Scarcity Partners

Preqin’s Paul Sinthunont, VP of Asset Allocation, shared an important trend during the recent Benchmarking Private Market Performance webinar: endowments, often leaders in alternative investments, are reducing allocations to hedge funds and moving towards private equity, including venture capital. This shift is performance-driven, underscoring the appeal of private equity’s returns. #PrivateEquity #AlternativeInvestments #VentureCapital #InvestmentTrends

Asset managers only manage 12.7% of APAC's US $27.2 trillion investable assets. APAC's AUM recorded the highest 10-year CAGR of 14% (global average was 9%) according to KPMG’s “Growing in a turbulent world” report (December 2023). Continued growth is expected to be fuelled by increased affluent populations, economic growth and regulatory reforms. The takeout? There is significant growth potential for funds management businesses in APAC. APAC’s asset managers enjoy higher and stable margins (58.3pbs versus North America's 43.9bps in 2022) although Australia’s more mature market is seeing a shift towards passive strategies with consequently lower margins. Perhaps the two biggest opportunities for fund managers in APAC are: . Diversify into alternative assets - Preqin forecasts that alternative assets in APAC are expected to grow at a compound annual rate of 11.5% between 2021 and 2026 with private markets products enjoying higher margins. . Private market firms broaden their target to include retail investors - Individual investors account for about 39% of APAC AUM, yet account for just 15% of the alternative funds market. (Source: Broadridge’s Global Demand Model) The Scarcity GP Access Fund’s objective is to find quality funds management businesses, particularly in private markets, and help them grow. To find out more, visit scarcitypartners.com. #gpstaking #fundsmanagement #apac 

McKinsey forecasts private markets AUM will triple by 2034, having gone from US$3.8 trillion in 2014 to US$13.1 trillion as at 30 June 2023. For private markets fund managers to excel, McKinsey sets out "five alphas" that will be necessary for fund managers to outperform: 1. Sales - raise more capital on better terms than their “fair share”; 2. Sourcing - "the ability to manufacture new bespoke investment exposures (that is, specific return, risk, and duration profiles) rather than rely solely on intermediated deal flow"; 3. Operations - going beyond operational efficiency drives to invest in and deliver transformative operational change; 4. Exits - "obsessing about who the next owner of their assets could be and how to go about returning cash to the fund and its limited partners"; 5. Organisation - "industrialising" the end-to-end process so culture and consistent outcomes are preserved as the firm scales. The authors believe private market firms will need to excel at two to three of the "alphas" and meet a high standard on the balance if they are to achieve outsized returns and growth. Read the full paper "Five alphas: Essential capabilities to succeed in the next era of private capital". https://lnkd.in/g-bNgtep #privatemarkets #gpstaking #fundsmanagement

Just some of the M&A activity last quarter amongst investment management businesses in Australia. https://lnkd.in/gWiN_Qy3 #privateequity #investmentmanagement

Hamilton Locke's recent article explained the benefits for investors when investing in funds management firms, not only their funds: "[SP staking] offers a combination of short-term capital distributions and diversified downside protection over a longer period through: . management fees, which are usually not subject to fluctuation; . carried interest/performance fees, that can offer growth opportunities based on existing and future fund performance; . balance sheet return associated with a GP's commitment; . capital appreciation associated with the increase in value of its stake over time; . longer time horizon, often surpassing 10 years, enabling investors to minimise frequent reallocations." Australia has largely been ignored despite over US$50 billion raised offshore over the last 10 years for GP staking strategies. The launch of the Scarcity GP Access Fund late last year now provides Australian investors access to quality funds management businesses across Australia and Asia. Find out more at scarcitypartners.com. #gpstaking #privateequity #investing

Scarcity Partners announces its second investment for the Scarcity GP Access Fund. We are delighted to welcome Melbourne-based Dinimus Credit Fund (DCF) (Dinimus) as a partner firm. Dinimus is a long-established, leading private credit fund manager focused on senior secured direct lending in Australia and New Zealand.  The company has spent the last few years broadening its reach to access the wider Australian wealth market and has established an excellent platform from which it can now scale rapidly. We’re excited about the growth potential both within the private credit sector and Dinimus’ ability to accelerate its share of funds under management.   The Scarcity GP Access Fund is, for now, open to new wholesale investors. Find out more at https://lnkd.in/ggVWk5mK. #gpstaking #privateequity #privatecredit #investmentmanagement 

The stakes are higher for investors when investing in private markets compared to public markets. As Evidentia’s Head of Portfolio Management ‑ Multi Asset, Darren Beesley discussed with Scarcity Partners’ Justin McLaughlin and Tim Samway, the spread between top quarterly performers versus bottom quartile performers in private markets is a multiple larger than the listed markets. To hear more about debunking the common myths and misunderstandings when it comes to private markets, and particularly private credit investing, watch Scarcity Partners’ most recent livestream: “Myth busting private credit: an allocator’s perspective” here: https://lnkd.in/gfFjUVtP 

Academics Minmo Gahng from Cornell SC Johnson College of Business and Blake Jackson from University of Florida studied the outcomes of GP staking. For the firms (also known as general partners (GPs)) that sell a share of their business to a GP staking (private equity specialist) investor, the research found: “Compared to matched [like-for-like] peers, we document substantial increases in firm AUM (+57%), GP income (+53%), and firm scope (driven more by new strategies and less by new geographies) in the five years following sales.” These findings highlight the accretive impact of GP staking, where sector expertise and capital can provide enormous leverage. The Scarcity GP Access Fund is currently open for wholesale investors but will be closing soon. To find out more, visit https://lnkd.in/gPWN5iM2. Source: M. Gahng, B. Jackson “Selling Private Equity Fees” (updated 16 May 2024) #gpstaking #privateequity #investing

There are different styles of private credit investments requiring different sets of skills but as Scarcity Partners’ Justin McLaughlin points out, corporate banking and work out experience is valuable for any private credit manager. Unlike public markets where underperforming assets can be sold, in private markets the manager is more likely going to need to work out the asset given the lack of a liquid market. Justin McLaughlin, along with Scarcity Partners’ Tim Samway and Evidentia’s Darren Beesley discussed the attributes investors should be looking for in a private credit manager and a whole lot more in our latest livestream: “Myth busting private credit: an allocator’s perspective”. Watch the recording at: https://lnkd.in/gfFjUVtP 

Australia’s private credit market is circa 5% of the total lending market compared to close to 50% in Europe and 80% in the US. Will Australia’s private credit market grow? This question and more were discussed at Scarcity Partners’ latest livestream: “Myth busting private credit: an allocator’s perspective”. To watch the full recording of Scarcity Partners’ Justin McLaughlin, Tim Samway and Evidentia’s Darren Beesley, visit: https://lnkd.in/gfFjUVtP