Chronograph

💵 Want a preview into where private equity is voting this November? Look at their political donations. With many policies impacting private equity at stake in the upcoming US election, it raises the question of how leading investment managers are planning to vote. One leading indicator of this is where political donations are flowing. Open Secrets tracks contributions made by employees — not the investment funds themselves — providing a window into how the industry views U.S. presidential candidates. Interestingly, the data for a selection of top US firms suggests no clear consensus on a party. While donations inevitably will reflect more than career-related policy alignment alone, the diversity of viewpoints within this industry is notable. Additionally, it should be noted that these political donations can often be significantly skewed by outlier individual donors. For example, if Sequoia were included in the featured chart, it would lean 96% conservative — a figure heavily weighted by major contributions from partners such as Shaun Maguire and Doug Leone. Ultimately, both political parties present potential headwinds and tailwinds for private capital markets, leaving no one-size-fits-all path for investment professionals at the polls.

🗳️ The tax tug-of-war: what’s at stake for private equity in the 2024 US election? Tax policy is a major wild card in the upcoming election. Both candidates have proposed sharply different tax policies, and with many of the 2017 tax cuts expiring next year, potential overhauls on the horizon have surfaced uncertainty for investors and their portfolio companies. Harris’s tax proposals — including bumping the corporate tax rate to 28% and increasing long-term capital gains taxes — have raised eyebrows among economists and the private sector who argue that: 🔹Higher tax burdens could strain balance sheets, especially for privately-backed companies grappling with tighter cash flows from higher interest rates. 🔹These pressures could stifle growth investments and increase consumer prices as businesses pass on the costs. 🔹If enacted, the tax hikes would also hit returns, reshaping how investors evaluate and pursue opportunities. Conversely, while Trump has floated further lowering the corporate tax rate, his policy objectives also include steep tariffs that hold notable repercussions for PE, including: 🔹Higher import costs for sectors that rely on intermediate inputs, such as retail, manufacturing, and industrials. 🔹As companies respond, they might pass these costs onto consumers, fueling inflation. 🔹In turn, this could lift CPI, disrupting the Fed’s rate cuts or even prompting new rate hikes. Explore how the 2024 election could impact various aspects of private equity, including the M&A landscape, private fund regulation, IRA tax credits, and more in our election deep dive. 🔗 Link in the comments.

After a productive week at SuperReturn Berlin this summer, we’re excited to reconvene with private market LPs and GPs at SuperReturn CFO/COO in Amsterdam. As technology partners to private equity leaders globally, we’re excited to engage in person and hear more about how finance and operations teams are integrating technology to streamline data and workflows, enhance value creation, and build trust into decision-making processes. If you are attending and would like to connect, please reach out to Chronograph Director of Client Development Andy King!

How Yale's Prospect Fellowship Advances the Endowment Model ⬇️ 🔹Manager Selection – Yale has a long history of backing excellent fund managers and finding massive outperformance in early-stage investments, emerging managers, and alternative strategies. This fellowship carves out a dedicated space for that specialty. 🔹Depth of Relationship – The program will align LP/GP incentives by positioning Yale as both an anchor investor and a partner to these managers, giving them greater influence over future investment decisions. 🔹Small Funds Outperform – Fund size inherently impacts the dynamics of return math. On average, smaller funds are more likely to outperform, meaning the funds in this program are well-positioned for success. 🔹Remove Barriers and Catalyze Talent – Starting a fund from scratch is difficult. Yale's fellowship will help reduce the incredibly high barriers to entry by mentoring GPs who take this difficult first step and ensuring capital flows to the best investors. As backers of Sponsors for Educational Opportunity and similar organizations, Chronograph admires this initiative and is excited to see its impact. Readers curious to learn more about Yale’s investment strategy or the dynamics of fund size see the articles in the comments.

Gulf sovereign wealth funds are diving into the AI race with two powerful assets: deep pockets and significant energy reserves. ⬇️ Yesterday, the Financial Times reported that Abu Dhabi-backed MGX is joining BlackRock's $30 billion AI-focused fund as a general partner. This follows news from the New York Times earlier this year that Saudi Arabia’s Public Investment Fund (PIF) is in discussions with Andreessen Horowitz to launch a $40 billion fund targeted exclusively at AI companies. These efforts highlight a small piece of the Gulf regions’ broader efforts to diversify their economies. For instance, Saudi Arabia's PIF has committed to generating $300 billion to the country’s non-oil sourced GDP by 2025, with AI positioned to play a central role. Similarly, the UAE’s "National AI Strategy 2031" aims for AI to compose 40% of its GDP by 2031. As a result, the region's sovereign wealth funds continue to transform their economies into tech hubs rivaling Silicon Valley while positioning themselves as key strategic partners for top fund managers. 🔗 Discover how Gulf sovereign wealth funds are shaping AI, sports, and other industries through investment at the link in the comments.

