HarbourVest, Kohlberg & Company, Nautic, and PSG Equity Gain Access to Chilean Pension Funds

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AFPs (cedida)

The latest meeting of the Risk Classification Commission (CCR) introduced a series of new managers and funds into the investable universe of Chilean pension funds, including four alternative investment firms: HarbourVest Partners, Kohlberg & Company, Nautic Partners, and PSG Equity.

The approval includes investment vehicles and co-investment operations with these managers for specific asset classes, as detailed in a statement. HarbourVest, a private markets manager with a variety of strategies and more than $127 billion in assets, was approved for infrastructure investments.

The other three managers were approved for private equity investments. Kohlberg & Company is focused on private equity with an emphasis on the middle market segment, similar to Nautic, while PSG Equity specializes in investing in growth-stage software companies.

The CCR also approved two mutual funds domiciled in Ireland: Lazard Japanese Strategic Equity, from Lazard Global Active Funds, and Muzinich Global Market Duration Investment Grade, managed by Muzinich Funds.

In addition, five ETFs were given the green light to enter the pension fund portfolios. One of them is Fidelity UCITS’ Fidelity Global Quality Income, and the others are vehicles from Janus Henderson: the AAA CLO, B-BBB CLO, Mortgage-Backed Securities, and Short Duration Income strategies.

On the other hand, two alternative managers were removed from the list of approved instruments. AEA Investors, a private equity firm, was withdrawn at the manager’s request, while Energy Capital Partners did not renew its application.

Antonio Almirall Joins BlackRock in Miami

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BlackRock has hired Antonio Almirall from Morgan Stanley in Miami.

With over a decade of experience in the industry, Almirall has distinguished himself at various firms such as Santander, UBS, and abrdn, according to his LinkedIn profile.

In his previous roles, he has worked in business development, financial advising, and as a client service associate.

The new sales representative for Miami was officially registered at BlackRock on Tuesday, September 5, according to his BrokerCheck profile.

Alejandra Muguiro, New Director of Alternative Investments at Klarphos

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The alternative asset manager Klarphos has announced the appointment of Alejandra Muguiro Lirón de Robles as Director of Alternative Investments.

From the Madrid office, Alejandra will play a key role in defining strategies and selecting managers for Klarphos’ alternative investment solutions, according to the statement. Muguiro joins the firm from AltamarCAM Partners, bringing over six years of experience in private equity investments. She holds a Master’s in Finance from IE Business School in Madrid.

Donald Banks, member of the Board of Directors, commented: “We are thrilled to have Alejandra at Klarphos. Her extensive experience in managing private market investments for institutional investors makes her a valuable addition to our portfolio management team.”

“I am excited to join the Klarphos team and eager to contribute to the company’s growth. I look forward to providing new opportunities for our clients’ investment portfolios, enhancing their diversification and growth through alternative investments,” Muguiro added.

Klarphos is an asset manager specializing in customized portfolio solutions and advisory services for institutional clients, based in Luxembourg. It focuses its asset management on alternative investments and also offers advisory services for strategic asset allocation and ALM optimization.

The firm employs an international team of specialists and is regulated by Luxembourg’s CSSF as an alternative investment fund manager (AIFM).

Fee Income From Private Markets Are Expected to Double by 2032, Reaching $2 Trillion

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Many asset and wealth management firms have recently embraced private markets. Managers emphasizing the launch and distribution of alternative assets and products have been rewarded by investors with higher market capitalizations than most firms focusing on publicly traded assets (Chart 1). Although private markets are not the sole reason for the higher market capitalization, they play a significant role, according to a report by Bain & Company.

As highlighted by Preqin, one key aspect of Bain & Company’s report is that, following the surge in demand for these types of assets, the challenge now is not to “die from success.” “The stakes are high. The demand for alternatives is booming, and investors, particularly new entrants, are forming new brand and product preferences. But it’s not just about profit and growth. As Bain titled its report, it’s also about ‘avoiding collapse,’” states Grant Murgatroyd, Head of News at Preqin.

