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01/14/2025
Mixed Bag for Private Fund Fundraising in 2024
Are you an optimist or a pessimist?
If you consider yourself the former, and you had gone through the Form D filings in 2024, you would be feeling pretty good about the state of the private fund fundraising space. After all, there were 21 more Form D documents filed with the SEC
last year (15,248) than there were in 2023 (15,227). That is an increase of 0.00% to two decimal places, but a win is a win, as they say.
If you are a pessimist, then you would look at the aggregate gross asset value (GAV) and tell people that things are bad. And, from a data perspective, you would be right – the total GAV fell from $325.5bn in 2023 to $266.01bn last year, a drop of -18.28%. You would also likely point out that the total GAV was $485.08bn in 2022, so 2024 delivered a second consecutive year of declines.
The Form D provides private fund advisers with four sub-category options for ‘pooled investment funds’ – hedge fund, private equity fund, venture capital fund, and other investment fund.
Each of these categories has evolved into its own industry, managing billions of dollars of investor capital across numerous geographies and asset classes. So, at the filings level, there was a noticeable uptick in activity in the hedge fund and private equity fund categories and on the other side, a decline in venture capital funds , as can be seen in Table 1 below.
Table 1: Number of Filings by Form D Category, 2024 vs 2023
Category Filings (2022) Filings (2023) Filings (2024) 2024 v 2023 Change (%) Hedge Fund 1,390 1,086 1,190 9.6 Private Equity Fund 4,446 3,629 4,104 13.1 Venture Capital Fund 9,079 6,546 6,051 -7.6 Other Investment Fund 4,390 2,616 2,585 -1.2 Other* 1,870 1,350 1,318 -2.4 Total 21,175 15,227 15,248 0.1 *Other represents Form D funds that weren't marked as pooled investment funds in Section 4
Alas, it is not the same story at the GAV level. Interestingly, venture capital funds delivered the year’s good news story in terms of total dollars raised, seeing an increase of 27.6% from last year, implying less in number but a much larger average fund size. And the private equity cohort added a couple of percentage points, as shown in Table 2.
Table 2: Aggregate GAV by Form D Category, 2024 vs 2023
Category GAV (2022) GAV (2023) GAV (2024) 2024 v 2023 Change (%) Hedge Fund 57.13 87.12 47.94 -45.0 Private Equity Fund 165.80 95.12 97.39 2.4 Venture Capital Fund 135.47 26.62 33.96 27.6 Other Investment Fund 109.78 108.63 76.93 -29.2 Other* 16.90 7.99 9.80 22.7 Total 485.08 325.50 266.01 -18.3 *Other represents Form D funds that weren't marked as pooled investment funds in Section 4
The GAV for hedge funds fell significantly, however. In 2023, total GAV was $87.12bn, so hedge funds raised only slightly more than half that last year.
Reasons for the struggles in hedge fund land are well documented. Rightly or wrongly, their returns are often compared to the S&P 500, which in 2024 gained approximately 25%. Add to that the recent higher interest rate environment dampening appetite for products that, on average, delivered 7.99% at the time of writing (according to BarclayHedge) and it becomes clear that the hedge fund industry faces competitive challenges.
The numbers, however, do not paint a perfect picture of the health of fundraising in the space. Many Form D filers submit their document before they have raised any outside assets, so in these instances, the form itself shows $0 in sales.
So, when these funds file their Form D/A, we would expect AUM to tick up here over the next 12 months – and significantly so.
One thing that won’t be a surprise is the dominance of private equity funds in the league tables. These products are usually larger in size than their hedge fund cousins due to the nature of the strategy, and thus provided the biggest winners again in 2024 (these products also topped the charts in 2023). Of the top 20 filings last year, 16 were private equity, two were venture capital and two were ‘other’.
