The view from the Funds team - Lorna Robertson Q1 2024

News: Insight & Opinion | 27 March 2024

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Portfolio is showing strong distributions and embedded value, says Lorna Robertson  

I am delighted that 2024 has got off to a phenomenal start with our clients receiving almost £3.7m in distributions in the first two months of the year. This continues last year’s impressive record, where cash distributions to our clients were 80% higher than the market average. Moreover, across the board, our recent fund investments are already showing strong mark-ups in portfolio valuations. This embedded value bodes well for future fund performance. 

This endorses our thesis that fund manager selection is critical and highlights the effectiveness of our rigorous fund identification and selection procedure, which we are continually honing to ensure that we only pick managers that are top-quartile performers and that have a distinct edge over their peers. Our priority is to make sure the managers we invest with have the skills to maximise performance at any point in the investment cycle and take advantage of the prevailing market conditions.  

We’re always on the lookout for new top-tier managers to consider and are building up our extensive network in the investment community, having added the global asset manager AlpInvest to our portfolio in Q1 2024, investing in their flagship AlpInvest Co-Investment Fund IX,  but there’s also merit in the current climate in sticking with those existing relationships with managers we know and trust. Headway Capital Partners is one example of a fund manager we’re working with again as we commit to a top-up for its fifth fund, but we’ll be offering plenty of new opportunities this year as well. 

The macro headwinds that stifled both investment and exit activities in 2023 spilled over into Q1 2024, but while fundraising has continued to be challenging, the current environment has created good opportunities in both private equity and private credit strategies. Those investing now are likely to lock in outperformance because they’ll be able to invest in better deals at cheaper prices with more conservative structuring. Those fund managers that have the expertise and are prepared to make significant operational improvements will be well-placed to drive value and create real growth. 

We continue to see an increase in the number of private equity funds focussed on complex carve-outs and the use of creative structuring with hybrid capital solutions growing in prominence, rather than deals being purely financed with equity or debt. Lack of liquidity also persists in the market: with public markets still under stress and uncertainty lingering, the exit activity remains suppressed, so there’s a growing need for liquidity and secondaries strategies and this market is maturing. Private debt is expected to grow as an essential asset class too as traditional lenders retreat, and borrowers continue to require more flexible and bespoke capital solutions.  

This is where we look to take advantage as all of these themes play into our decision-making process when we select funds, and I am pleased to say that our imminent pipeline is looking very healthy. 

We are also  in the final stages of on-boarding a mid-market focussed GP-led secondaries fund from a global top-decile fund manager, and as our clients have frequently requested some degree of liquidity, we are looking at a semi-liquid private equity fund managed by a leading global investor which invests in premier funds and co-investments, using an investor-friendly ‘evergreen’ structure. 

Looking forward there is certainly plenty going on and as the opportunities continue to increase and returns remain attractive for the right kinds of strategies, the immediate outlook is optimistic.