STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.94
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Lending has always been the core banking business over centuries until the great financial crisis hit in 2008, which gave birth to a new asset class: private debt. For years, private markets were dominated by funds focusing on equity and banks on debt. The regulations that came into force in the aftermath of 2008 financial crisis created a funding gap for a specific market segment. Large corporates can finance themselves via debt and equity public issuance or bank lending, but funding middle market and SME corporates remains a challenge. The rise of debt funds together with fintech firms’ efforts to revolutionise alternative credit are shaping the current private debt environment, which is still enjoying a strong fundraising momentum. The 2023 forecast shows an increase for private debt AuM to $1.4 trillion, while assets have doubled since 2008.

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.63

The current market environment is characterised by high valuations in equities and low yields in traditional fixed income markets, urging investors to seek for alternative, diversified and stronger sources of return. Private debt is on its way to becoming an established asset class and falls under fixed income and private equity allocations of institutional investors. There is a broad set of opportunities within the private debt spectrum that spans from investment grade assets (IG CLOs, real assets and real estate senior debt) by lending across capital structure in mezzanine, to equity and first-loss like assets (distressed debt, CLO equity/warehousing/risk retention), depending on the risk-return profile of the institution. Navigating from the investment grade to high yield strategies (direct lending, capital relief trades, distressed debt and special situations) investors identify diversified sources of yield generated from illiquidity, complexity and regulatory premia. The $600bn private debt industry is set to exceed $1 trillion according to a research paper from the Alternative Credit Council. 

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.55
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The hedge fund industry is recuperating after two years of struggle. During the first half of 2017 hedge funds lived up to their investors’ expectations, who are looking to increase their hedge fund exposure for diversification and risk-return enhancement. The industry approximates $3.2 trillion in assets under management (AuM) across all strategies according to BarclayHedge with over five thousand institutional investors eyeing on the space of over 15,000 hedge fund strategies globally. Those numbers suggest an overcrowded space and considering data from the Asset Management Association of China, managers in China reach 25,000, the industry is in need of more regulatory attention.
Active management is again in demand and hedge funds will have to compete with their peers to attract more assets and it will be worthy to observe the fundraising arena. Using data from BarclayHedge for five main core strategies AUM, we observe that the main investor focus is on equity hedge (long/short, long-only and market neutral) and fixed income strategies, which are accounting for 25% and 18% respectively of hedge fund AuM. Macro and CTA strategies with $600bn account for 18%, while event-driven strategies are occupying only 5% of the industry’s AuM.

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.37

The economic conditions being shaped during 2016 could be the vanguard of the investment environment for the years to come and there is certainly one winner: alternative investments. Over the last decade, the industry has grown exponentially, with alternative funds managing currently near $10 trillion, with huge demand being originated from the U.S. and European investors. There is a variety of strategies/asset classes within the alternative investment spectrum from hedge funds and private equity to stamp, comic books and classic car collection, but this perspective’s focus is on institutional quality alternative investments and specifically hedge funds, private equity and private debt comprising the largest piece of the spectrum.
 
The role of alternative investments in the financial and social ecosystem is multidimensional, which amplifies their importance and attracts further attention from investors and authorities. First of all, the plethora and diversity of strategies allows investors to gain their desired exposure, adding liquidity to both financial and real-world markets. Alternative managers are focused on innovation and designing new, unique and sometimes complex trading/investment strategies, which provide institutional investors with alternative, diversified and uncorrelated to traditional investments source of alpha. Investing in alternative managers requires expertise in risk management, thorough knowledge and deep understanding of alternative investments due to their complexity in nature, including both strategy and structure.
 
Sophistication within alternative investments has developed providing a variety of access possibilities for institutional investors across the corporate capital stack from traded debt in high yield bonds, collateralized loan obligations (CLOs) to more illiquid private debt strategies of levered loans, direct lending, and private equity featuring buyout and secondaries.