Table 3: Top Twenty Form D Filings, Jan 1 – Dec 31, 2024, by Gross Asset Value Size
Fund Name GAV ($ billions) Type Linden Capital Partners VI LP 4.5 Private Equity Fund Linden Capital Partners VI-A LP 4.5 Private Equity Fund KLCP Offshore Fund IV LP 4.0 Private Equity Fund KLCP USTE Fund IV LP 4.0 Private Equity Fund KLCP Domestic Fund iv LP 4.0 Private Equity Fund Asterion Industrial Infra Fund III, FCR 3.9 Private Equity Fund Nautic Partners XI-A, LP 3.8 Private Equity Fund Nautic Partners XI, LP 3.8 Private Equity Fund Thrive Capital Partners IX Growth, LP 3.5 Venture Capital Fund Pomona Capital XI (Offshore), LP 3.5 Private Equity Fund Pomona Capital XI, LP 3.5 Private Equity Fund Columbia Spectrum Partners VI-A, LP 3.2 Other Ninety One Global Alternative Fund 2 SCSP - RAIF - Africa Credit Opportunities Fund 3A 3.0 Other Arch Venture Fund XIII, LP 3.0 Venture Capital Fund Blue Torch Credit Opportunities Fund IV LP 3.0 Private Equity Fund Blue Torch Offshore Credit Opportunities Fund IV LP 3.0 Private Equity Fund Stellex Capital Partners III-A LP 3.0 Private Equity Fund Stellex Capital Partners III LP 3.0 Private Equity Fund Sterling Group Partners VI (parallel), LP 2.8 Private Equity Fund Sterling Group Partners VI, LP 2.8 Private Equity Fund *On occasion, filers may put the same GAV on multiple filings for the same product, which can lead to double counting in certain situations
Whether you are an optimist or a pessimist, there is something for everyone in the Form D data from 2024. And, despite the headline GAV numbers for hedge funds in particular being perhaps a little alarming, there are clearly mitigating circumstances.
But for the private equity and venture capital set, it is difficult to argue that 2024 was not a better year than 2023. And for the private funds industry overall, the back end of last year delivered some good news in the form of reductions in the Federal Funds Rate, which, other things being equal, will hopefully drive some investors to rotate back into private funds. The aforementioned spike in the S&P 500 might also see some investors overweight US equities as well, which might also be a boon for the alternative investment industry.
As always, we will be keeping an eye on developments.
Happy New Year!
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12/10/2024
Private Fund Adviser Employment Data Reinforces Notion of Haves, Have Nots in US Investment Fund Industry
The U.S. economy added 227,000 jobs in November, according to the latest jobs report from the US Bureau of Labor Statistics published on December 6. Total nonfarm payroll employment rose by 227,000 in November, and the unemployment rate changed little at 4.2 percent.
The news is positive for the US economy, which has seen the unemployment rate ticking up gradually over the past two years, from approximately 3.6% in October 2022 to this month’s figure.
So, we started to wonder what the jobs situation is like in the world of private investment funds. On Form ADV, the Securities and Exchange Commission requires advisers to submit the number of employees that an investment adviser has in total, as well as those providing investment advisory services specifically.
We collect this data here at 9AT, and the news is better for the private fund folks than it is for the larger population.
We took data from the last six years and separated it into octiles based on assets under management. As can be seen from the tables below, some trends are apparent.
First is that advisers in the upper octile are adding headcount over time across the organization. As can be seen in Figure 1 below, the average headcount for advisers in the uppermost octile was 120 in 2018 and is 139 this year, an increase of 15.8%. Indeed, the average headcount has increased every year for this cohort, with the lone exception of 2021.
They’re also managing much more money: The mid-point AUM of this cohort was $2.421trn in 2018, and is $3.957trn this year, representing a 63.4% increase.
The story is different, however, for the rest of the groups. While octiles 5, 6 and 7 are showing slight decreases, the bottom two octiles – or, quartile, rather – is showing a slight decrease, meaning that the average smaller investment manager is doing more with less. In 2018, the mid-point AUM for this cohort was $52.66bn, and was $59.45bn this year, an increase of less than $7bn or 12.9% in the last six years.
Figure 1: US Investment Advisers, Number of Employees, by Year 2018 - 2024
EMPLOYEES Octile 1 2 3 4 5 6 7 8 2018 9 6 8 10 14 22 43 120 2019 8 5 8 10 13 21 44 122 2020 8 5 8 9 13 20 43 125 2021 8 5 8 9 12 21 38 124 2022 8 5 7 9 12 20 39 129 2023 7 6 8 10 12 20 42 132 2024 7 5 8 10 13 20 40 139 It’s a similar, if not perfect, correlation when comparing the overall employee numbers in Figure 1 above to the investment advisory-only numbers in Figure 2 below.