How will Gulf sovereign wealth funds shape private equity in the coming years? Projections indicate that the combined assets of the region's 19 sovereign wealth funds could soar to $7.6 trillion by 2030. These vast capital reserves have elevated these allocators to some of the most influential players in global private capital markets. Focused on economic diversification, strategic influence, and long-term wealth preservation, Gulf SWFs are at the heart of the region's bold economic reforms and plans to transition traditionally hydrocarbon-based economies to innovation hubs that rival Silicon Valley. As a result, these funds have emerged as leading investors across infrastructure, technology, and more, wielding significant influence over global private equity markets and industries. Our team explored their impact on AI, sports, and renewable energy in a recent article. Read more in the comments.

🎯 Recent Buyouts Insider data reveals that most LPs remain outside their target PE allocations. According to the analysis, roughly 50% of all institutional investors active in the North American PE market are overallocated, 33% are underallocated, and only 16% are within .5% of their target. Market conditions over the past few years are largely to blame. In 2022 and 2023, the denominator effect left many LPs overallocated to PE. Today, a stalled exit market is keeping private equity NAVs steady and limiting distributions, making it harder for allocators to re-up their commitment schedules. Delayed exits also hinder the ability to manage underperforming or outperforming portfolios that can push allocations above or below target levels. LPs are tapping various tools to navigate distorted portfolios, including turning to the secondaries market, gaining more control of cash deployment via co-investments, and adjusting allocation targets. However, revising private equity allocations is far from straightforward, as even small adjustments involve substantial changes in commitment pacing. For example, StepStone Group reports that a 1% overallocation can require cuts to planned commitment scheduling by 10-12% annually for five years or more. To manage shifting targets, many LPs are turning to technology to establish commitment schedules and understand cash flow and NAV trajectories. 🔗 Learn more about how allocators can leverage technology to navigate forecasting challenges at the link in the comments. 

Pensions worldwide face growing pressures from regulators to improve transparency and reporting on their alternative assets. ⬇️ One prime example includes The Australian Prudential Regulatory Authority’s (APRA) multi-year data transformation project to improve the breadth, depth, and quality of reported data from superannuation funds. The project aims to gather detailed insights on super funds’ asset allocation, liquidity management, investment exposures, and unlisted valuations while enforcing new data quality standards and strict validation protocols. To meet these requirements, many funds will need to upgrade their data collection, management, and reporting processes. Technology will be an important part of the solution for super funds to streamline APRA compliance and continue delivering strong returns. 🔗 Learn more at the link in the comments.

Can private equity pass annual performance tests? In Australia, “super” funds have no choice. The Australian Prudential Regulation Authority’s (APRA) “Your Future, Your Super” reform requires superannuation funds to complete annual performance testing. Funds whose 8-year annualized return underperforms APRA's benchmark by more than 50 basis points for two consecutive years cannot accept new members. Given the significant implications of failure, concerns have surfaced about its impact on asset allocation and portfolio construction. Critics argue the initiative could lead to benchmark-hugging returns and pose headwinds for venture and private equity — strategies that exhibit a pronounced J-curve effect, invest capital over long-term investment horizons, and often realize their returns beyond an 8-year period. Additionally, the year-to-year variability of these asset classes increases the risk of “failing” these APRA performance tests in any given year, regardless of projected long-term gains. While vintage diversification can help mitigate this dynamic, it will be interesting to see if super funds managing private capital allocations increase their demand for secondaries and co-investments to further reduce this impact. 🔗 More on regulatory pressures affecting Australia’s superannuation funds at the link in the comments. 

✂️ Will the Fed’s pending rate cuts cool private credit’s appeal with pensions? Drawn to attractive risk-adjusted returns, pensions have increasingly upped their private credit allocations: 🔹This year, CalPERS raised its private debt allocation from 5% to 8% and recently committed over $1 billion to an asset-based finance strategy with Sixth Street. 🔹The Arizona State Retirement System has expanded its private credit program substantially. After introducing a 3% allocation to private debt in 2012, the pension fund has since ramped this up to an impressive 22%, marking one of the highest private credit allocations among pensions nationwide. 🔹Similarly, Missouri’s PSRS/PEERS significantly increased its private credit allocation from 2% to 8% in 2022. The pension fund has since adjusted its allocation to 6%, still well above its historical levels. The list goes on. According to Cliffwater, private debt allocations at state pension funds may reach 6% over the next year, up from 2.1% in 2017. A higher interest rate environment has certainly helped buoy this surge in interest over the past two years. So, with anticipated rate cuts, will LPs’ appetite for private credit diminish? We explore how interest rates are impacting private credit and how cuts could shape LPs’ perspectives on the asset class at our recent private credit deep dive with Sirvatus. Check it out at the link in the comments.👇