Chart 1: Asset managers focused on private markets have experienced strong growth in their market capitalization

Private markets have gained popularity as the business models that have dominated asset management for years are nearly exhausted: margins have compressed, and average profit per assets under management (AUM) has dropped from 15 basis points in 2007 to eight basis points in 2022 (Chart 2). “Many firms have reduced management fees, leading to a 4% decline in average income from 2021 to 2022,” according to consulting firm Casey Quirk.

Chart 2: Asset management profitability has halved

Differentiation has also diminished: Bain & Company points out that data provider eVestment estimates low dispersion in returns (1% to 2%) and fees (4 to 6 basis points) in public equity investments among top- and bottom-quartile management firms. This decline has driven managers to opt for low-cost beta followers, and the share of passive investments is expected to rise.

According to Preqin, Bain’s analysis shows how traditional firms focusing on public markets have either maintained their value (Amundi) or lost ground (T. Rowe Price, Franklin Templeton, DWS, Invesco). “Asset managers focused on private markets have seen significant growth. Blackstone, KKR, Ares, EQT, and Carlyle have more than doubled their value,” they note.

The appeal of private markets

In this context, a promising business model emphasizing alternative private markets is beginning to emerge, but asset management firms will need to develop a range of new capabilities to secure their position in this new landscape.

Private assets represent a much larger market than public assets, offering potentially higher returns, diversification, and, in cases like real estate, an inflation hedge. In recent years, fewer companies have gone public, and global initial public offerings (IPOs) will decrease by 45% between 2021 and 2023 due to increased regulation and costs.

In contrast, “we estimate that private market AUM will grow at a compound annual growth rate (CAGR) of between 9% and 10%, bringing the value of these assets to between $60 trillion and $65 trillion by 2032, more than double the AUM of public markets (Chart 3). “By 2032, we expect private market assets to represent 30% of total AUM,” the firm states.

Chart 3: Alternative assets should continue to show strong growth

At the same time, fee income from private market investments, which reached $900 billion in 2022, is expected to double to $2 trillion by 2032. “Private equity and venture capital will remain the most important categories, while private credit and infrastructure investments will expand to the point of becoming significant asset classes.

Alternative credit has already grown at a 7% CAGR between 2012 and 2022, “and we expect it to grow at a 10%-12% CAGR by 2032,” Bain’s report states, noting that this accelerated pace “largely reflects the reduction in bank lending.”

The strong growth of infrastructure, with an average annual rate of 16% over the last decade, is expected to continue at a pace of 13%-15% over the next decade due to the shortage of public funds as the fiscal deficit grows.

Investor demand has also picked up, with institutional allocations to alternative assets expected to grow by 10% annually from 2022 to 2032, “pushing AUM to at least $60 trillion (Chart 4).”

Sovereign wealth funds, endowments, and insurance company funds are seeking higher returns due to the volatility of public markets and declining yields. Similarly, the increase in contributions from retail investors will push the proportion of AUM from these investors from 16% in 2022 to 22% by 2032, according to Bain’s report. “Individuals are drawn to the alternative asset market due to the prospects of diversification and higher returns, and they are willing to tolerate lower liquidity,” the study notes.

Chart 4: Retail investor participation in private assets is increasing

In response to this retail demand, some firms have launched innovative offerings, such as intermittent liquidity products characterized by periodic redemptions. Blackstone and KKR, for example, have launched private market funds with monthly or quarterly buyback frequencies, as noted in the study.

Recent moves in the chessboard

The share of traditional managers in alternative assets increased from 16% in 2018 to 22% in 2022, as firms sought diversification and better risk-adjusted returns. Some have made acquisitions to expand their product range, while others have expanded organically, like Fidelity, which launched 18 alternative products in 12 months. These firms are also extending their position in the wealth management value chain, such as BlackRock’s joint venture with Jio Financial Services in India to offer direct digital investment solutions through Jio’s local distribution network, according to Bain’s report.

Private banks and wealth managers have expanded to capitalize on client demand and generate higher fee income. Some firms are entering the retail market with their own products, while others have hired experienced advisors and wealth managers to target high-net-worth individuals.