Two data points immediately come to mind here. First is that again, the upper octile is the only one where headcount has been added over the past six years: 65 people versus 53, an increase of 22.6%. But in the bottom four octiles, headcount has remained the same or decreased slightly.
Figure 2: US Investment Advisers, Number of Investment Advisory Employees, by Year 2018 - 2024
EMPLOYEES- INV ADVISORY Octile 1 2 3 4 5 6 7 8 2018 4 4 5 6 8 13 25 53 2019 4 3 5 6 8 12 25 55 2020 4 3 5 5 8 11 25 57 2021 4 3 5 5 7 12 22 57 2022 4 3 4 5 7 11 22 61 2023 3 3 4 6 7 11 23 62 2024 4 3 4 6 8 11 22 65 What is not clear is the desire to add headcount; that is something we will never know. But we do know that running an investment advisory firm has arguably never been as onerous as it is today.
But that doesn’t seem to be stopping firms from growing.
As can be seen in Figure 3 below, the mid-point AUM in the bottom two quartiles has risen only slightly, considering that we are working with a six-year time horizon. Investment management firms in the fourth octile are 5.5 times larger at the mid-point than those in the first octile, but are employing only 50% more staff, implying that there is a certain minimum number of employees required to run an investment firm, despite its size.
Figure 3: US Investment Advisors, AUM by Octile, Mid-Point
MID POINT AUM Octile 1 2 3 4 5 6 7 8 2018 52,657,272 129,252,408 189,987,709 291,335,925 481,659,251 930,690,796 2,572,608,990 2,421,594,240,995 2019 51,411,179 125,051,446 182,258,762 277,735,931 462,101,621 893,680,311 2,412,060,129 2,266,886,021,407 2020 54,500,001 134,994,456 197,747,803 299,696,221 495,491,944 951,960,266 2,560,654,825 2,859,983,982,966 2021 56,514,738 140,002,170 206,242,997 311,108,327 515,223,903 988,550,760 2,707,264,982 3,336,860,736,105 2022 59,249,397 149,256,278 223,442,487 335,974,566 554,838,363 1,057,299,983 2,918,789,006 3,900,259,606,644 2023 56,513,872 141,454,760 211,270,179 321,653,578 527,899,918 1,008,189,224 2,775,967,509 3,326,711,572,493 2024 59,450,131 147,155,960 219,060,992 332,770,965 545,335,483 1,049,800,549 2,894,149,639 3,957,071,364,389 As mentioned above, launching an investment firm in this environment is challenging. Despite a handful of regulatory ‘wins’ that the private fund industry has enjoyed in 2024, the growing and evolving operational due diligence process, alongside regulatory change in the past decade, makes starting out a more costly endeavor than in years past.
But for those that do take the plunge, as can be seen, scaling their businesses while not having to add significantly more headcount is a very achievable goal.
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11/20/2024
Just How Have the Hedge Fund and Private Equity Industries Fared Over the Last Four Years?
The United States has – or, more specifically, will have, on January 20th – a new President. Republican Donald Trump returns for a second (non-consecutive) term after beating Democrat Kamala Harris in the November 5th election.
A recent article from the Wall Street Journal suggests that private equity bigwigs have spent $231m on political donations in the recent presidential election campaign, close to the record set in 2020. So, for this month, we decided to take a look at a range of data points across the private equity corner of the private funds industry during the Joe Biden administration to see how it is faring.
There is, of course, an elephant in the room – the Covid-19 pandemic. The impact of the initial wave of lockdowns on the population was significant. In the private funds industry, like many others, private equity management companies and their service providers had to quickly transition to a working from home environment, which impacted fundraising and deal making. The second half of 2020 and into 2021 was frenetic, as many firms were trying to catch-up from the lulls in activity in the first half of 2020, so it is arguable that the playing field was a little different in the early years of the current administration than in previous ones.
Still, analyzing the data is interesting – at least, to us - and we decided to start with the number of new private equity funds filed using Form D. Table 1 below shows the data, with 2022 being a remarkable outlier - more than twice as many new funds were filed when compared with 2021, indeed.
What will be interesting is to see how the final quarter of this year turns out. If October, November and December deliver numbers similar to the past couple of years, then 2024 will end up with more new funds than last year, but a much lower gross asset value. Bulls will point to the growth in the number of funds generally, bears will point to the declining GAV.
