How to Use Securitization As a Key Tool for Distribution?

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Asset securitization has had a significant impact on portfolio management and distribution, providing asset managers with an additional tool to diversify, optimize performance, and manage risk more effectively. This article by the fund manager FlexFunds explores how portfolio managers can use asset securitization to enhance the distribution of investment strategies, examining its benefits, challenges, and impact on capital markets:

Asset securitization

Asset securitization is nothing more than the process of transforming any type of financial asset into a listed security. Through this financial technique, exchange-traded products (ETPs) are created, acting as investment vehicles aimed at giving the underlying assets greater liquidity, flexibility, and reach.

FlexFunds, a leading company in the set up and issuance of investment vehicles (ETPs), defines asset securitization as a tool used by asset managers as a bridge to facilitate access to investors and foster capital raising for various investment strategies.

Among the main benefits that securitization offers to portfolio managers are:

1.- Increased liquidity: The securitization process of any asset results in a product listed on the stock exchange with an individual identifier (ISIN) that can be bought and sold through Euroclear and Clearstream, making it possible to hold it in an existing brokerage account.

2.- Risk diversification: By distributing the risks associated with the underlying assets among multiple investors, securitization helps reduce exposure to risk for any individual investor. This is especially important during times of market volatility.

3.- Access to international capital: Securitization facilitates access to international capital markets, allowing companies to attract investment from a global investor base.

4.- Centralized account management: Securitization can offer the advantages of centralized account management. It avoids the administrative redundancies of separately managed accounts and allows investors to access higher-ticket projects that they would not have been able to access otherwise.

5.- Protection of assets under the structure: Because the issuance is executed through a special purpose vehicle (SPV), the underlying asset is isolated from the credit risk that may affect the manager, and thus, the investor.

In general terms, asset securitization is a process that allows multiple classes of assets, liquid or illiquid, to be converted into listed securities. Additionally, it offers the inherent capacity of exchange-traded products (ETPs) to transform assets into “bankable assets,” understood as assets that acquire the capacity to be distributable on various private banking platforms, according to the specialized opinion of FlexFunds.

 How can asset securitization help distribute your investment strategy?

Asset securitization plays a crucial role in the distribution of investment strategies internationally. Here are some ways this process can enhance these strategies:

  • Flexibility in strategy management: Securitization allows asset managers to access a broader range of assets that they might not otherwise have access to. This includes assets from emerging markets or specialized sectors that may offer higher returns but carry higher risks.
  • Facilitates complex investment structures: Through securitization, asset managers can structure more complex investment products, such as collateralized debt obligations (CDOs) or mortgage-backed securities (MBS), which attract different types of investors with different risk profiles.
  • Efficiency in distribution: Securitization facilitates the distribution of investment products in different jurisdictions, leveraging the infrastructure of international capital markets. This allows asset managers to reach a broader and more diverse investor audience.
  • Transparency and international standards: Securitization requires compliance with international regulatory and transparency standards, increasing investor confidence and facilitating the distribution of products in multiple markets.

 Challenges of securitization

Despite its numerous benefits, asset securitization also presents several challenges that must be managed carefully:

  1. Opacity risk: While securitization can disperse risk, it can also introduce complexities that make the products less transparent.
  2. Regulation and compliance: The regulatory requirements for securitization can be complex and vary between different jurisdictions. Managers must ensure compliance with all applicable regulations, which can increase the costs and time needed to structure and issue securitized products.
  3. Market risk: Although securitization disperses risk, the underlying assets are still subject to market risks. A deterioration in the quality of the underlying assets can negatively affect the performance of securitized securities.

The future of securitization in international capital markets

As capital markets continue to evolve, asset securitization will remain a vital tool for distributing investment strategies.

Regulations will keep changing: the securitization market has been subject to increased regulatory scrutiny in recent years, and this trend is expected to persist. As regulators gain a better understanding of the risks associated with securitization, they are likely to introduce new rules and guidelines to ensure the market remains stable and transparent.

Moreover, the growing demand for sustainable investments is driving the development of securitized products that incorporate environmental, social, and governance (ESG) criteria. Asset managers are exploring the securitization of green assets, such as renewable energy projects, to attract investors seeking to generate a positive impact along with financial returns.

In summary, asset securitization is a powerful tool that can enhance the distribution of investment strategies in international capital markets. By transforming any type of asset into listed securities, securitization improves liquidity, diversifies risk, and facilitates access to global capital. However, it is crucial to carefully manage the associated challenges, including transparency, regulation, and costs.

If you want to know how asset securitization can enhance your investment strategy and facilitate capital raising in international markets, contact the specialists at FlexFunds at contact@flexfunds.com

Private Credit I: Origins, Classification, Characteristics, and Risks

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Private credit has emerged as a popular asset class over the past decade, especially among sophisticated investors seeking diversification and attractive returns outside traditional public markets. In the following lines, we analyze this asset class from its inception, considering both the opportunities and the risks that must be carefully assessed.