Meanwhile, alternative asset managers and private equity firms have also expanded their portfolios of alternative assets. Others have attracted retail investors by offering evergreen products (with no fixed expiration date) following difficulties in raising funds from institutional clients and ensuring reliable fee income streams.

“In retrospect, we observe a convergence of strategies between traditional and alternative asset managers, with many preparing to become full-service providers across all asset classes, investor types, and positions in the value chain,” the report states, adding that this situation “will intensify competition in the market,” and it is likely that dominant firms will resort to two strategies:

1. Offering niche products that generate alpha, such as environmentally sustainable infrastructure products for ultra-high-net-worth individuals.

2. Developing large-scale alternative products, including vehicle creation and testing, distribution—including reach and conversion—or operational efficiency—including risk management and regulatory compliance.

The study reveals that many companies of all types have already started to follow one of these approaches, and some are using both to maximize their results.

What it takes to adapt

The transition of managers to private markets “poses significant challenges,” Bain notes, given the differences between retail and institutional investors. Companies will need to add or develop new capabilities around their technology systems, sales and marketing approaches, and investor education.

To fill gaps, some firms may turn to acquisitions, but many of them do not deliver the expected benefits due to cultural differences or ineffective integrations. And with a shortage of talent in certain areas, such as data science, recruiting and hiring enough people with the necessary skills can be difficult.

As companies consider how to expand into alternative assets, Bain believes firms should anticipate changes in the following areas:

1. Define where to play and how to win. It may seem obvious, but before making any moves, firms must know their starting point and ultimate ambition in private markets.

2. Develop new front-to-back-office capabilities. This can be achieved by training sales staff, incorporating product specialists, and redesigning operations, technology, risk, and legal processes. These activities will help bridge the gaps between, for example, a system for valuing private assets and one for public assets. A global insurance asset manager, for example, wanted to improve the performance of its private equity portfolio, which had been outsourced. After conducting a detailed portfolio review and competitive strategy study, the company developed new capabilities, carefully limiting changes to team structure and size. The new internal fund selection capability resulted in a 400 basis point improvement in its internal rate of return.

3. Educate investors on the risks and liquidity of alternative assets. Management firms will need to communicate how investors can have sufficient liquidity and the ability to collateralize private assets, that minimum investments and onboarding are more accessible than commonly perceived, and that reporting and tax filing processes have become more streamlined.

4. Adapt sales and marketing. New digital platforms and other distribution channels will be needed to raise brand awareness, attract funds, and offer a broader range of assets. Companies will need to hire and train sales representatives skilled at building relationships with wealth managers and explaining complex products to retail clients. A financial services company was experiencing a decline in revenue, AUM, and client numbers due to stagnant sales team productivity. A new training program and performance metrics for advisors doubled client acquisition and increased new AUM per advisor by 70%.

5. Improve merger and acquisition integration skills to combine talent, culture, and operations. Private market activity has accelerated since 2020, with more than 40 transactions in each of the past three years. More recently, traditional investment firms have announced some notable acquisitions and partnerships, such as BlackRock’s purchase of Global Infrastructure Partners.

According to Bain’s report, during this period of transition in which demand for private market assets is rising, retail investors are still forming their preferences for brands and products. “Regardless of their current market position, companies have the opportunity to shift their focus and expand their offerings if they

can develop the right capabilities, systems, and talent mix to capture that demand,” the study concludes.

Alternative Fund Managers Estimate That Compliance-Related Risks Will Increase

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The level of compliance risk facing alternative fund managers is rising and is expected to grow further over the next two years, according to a survey conducted by Ocorian and Bovill Newgate, a firm specializing in regulatory and compliance services for funds, corporates, capital markets, and private clients. Based on the experience of both companies, more investment is urgently needed to address the issue.

Following an international survey among senior compliance and risk leaders from alternative fund investment firms, it was found that 88% believe compliance risks have increased and will continue to rise over the next two years. Specifically, one in ten respondents expects this increase in risks to be dramatic.

This trend is occurring in a context where compliance teams report insufficient resources and a high level of fines. In fact, 64% of respondents stated that their compliance management team is already under-resourced, with over half of these (34%) feeling their resources are severely lacking.