Table 1: New Private Equity Fund Filings, January 2020 – October 2024, by Year
Year Fund Type Number of New Funds Gross Asset Value Average (Mean) Q4 2021 Private Equity 5,259 $1,278.4 $0.243 1,784 / $202.9 2022 Private Equity 11,764 $2,565.2 $0.218 1,546 / $357.8 2023 Private Equity 7,200 $1,129.2 $0.157 1,576 / $184.8 2024* Private Equity 5,911 $325.7 $0.055 *2024 data is from January 1 through October 31
But it’s not just the private equity types that have been active in this election cycle. Famed hedge fund manager Bill Ackman of Pershing Square Capital added his voice to the cacophony, frequently appearing on X to offer his views.
Table 2: New Hedge Fund Filings, January 2020 – October 2024, by Year
Year Fund Type Number of New Funds Gross Asset Value ($bn) Average (Mean) Q4 2021 Hedge Fund 1,898 $1,248.5 $0.658 632 / $112.8 2022 Hedge Fund 3,333 $1,040.7 $0.312 493 / $86.8 2023 Hedge Fund 2,505 $608.2 $0.243 583 / $162.4 2024* Hedge Fund 2,513 $264.5 $0.105 *2024 data is from January 1 through October 31
The hedge fund space follows a roughly similar trend to their private equity cousins, albeit with subtle differences. 2024 has already delivered an increase in terms of the number of new funds filed when compared with 2023, with an entire quarter’s worth of filings still to be tallied and added.
The eagle-eyed among you will also notice a striking similarity in the average size of fund filed. For both the private equity and the hedge fund market, the trend of the size of the aggregate gross asset value continues to fall; the average size hedge fund launched in 2024 is just $105m, down from $658m in 2021, and for private equity, it is just $55m, down from $243m three years ago.
Does any of this have anything to do with the sitting President? Probably not. Interest rates have had the biggest impact on the private funds market in the past few years, primarily in terms of fundraising, but also in terms of deal activity in markets such as private equity, real estate and venture capital.
And now, they’re on the way down. In September, the US Federal Reserve cut the Federal Funds Rate by 50 basis points. On November 7th, it cut them again by 25 bps, with the range now being 4.5% to 4.75% after being 5.25% - 5.50% as recently as August. Some think they will go even lower in December. Suddenly, liquid fixed income will look much less appealing, and alternative investments will benefit from rebalancing by investors.
Added to that, we have not published returns / IRR data here. It’s obviously way too early for the private equity funds, and 9AT does not collect returns data from hedge funds.
But what we do think is interesting is if, and how, the data above will change in the next four years (and beyond). The average size can only go so low, for example. And we would expect to see an increase in the number of new funds and the overall GAV over time, given the general upwards trajectory in demand for alternative investments.
Time will tell!
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10/16/2024
Interest Rate Cut Not a Moment Too Soon for Emerging Managers Looking to Raise Money
The rising interest rate environment of the past three years has had a marked impact on the private funds market, as investors pulled back from alternatives and rotated into liquid fixed income products, given the higher yield, better liquidity profile, and perceived lower risk. Consequently, fundraising has been down in alternatives generally.
The fund of funds corner of the alternative investment world has, of course, suffered as well. These products have long touted diversification as a key reason to allocate to them, as they reduce single manager risk quite significantly, not to mention effectively outsourcing the manager due diligence function – a task that requires an enormous amount of human capital, and therefore cost – to an expert provider.
But another critical role they play is supporting emerging talent across the alternative investment industry, whether that be the next great equities trader in the hedge fund space, or the next discoverer of tech unicorns in venture capital circles. Smaller, emerging funds are frequently too small to receive a check from an institutional investor, and, as the saying goes, no-one ever got fired for buying IBM – so, the larger, brand name managers get the cash.
The ability to support the next generation has certainly been constrained in the past three years. As can be seen from Tables 1, 2 and 3 below, fund of fund launches have been falling. We looked at data collected by 9AT from October 1st, 2023, through September 30th this year and compared that with the same time period in 2022-2023 and 2021-2022.
