift marks a reversal of a long-standing trend. Growth investments in H1 2024 have already exceeded the full-year figures from 2023, when they represented 20% of all PE deals. Tim Clarke, PitchBook’s lead private equity analyst, attributes the rise to buyout firms adopting a hybrid approach, veering away from the traditional LBO path to pursue more minority deals. This strategy enables an existing PE owner to retain its investment while a new investor enters at a more favorable price. The lines between growth deals and buyouts are becoming increasingly blurred, partly because growth equity deals do not depend on debt financing—an attractive option when borrowing costs remain historically high, Clarke noted. “However, the downside is that PE firms have less control in a growth equity structure, which can complicate exit strategies and timing,” Clarke added. “Additionally, growth equity dividends tend to be lower, presenting challenges when limited partners (LPs) are eager to reinvest capital in new funds.”

India's private credit market experienced robust growth in the first half of 2024 (H1 CY2024), with total investments reaching $6 billion, according to an EY report. This performance highlights the market's vitality, particularly when compared to the $8.6 billion invested throughout 2023. The momentum in H1 CY2024 has already surpassed the deal flow of the previous year, reflecting growing interest and activity in the private credit sector. Notably, the data excludes smaller deals below $10 million and offshore credit raises. When including these additional transactions from public sources, they contribute an extra $174 million and $1.9 billion, respectively, underscoring the market's strong upward trajectory.

A challenging fundraising environment has intensified competition for a limited pool of investor capital. In this landscape, the largest and most experienced firms have emerged as the clear winners. In 2023, firms with four or more funds under their belt attracted 86% of the total private equity capital raised, marking the highest recorded percentage. This trend continued into the first half of 2024, with these experienced firms raising 88% of the total capital by June.

Global brokerage firm Morgan Stanley believes that the current market is ideal for hedge funds to cherry-pick winners and generate greater alphas largely due to the disparity in the performances of stocks across sectors in the US equity market this year.   The firm compared the relative performances of the US equity markets between 2023 and this year, which, according to them presented a more balanced picture in 2023 as compared to this year. Specifically, the firm drew attention to sectors such as Media, Telecom, and Technology sectors which have witnessed a higher degree of disparity in 2024 as compared to 2023. The brokerage commented that while the markets in 2023 were driven by macros such as interest rates and inflation, in 2024, the equity markets have shifted to micro fundamentals, which has been the cause of the disparities in performance. In addition, Morgan Stanley notes that in 2024 the macro fundamentals are weighing less as is evidenced by the decline in its internally maintained S&P 500 risk-on/risk-off model that measures market-wide co-movements and shared risk.

Led by equity hedge and fixed income-based relative value arbitrage strategies, Hedge funds posted a gain of 0.25% for August ’24. Despite large-cap equities recording three days of steep declines at the beginning of the month, these were balanced by the end of the month thanks largely to gains driven by a combination of equity and fixed-income trading during an extremely volatile market. According to Hedgeweek report Equity Hedge (EH) funds, which invest long and short across specialized sub-strategies, led performance gains in August, driven by healthcare and technology sub-strategies. The HFRI Equity Hedge (Total) Index advanced an estimated +0.8% for the month to bring its YTD return to +9.0%, leading all strategy indices over the first eight months of the year.

Japanese bank Nomura Holdings is expecting strong revenue growth this year, beating the 20% growth it showed in the last three years. According to Nomura’s head of global markets, as quoted by Reuters, the company is targeting a 30% growth on the back of trading in government bonds and equities this year along with aggressive expansion plans, in addition to a renewed push to grow its business serving hedge funds.

Are Hedge Funds Moving Away From Mag-7 Stocks? Having witnessed extreme crowding over the past year, several top hedge funds are now paring back their exposure to the Magnificent-7 tech stocks. According to data provided by Goldman Sachs, several US hedge funds were rotating away from these stocks.   Additionally, the number of hedge funds holding one or more of the Mag-7 stocks in their top-ten positions appears to have fallen across the board. In the second quarter, 43 of the 693 hedge funds held one of these stocks in their top-10, which was higher than the 30 that they held in the first quarter.   A few more hedge funds added Apple and Amazon to their portfolios in the second quarter with TSMC actually benefiting from concerns around Nvidia, which was the biggest loser. Now Mag-7 stocks only account for 13% of average hedge fund portfolios, as per a news report. 

Europe, Middle East See Resurgent M&A activities The mergers and acquisitions (M&A) markets across Europe, the Middle East, and Africa (EMEA) during 2024 presents a mixed picture where deal volumes have declined while aggregate deal values moved up. In addition, there was an increase in large deals suggesting higher corporate interest, says a report.   Rate cuts in Europe bolstered investor confidence in the latter part of the first half of 2024 as investors moved in to capitalize on improving market conditions. The first half saw 7,818 deals. They were worth €474bn, compared to 9,079 deals worth €363bn in H1 2023, representing a 13.9% drop in volumes and a 30.6% surge in value, says the report.   Also, PE buyouts in the region rebounded sharply from a value perspective, rising over 93% year-on-year to €123.6bn in the first half. Volume was also up, by 13% to 1,531 buyouts. Most deal activities focused around TMT, energy, and mining sectors.

LPs Look to Rebalance and De-Risk Portfolios The LP-led market appears to be bustling with new sellers in recent times amidst a growing desire to rebalance and de-risk their private equity portfolios, according to a news report. According to a survey, this trend will continue for some more time, despite occasional LP sales falling away. Of the $68 billion global secondaries volume seen in the first half of 2024, the LP-led ones accounted for a sizable $40 billion, as per data shared by Jeffries in its Global Secondary Market Review. It says LPs are continuing to tackle the overallocation to private equity, which in some cases goes beyond 40%. This indicates the potential for significant selling activity from some of the large LPs over the next 12-18 months, says the report, adding that they would continue to visit the secondaries market not only in response to tight liquidity but also to rebalance their portfolios. 

Inflation rates in the United States could pick up modestly in July, but it would be too small to derail the widely anticipated Federal Reserve interest rate cut in September. The consumer price index is expected to rise 0.2% from June, but this would not impact the annual metrics to an extent to worry the Fed, says a report. In parallel, the July jobs report indicated that US employers scaled back hiring with the unemployment rates rising for a fourth month, triggering a key recession indicator that contributed to a global stock market selloff. The report by Bloomberg says these two data points would bolster the Fed’s confidence to start lowering lending rates while shifting their attention to the fragile labor market. Now the expectation is that the shelter costs slowdown that began in June would continue.