The number of firms facing fines and sanctions is already high, with 67% of respondents admitting that their organization has been subject to risk and compliance fines or sanctions in the past two years. An additional 9% acknowledged receiving a request for information or a visit from the regulator within the same period.

In response to these findings, Matthew Hazell, Co-Head of Funds for the UK, Guernsey, and Mauritius at Bovill Newgate, remarked: “Our survey reveals a concerning backdrop of fines, sanctions, and under-resourced compliance teams within alternative fund managers, against which nine out of ten respondents believe the level of compliance risk their firms face will only increase over the next two years. It is encouraging that leaders within these firms recognize these future challenges and understand the need to act now to stay ahead.”

The Ocorian study highlights the three key areas where alternative fund managers believe investment is required in the next 24 months to address the issue: technology (58%), systems for managing processes and procedures (57%), and hiring knowledgeable, relevant personnel (53%).

Matthew added: “Firms need to have a deep understanding of their own compliance and risk needs, and any potential changes due to growth or organizational shifts, in order to invest wisely in the right systems, processes, and people to protect against these future risks. We recommend following a three-lines-of-defense approach to safeguard their businesses: first, implementing robust procedures, policies, and training; second, thoroughly monitoring these aspects; and finally, reviewing and challenging them through independent audits.”

Ocorian’s three-lines-of-defense approach to addressing compliance and risk challenges consists of the following:

– Line One: Establish clear and robust processes and procedures on the front line, complemented by online and in-person training programs for staff.

– Line Two: Build and empower a comprehensive compliance oversight function that monitors and evaluates processes and procedures while advising and supporting staff and senior management in meeting the company’s obligations.

– Line Three: Seek the review and challenge of the company’s AML framework through annual independent audits.

XP Expert, the Unmissable Conference, Witnesses the Duel Between Bernal and El Erian

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The largest investment conference in the world was held in São Paulo without much international attention, with Brazilians as the protagonists of their own achievement. More than 50,000 people and 250 exhibitors participated on August 30 and 31 in XP Expert, an event that showcases both quantity and quality, culminating in a showdown of experts: Alberto Bernal and Mohamed El-Erian.

The main peculiarity of XP Expert is that it should be unmissable, but the world doesn’t seem to know it, and even the Brazilians themselves don’t seem to care much. While XP’s domestic market is enough to amass a trillion reais in assets under management ($0.18 trillion), the scale of the proposal from both local and international asset managers is overwhelming, as is the event’s openness to global investment analysis and guest speakers.

The Inevitable Recession vs. A World with Five Years of Inflation

Alberto Bernal, Chief Strategist at XP Investments, strongly defends his position, kicking off his presentations with bold statements: “The pandemic didn’t change anything from the market’s perspective,” and we will return to low interest rates because the recession is already starting to show signs in the United States.

In the U.S., pandemic savings-driven consumption is depleting, job growth is slowing, and the statistics are lagging, hiding a disinflationary process that is greater than what is publicly reported.

For Bernal, a crisis or recession in the U.S. is inevitable. However, he argues that “it will be a different kind of recession, where families will still go out to eat but won’t order dessert to avoid spending too much.”

He also predicts that Donald Trump will win the next U.S. elections, favoring investment in small-cap companies. When asked if Trump would be inflationary, Bernal disagrees, saying that the Republican’s promise to reindustrialize the U.S. won’t be realized, nor will the retreat of globalization.

Just hours after Bernal’s talk, Mohamed El-Erian, Chief Economic Advisor at Allianz, presented a starkly different market vision. According to El-Erian, more inflation is expected over the next five years “because we live in a fragmented world.”

COVID-19 changed everything, creating a global consensus on the need for regulation and reindustrialization—both inherently inflationary processes.

El-Erian sees major transformations ahead in areas like life sciences, the environment, and technology: “The only way out for the world is to increase productivity and growth,” and improve wealth distribution.

“Everything is moving very quickly, and the proof is that when you ask tech leaders what the world will look like in the coming years, they admit they don’t know,” El-Erian added.