In 2023-2024, 1,487 funds of funds have been registered with the SEC, with a total gross asset value of $183.4bn; in 2022-2023, 2,437 fund of funds were registered with the SEC, worth a collective $311.2bn; and in 2021-2022, 2,923 products worth a collective $559.8bn were filed.
In terms of the total GAV*, that is a reduction of close to 70% in just two years.
Table 1: Fund of funds registered with the SEC, Oct 1, 2023 – Sept 30, 2024
Category Total GAV Quantity Private Equity Fund $104.2bn 731 Hedge Fund $45.2bn 263 Other $25.0bn 274 Real Estate Fund $6.6bn 127 Venture Capital Fund $2.0bn 84 Securitized Asset Fund $283.5m 7 Liquidity Fund $45.7m 1 Total $183.4bn 1,487 Table 2: Fund of funds registered with the SEC, Oct 1, 2022 – Sept 30, 2023
Category Total GAV Quantity Private Equity Fund $137.8bn 995 Other $108.4bn 978 Hedge Fund $48.3bn 208 Real Estate Fund $9.8bn 119 Venture Capital Fund $5.2bn 130 Securitized Asset Fund $1.7bn 7 Liquidity Fund $0.0m 0 Total $311.2bn 2,437 Table 3: Fund of funds registered with the SEC, Oct 1, 2021 – Sept 30, 2022
Category Total GAV Quantity Private Equity Fund $329.1bn 1,616 Other $130.7bn 588 Hedge Fund $64.5bn 324 Venture Capital Fund $20.3bn 228 Real Estate Fund $14.2bn 163 Securitized Asset Fund $1.1bn 4 Liquidity Fund $0.0m 0 Total $559.8bn 2,923 September 18th delivered some encouraging news, however, for the alternative investment industry, and fund of funds and emerging managers in particular. The 50 basis points cut by the US Federal Reserve, the first since 2020, could be the beginnings of the spark that the fund of funds space needs to begin to grow again.
There are challenges, of course. A common complaint about fund of funds from investors is that the fees are too high, and they need to ensure that any managers in their portfolio that don’t meet the hurdle rate are compensated for by those that do.
Overcoming those objections is part and parcel of running a fund of funds offering, and they will remain regardless of the prevailing interest rate environment. But it is not only the fund of funds themselves who will be hoping for an upswing in fortunes – budding Henry Kravis’s, Ray Dalio’s, and Michael Moritz’s will also have their fingers crossed.
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09/18/2024
The Beginnings of a Changing of the Guard in Private Fund Service Providers?
Summer is now over – unofficially, at least – and the private fund industry in the US is now back in full swing for what is the home stretch of the year.
So, with the mid-year slowdown behind us, for our blog post this month, we thought we’d check in on the current state of which service providers have been hired by new funds identified from Form ADV’s filed in 2024 so far. We’re also including the overall league table – so, older funds that were previously on the adviser’s Form ADV document - to see if there is anything interesting in terms of firms taking or losing share when it comes to new funds.
We’re looking at administrators, auditors, custodians and prime brokers for this one; we’re also using Gross Asset Value (GAV) of the funds as the league table position determinant. Data is used for the period up to and including 9/2/24.
Administrators
The top five fund administrators for new funds identified on Form ADVs submitted this year are well-known. But what is notable is the gap between State Street, which occupies first place with a GAV of $99.2bn, from US Bank, which holds second place with $36.9bn – almost three times the size.
The biggest mover among the firms nearer the top of the league table is US Bank. Overall, the firm ranked tenth, but is second in the table for new funds.
6,451 new funds representing a GAV of $518.6bn and 72,341 funds in total representing a GAV of $23,765.2bn were filed on Form ADVs submitted since January 1 this year that referenced their administrator.
Figure 1: Top Five Fund Administrators of New Funds Identified from 2024 Form ADV Filings (GAV)
Administrator
Funds GAV
Advisers
Private Funds
Market Share*
State Street
$99.2bn
31
94
19.1%
US Bank
$36.9bn
41
123
7.1%
Bank of New York Mellon
$32.4bn
23
63
6.2%
SS&C Technologies
$30.7bn
135
286
5.9%
CITCO
$25.4bn
60
128
4.9%
Figure 2: Top Five Fund Administrators of All Funds Identified from 2024 Form ADV Filings (GAV)
Administrator
Funds GAV
Advisers
Private Funds
Market Share*
SS&C Technologies
$3.70trn
1,087
5,480
15.6%
Citco
$2.95trn
453
3,608
12.4%
State Street
$2.70trn
297
3,359
11.4%
Northern Trust
$1.59trn
224
1,275
6.7%
Bank of New York Mellon
$1.20trn
199
1,490
5.0%
Auditors
No-one should be surprised by the league tables at the auditor level. Even for new funds identified on the Form ADV, the big four dominate. The only surprise here, perhaps, is the extent to which they do: in both cases, 80% of all funds are audited by one of the big four. That said, for new funds, the total penetration of the big four was 84%, down from 89% of all funds. Could this be the beginning of a trend?