Origins of Private Credit

The birth of private credit is closely tied to the banking sector in the United States. As shown in the following chart, from the end of World War II until the 1980s, the number of banks in the United States ranged between 13,000 and 15,000. Following the financial crisis known as the Savings & Loans Crisis, the number of banks gradually decreased to 8,000. Later, due to the Great Financial Crisis, a second wave of consolidations reduced the number of banks to the current 4,000. Not only did the number of banks decrease, but the size of the surviving banks grew significantly, leaving a large gap in the segment of medium-sized banks that, in turn, served the middle market segment. This market went from having thousands of banks offering medium-sized loans to not having enough banks to request loans from, particularly during crisis periods.

This gap in the mid-small financial segment was filled by non-banking financial companies such as GE Capital or CIT and what is known as Business Development Companies (BDCs). BDCs can be public companies, listed on stock exchanges and registered with the SEC, through which investors, by purchasing their shares, provide the capital that is lent to medium and small companies. They can also be established as private companies or funds.

Classification of Private Credit

There are different ways to classify private credit into subcategories, each with its own characteristics and risk-return profiles. These categories include:

1. Direct Lending: Loans to medium-sized companies that do not have access to public capital markets. Direct loans are often collateralized and have strict covenants that provide additional protections for lenders.
2. Special Situations: Non-traditional lending scenarios where companies seek financing due to extraordinary circumstances or specific needs that are often complex and require customized solutions.
3. Mezzanine Debt: This type of debt is positioned between senior debt and equity in a company’s capital structure. It offers higher returns than senior debt but carries higher risk due to its subordination.
4. Distressed Debt: Investments in the debt of financially troubled companies. Distressed debt investors seek to benefit from the restructuring of these companies.
5. Asset-Based Financing: Includes loans secured by specific assets, such as real estate or inventory, providing an additional level of security for lenders.

The following chart shows the main subcategories of private credit compared to traditional liquid fixed income and bank debt markets.

Relationship Between Private Equity and Private Credit – Sponsored Transactions

Often, transactions in the direct lending subcategory occur when a private equity (PE) fund wishes to acquire part or all of a company’s equity. The PE fund becomes the sponsor of the transaction and invites a BDC to participate by lending money to the target company, positioning itself in the senior part of the capital structure, protected by the sponsor’s equity injection. Due to these types of sponsored transactions, a significant percentage of private credit deal flow is closely linked to PE transactions.

Characteristics of Private Credit

Attractive Returns and Diversification

Private credit offers returns generally higher than those obtainable in public bond markets. These additional returns compensate for illiquidity and, in many cases, the greater complexity of these instruments. Some of the most notable characteristics of private credit are:

1. Inflation Protection: Since many private loans have variable interest rates, they can offer effective protection against inflation. This is especially relevant in economic environments where interest rates are rising.
2. Strong Financial Covenants: Private loans often include rigorous financial covenants that allow lenders to intervene early if the borrower’s financial situation deteriorates. This can include restrictions on the borrower’s ability to incur additional debt or make dividend distributions.
3. Flexibility and Customization: Private credit allows for greater customization in loan structuring compared to public bond markets. This flexibility can include payment terms tailored to the specific needs of the borrower and lender.

Risks of Investing in Private Credit

1. Credit Risk: The most obvious risk is that the borrower may not be able to meet its payment obligations. While financial covenants can mitigate some of this risk, it remains a crucial consideration. Private loans are often made to medium-sized companies that may be more vulnerable to economic cycles.
2. Lower Liquidity: Unlike public bonds, private credit instruments are not traded on liquid secondary markets. This means investors may have difficulty selling their investments before maturity without incurring significant discounts.
3. Complexity and Administrative Costs: Structuring, managing, and monitoring investments in private credit can be complex and costly. It requires a specialized and experienced team, which can increase operational costs compared to more traditional investments.
4. Interest Rate Risk: While variable-rate loans can offer protection against inflation, they can also expose borrowers to higher interest costs in a rising rate environment, potentially affecting their ability to pay and increasing credit risk.

Final Considerations

Given the above, does it make sense to include private credit funds in client portfolios at this time? It may not be prudent to give a generic “yes” without considering the characteristics and needs of investors, but an asset class with a 20-year history, nearly $2T in assets, and consistent results having weathered the Great Financial Crisis (2007-2008) and the 2020 pandemic deserves serious consideration. Let’s review some important details:

Firstly, the fact that institutional investors maintain positions in private credit provides great stability to the asset class. American pension funds, with a very long-term investment horizon, hold private credit investments ranging between 5%-10% of assets under management. Additionally, 38% of family offices (FOs) worldwide invest in private credit, increasing to 41% if the FO is located in the United States. On average, private credit investments make up 4% of total assets, although this varies depending on the volume under management.