El-Erian didn’t comment on the upcoming elections but warned that if wealth isn’t properly distributed, frustration and anger will rise, undermining democracy through negative voting.

All Against the Fed, as If It Were So Simple…

Bernal and El-Erian shared one common point: both criticized the Federal Reserve, though for entirely different reasons.

Bernal believes the Fed is lagging in lowering interest rates, noting that there is too much liquidity in the market.

El-Erian, on the other hand, thinks the Fed’s biggest recent mistake was labeling inflation as “transitory.” He argues that we have inherited a market overly focused on monetary policy, a result of the 2008 crisis and massive central bank intervention.

Now, markets want governments to intervene less, which will only be possible through significant transformations. El-Erian doesn’t foresee a crisis or recession but warns of “damage” if growth fails to offset the enormous fiscal deficits of governments.

How to Invest?

Bernal, in his bold presentation, ventured to provide specific investment recommendations. He advised extending fixed-income durations, looking at low-coupon bonds—“the Microsofts or Googles”—and predicting they would yield rewards in a few years.

El-Erian took a more general approach to asset allocation, emphasizing that future liquidity will be more expensive. He posed two key questions for any investor: How resilient is my portfolio? And how is the world changing? Keeping an open mind will be crucial.

In the coming months and years, we’ll see whether these analysts’ predictions hold true. In one of the booths, a life-sized photo of someone who was always certain of his bets stood tall. That person had just turned 94 during XP Expert: Warren Buffet, with his famous quote, “Rule number 1: Never lose money. Rule number 2: Never forget rule number 1.”

BBVA Receives Green Light from UK Regulator to Take Indirect Control of a Banco Sabadell Subsidiary

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New advances have been made in the approvals for BBVA’s takeover bid (OPA) for Sabadell. The UK Prudential Regulation Authority (PRA) has given the green light for BBVA’s indirect acquisition of TSB Bank plc, Banco Sabadell’s UK banking subsidiary.

According to the bank, this authorization is one of the conditions tied to the purchase offer for Banco Sabadell’s shareholders and a necessary step to complete the deal, as TSB would become part of the BBVA Group.

BBVA submitted a purchase offer for Banco Sabadell shares to its shareholders on May 9th, and the process will begin once the necessary regulatory approvals are obtained. “Since then, BBVA has received approval for the operation from the competition authorities in several countries where Banco Sabadell operates (the United States, France, Portugal, and Morocco). The UK Prudential Regulation Authority, responsible for supervising around 1,500 entities, including banks and insurers, oversees TSB Bank, which is owned by Banco Sabadell,” BBVA explained.

Additionally, this authorization follows the Spanish regulator CNMV’s acceptance of the takeover bid for processing, “understanding that the prospectus and other documents submitted, following complementary documentation and modifications registered on 06/04/2024, comply with the provisions of the relevant article.” This does not mean the operation is final, but regulatory steps are being taken, as is customary in such cases. As Sabadell noted before the summer, the final decision will depend on the will of the shareholders.

Among the next steps before launching the purchase offer to Banco Sabadell’s shareholders is the approval of the offer by the European Central Bank (ECB) and the Spanish National Securities Market Commission (CNMV). Furthermore, the offer is conditioned on acceptance by the majority of Banco Sabadell’s share capital (a minimum of 50.01%) and approval by the Spanish competition authority (CNMC).

Tikehau Capital Completes the Sale of Its Stake in Preligens to Safran

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Tikehau Capital has completed the sale of its stake in Preligens, a global artificial intelligence (AI) firm specializing in the aerospace and defense sector, to Safran for an enterprise value of €220 million. Following an exclusive negotiation process that began in June 2024, Tikehau Capital is divesting its stake in Preligens to Safran.

According to the asset manager, Preligens, founded in 2016 by two French engineers, offers field-tested AI analysis solutions for high-end imagery, full-motion video, and acoustic signals. “Tikehau Capital’s investment in November 2020 has been pivotal in accelerating Preligens’ growth, which has seen its revenues increase tenfold (from €3 million to nearly €30 million), expanded its operations in the U.S. and Asia, and now employs around 250 people, including 140 R&D engineers,” they noted.