4,434 new funds representing a GAV of $519.3bn and 70,972 funds in total representing a GAV of $28,434.6bn were filed on Form ADVs submitted since January 1 this year that referenced their auditor.
Figure 1: Top Five Fund Auditors of New Funds Identified from 2024 Form ADV Filings (GAV)
Auditor
Funds GAV
Advisers
Private Funds
Market Share*
EY
$179.5bn
153
413
34.6%
Deloitte
$113.3bn
108
356
21.8%
PwC
$91.2bn
158
454
17.6%
KPMG
$54.0bn
175
365
10.4%
BDO
$10.6bn
92
194
2.0%
Figure 2: Top Five Fund Administrators of All Funds Identified from 2024 Form ADV Filings (GAV)
Auditor
Funds GAV
Advisers
Private Funds
Market Share*
EY
$8.92trn
1,446
12,722
31.4%
PwC
$7.26trn
1,444
13,646
25.5%
KPMG
$4.99trn
1494
9,266
17.5%
Deloitte
$4.37trn
1,056
9,658
15.4%
Grant Thornton
$547.1bn
365
1,909
1.9%
Custodians
There is a similar story playing out in the custody world. Market share is not as clear here given that many advisers list multiple custodians for their funds on their Form ADV, but there are two notable differences at the new fund level, with State Street coming in third, up from eighth in the overall table, and Barclays coming in fourth place, moving up from seventh overall. Additionally, the market share of the top five providers at the new fund level is significantly lower than that of the overall picture.
5,721 new funds representing a GAV of $587.9bn and 84,589 funds in total representing a GAV of $26,528.5bn were filed on Form ADVs submitted since January 1 this year that referenced their custodian.
Figure 1: Top Five Fund Custodians of New Funds Identified from 2024 Form ADV Filings (GAV)
Custodian
Funds GAV
Advisers
Private Funds
Market Share*
JP Morgan
$215.1bn
508
1,276
36.6%
Citigroup
$113.4bn
62
172
19.3%
State Street
$105.7bn
34
121
18.0%
Barclays
$98.1bn
19
48
16.7%
Bank of New York Mellon
$91.9bn
175
411
15.6%
Figure 2: Top Five Fund Custodians of All Funds Identified from 2024 Form ADV Filings (GAV)
Custodian
Funds GAV
Advisers
Private Funds
Market Share*
JP Morgan
$11.58trn
2,917
19,865
43.6%
Bank of America
$8.99trn
1,253
9,441
35.2%
Bank of New York Mellon
$8.59trn
1,082
7,051
32.4%
Citigroup
$6.40trn
650
4,731
24.1%
Goldman Sachs
$5.68trn
1,169
1,169
21.4%
Prime Brokers
While specific to the hedge fund category, the prime brokers league table still sees the ‘brand names’ atop both lists. Like the custodian category, hedge funds can, and do, utilise multiple primes, so the market share does not exclude other firms. Still, as in some of the other categories, the market share of those firms atop the overall league table is generally much higher than those atop the new funds table.
1,097 new funds representing a GAV of $162.0bn and 9,904 funds in total representing a GAV of $9926.0bn were filed on Form ADVs submitted since January 1 this year that referenced their prime broker.