This sale marks the first divestment of Brienne III, the Group’s first private equity fund dedicated to cybersecurity. According to the asset manager, this strategy has raised nearly €4001 million across its two funds and has now invested €150 million in 16 companies, including Trustpair, Chapsvision, and Egerie in France, and VMRay in Germany.

U.S. Equities don’t Have a Performance Problem, They Have an Expectation Problem

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The second-quarter earnings season in the U.S. is coming to an end. So far, results have surprised to the upside, with earnings per share (EPS) growth of 8% year-over-year, exceeding market estimates by 4%. A noteworthy aspect of this season is the broader participation in earnings growth, as the EPS of the S&P 500 has shown an increase even when excluding the large tech companies (Mag-7) for the first time in five quarters, notes Felipe de Solminihac, Investment Analyst at Fynsa.

In terms of sector performance, the highest earnings growth continues to be seen in technology-related sectors. In fact, the earnings growth of the Mag-7 has been 26% year-over-year.

Solminihac explains that despite the strong growth shown by the Mag-7 companies this quarter and exceeding market expectations by 6% (vs. +11% on average over the last four quarters), this has not been rewarded by investors, as the prices of all the stocks—except Meta—fell by an average of 8% in the three days following the earnings reports. In other words, when you have a sector with such high valuations in historical terms and so much implicit earnings growth, it is not enough to simply beat the current quarter’s estimates; it must exceed what had been surprising in previous quarters and also offer a strong forward-looking guidance.

For the Fynsa analyst, another risk factor is that the proportion of companies exceeding sales estimates has significantly decreased across the S&P 500. This factor could put pressure on margins in the second half of the year, as slower revenue growth combined with persistent costs could affect the future profitability of companies.

“With this background, and already thinking more about 2025, one might wonder if the market’s expected earnings growth of +15% might be a bit optimistic, especially in the context of a clearly slowing U.S. economy and valuations that are at the higher end of their historical range (Today, the market trades at 21.5 times forward P/E, representing a 23% premium compared to its historical average),” says Felipe de Solminihac.

For this reason, the bar by which corporate earnings in the U.S. should be measured is different from when the market was trading at lower valuations and prior to the AI boom.

Finally, the expert observes a crucial differentiation within the equity market: the S&P 500 equal weight trades at a 20% discount compared to its market cap-weighted version. This differentiation could present a better way to gain exposure to the U.S. market.

Funds Have Accumulated Over 32 Billion So Far This Year

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In August, investment funds continued to increase the volume of their assets, primarily due to net subscriptions. Assets under management now exceed €380.815 billion, according to preliminary data from Inverco, after recording an increase of €1.233 billion in the last month (a 0.3% growth compared to the end of July).

The growth in August is largely attributed to net subscriptions by investors (over €1.1 billion) and, to a lesser extent, to slightly positive returns (0.1%).

For the year as a whole, the accumulated growth in fund assets amounts to 9.4% (€32.716 billion), thanks to both market performance and cash inflows: from January to August, net subscriptions to funds totaled €16.471 billion.

During the month, fixed-income funds once again drew significant investor attention (€1.026 billion), particularly in the short-term segment. Year-to-date, this category has already surpassed €13.737 billion in inflows. Investor interest also focused on the money market category (€603 million in August and €9.082 billion accumulated for the year). Mixed fixed-income funds also saw inflows during the month (€205 million).

On the redemption side, global funds registered the highest net outflows, exceeding €430 million, followed by guaranteed funds (€132 million). Target return funds and mixed equity funds also experienced net redemptions of approximately €102 million and €55 million, respectively.

Returns Near 5% Over Eight Months

Although the return in August was only 0.13%, with slight gains across all categories and declines in international equity portfolios (-0.7%), year-to-date fund portfolios have appreciated by 4.7% due to market effects.

Among the winning segments are international equity (11.65%), index funds (15%), and domestic equity (10.56%). No fund category has experienced losses from January to August, according to Inverco data.