Figure 1: Top Five Prime Brokers of New Funds Identified from 2024 Form ADV Filings (GAV)
Prime Broker
Funds GAV
Advisers
Private Funds
Market Share
JP Morgan
$117.0bn
69
108
72.2%
Barclays
$87.6bn
15
16
54.1%
Citi
$85.3bn
14
15
52.7%
Morgan Stanley
$43.7bn
86
119
27.0%
Goldman Sachs
$40.7bn
86
98
25.1%
Figure 2: Top Five Fund Prime Brokers of All Funds Identified from 2024 Form ADV Filings (GAV)
Prime Broker
Funds GAV
Advisers
Private Funds
Market Share
JP Morgan
$6.44bn
689
2,299
64.9%
Goldman Sachs
$6.28bn
946
2,549
63.3%
Morgan Stanley
$6.07bn
1,004
2,517
61.2%
Barclays
$5.27bn
189
625
53.1%
Bank of America
$5.27bn
473
1,345
53.1%
That the big names continue to dominate the league tables in the four categories above should be a surprise to no-one; private fund managers tout their use of ‘brand name’ service providers as a middle and back-office differentiator, hoping that the potential investor feels more comfortable and confident investing in private funds that have an ecosystem supported by these so called ‘blue chip’ providers.
It is clear to see that the admin category is the one where the firms atop the leaderboard have the smallest market share. Regular readers of our blog might recall last month’s piece, where we offered our thoughts on the current state of that category specifically. However, what is notable about the data above is that in every category, the total share of the top providers is lower for new funds than it is overall.
Time will tell as to whether other firms end up taking more share or whether this most recent year is an aberration. And it must be emphasized that the data is only for new funds listed on Form ADVs filed so far this year; with four months still to go, much can change.
Still, we’ll be keeping a keen eye on this as we enter the home stretch of 2024 to see if this is indeed the beginnings of a trend in the private funds space.
*The data used in this article comes directly from the SEC’s Form ADV filings. 9AT does not edit or override data, even when it may appear that a mistake has been made by the filer, due to our data ethics and methodology policy.
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08/07/2024
What Next for Private Equity and Fund Administrators?
A news story from Reuters recently suggested that buyout firm Astorg “is exploring options, including a sale, for its fund services business IQ-EQ” with a view to a sale in 2025.
Whether they sell it next year or hold it for longer remains to be seen. But what does not remain to be seen is the sheer scale of the involvement of private equity in the fund administration industry.
In June this year, trade magazine The Drawdown published its latest Fund Admin Report, which contains a table of fund administration providers, along with their ownership details; of the 30 firms listed, approximately a third are owned either outright by a buyout shop, or have a private equity minority investor.
Private equity firms love themselves a ‘platform’ investment, and fund administrators provide a natural home here due to the complimentary nature of their business with other service providers to pooled investment funds. These deals can scale quickly.
However, the good old-fashioned competitor acquisition would seem to have just as many legs.
Data collected and analyzed by 9AT suggests that, so far in 2024, 281 different firms were listed as the administrator of new private funds based on ADV filings submitted in 2024.* And while some of these private funds administrate their own funds as opposed to hiring an external provider, the long tail in the space remains a boon to buyout firms looking to either enter the space or grow their existing platform portcos.
The outlook for the market is an interesting one. Most industry players agree that generally, the fund administration industry will increase in size, but that is a misleading statement, because its size depends entirely on the AUM of the funds that they administer. Still, with global private capital AUM set to hit $18trn by 2027, there would seem to be plenty of opportunity to for admin firms to increase their AUA.
What is not certain is whether the increase in AUA will be absorbed mainly by the larger firms, or whether smaller players have a chance at closing the gap. One on hand, smaller firms might find it increasingly difficult to compete versus the larger ones as the metamorphosis of a private equity-backed fund admin provider into a diversified middle and back-office fund services business creates a greater gulf between the haves and have nots.
But on the other, smaller firms are nimbler generally, and it is not outside the realms of possibility that a well-funded start-up admin firm could take meaningful share quickly, particularly if they focus on a certain corner of the market – the underlying assets that private fund managers invest into are becoming broader, which should lead to opportunities for specialists to secure a foothold. Add to that the potential for a buyout firm to look to do a lift out of a larger firm’s fund admin team to a separate firm – the advantages which will be existing expertise, existing clients and brand name recognition – and you could see more ‘new’ firms enter the market.
Clearly, there are a few potential developments for the space, and it is unknown which way the market will go. But what is known is that private equity will remain, one way or another.*The data used in this article comes directly from the SEC’s Form ADV filings. 9AT does not edit or override data, even when it may appear that a mistake has been made by the filer, due to data ethics and methodological considerations.
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