Secondly, it is a strategy that produces and distributes cash flows, a highly valued characteristic during market panic or volatility. Additionally, as of the end of 2023, these cash flows are 30% higher than those provided by high yield bonds, and more than 100% over treasury bills.

Thirdly, the fact that it is a largely illiquid strategy reduces portfolio volatility and correlations with other asset classes, acting as a diversifier.

Finally, it is very important to highlight that the dispersion of returns among different private credit managers is substantially wider than among public credit managers, and the persistence in the different quartiles is very pronounced. This implies that the manager selection process is the determining factor, and it invalidates the use of averages as an indicator of the asset class’s performance.

Due to its private nature, access to information about different private credit managers is limited, making evaluation difficult. At Fund@mental, we have developed expertise in private funds and offer an analysis and due diligence service.

Analysis by Gustavo Cano, Founder and CEO of Fund@mental.

Sustainable ETFs: A Polarized Global Market with Europe as the Leading Region

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Sustainable ETFs have experienced extraordinary growth, reaching $550 billion in assets under management by the end of 2023, according to a report published by State Street and JP Morgan AM, which outlines the key trends in the passive management industry. One of the main conclusions of this document is the significant disparity between the situation and evolution of ESG ETFs on both sides of the Atlantic.

The report explains that ESG ETFs have undergone substantial development over the past decade. The most pronounced increase occurred during the pandemic years, 2020 and 2021, when assets under management grew by $335 billion, a 275% increase compared to 2019. “The COVID-19 pandemic greatly accelerated ESG investment, highlighting the importance of addressing global challenges such as pandemics, climate change, and biodiversity loss. This period emphasized the need for a more comprehensive investment strategy that integrates traditional financial analysis with a broader consideration of a company’s social and environmental impact,” the report explains.

Europe Reigns Supreme

The growth and development of this segment of the industry have been uneven on both sides of the Atlantic. According to the report, European investors have consistently led the adoption of ESG ETFs, driven by strong legislative frameworks such as the SFDR (Sustainable Finance Disclosure Regulation) and a deeply ingrained cultural emphasis on sustainability.

As of 2023, the region maintains a dominant advantage, representing nearly three-quarters of the global ESG ETF market, with assets totaling $402 billion. While North America has slightly lagged behind Europe in the growth of ESG ETF assets, it has still maintained a strong presence, with total assets currently at $131 billion, just $10 billion less than its peak in 2021. The report indicates that this trend was supported by an increase in U.S. corporations adopting ESG standards and favorable changes in U.S. government policies, making ESG funds more attractive to retirement plans.

The Asia-Pacific region, while considerably smaller in scale compared to Europe and North America, has shown notable growth. From a modest start with $385 million in ESG ETF assets in 2014, the region expanded its portfolio to $15 billion by 2023.

According to the report’s data, from 2014 to 2023, the number of ESG ETFs globally skyrocketed from 148 to 1,826, highlighting a shift towards sustainable investment. “The EMEA region led this growth, with ESG ETFs expanding from 107 to 1,281, demonstrating a strong commitment to ESG principles. North American ESG ETFs grew from 34 to 430, reflecting an increasing interest in sustainable investment, although at a slower pace than in EMEA. The APAC region, starting from a smaller base, saw a steady increase from 7 to 115 ESG ETFs. The recent trend in ESG ETF launches, especially in North America, is quite distinctive. Despite a general slowdown in new ESG ETF introductions in 2023, the sharp decline in North America is particularly noteworthy,” the report adds.

After a period of robust growth culminating in 115 new funds in 2021, North America experienced a sharp decline to just 13 new launches in 2023. This drop starkly contrasts with the previously buoyant trend and reflects broader shifts in investment priorities.

Flows Tell the Full Story

The full stance of North American (NORAM) investors on ESG, as the study shows, is clearly illustrated through ETF flow trends, highlighting a significant move away from ESG investments in the region. “In 2020, global net flows into ESG ETFs soared to $93 billion, reaching a peak of $165 billion in 2021. During this peak, the EMEA region contributed an impressive $109 billion in net flows, representing 65% of the total, while NORAM also saw a significant increase with approximately $51 billion,” the report indicates.

However, this upward trajectory in North America changed notably in the following years. By 2023, net flows in this region not only decreased but also turned negative. The report explains that this sharply contrasts with the steady growth in EMEA, which recorded nearly $50 billion in net flows during the same period. “This shift dispels the previous assumption that North America was rapidly scaling and poised to surpass Europe in the ESG ETF space. Current trends, according to the report, point to a reevaluation of NORAM investors’ strategies towards ESG investments, particularly in the United States,” the document states.

A key conclusion is that the decline in ESG investment, particularly in the U.S. in recent years, can be attributed to several factors, with a significant one being the rise in anti-ESG legislation driven mainly by political changes. This trend began gaining momentum in 2021 and reached new levels in 2023, with over 150 anti-ESG bills and resolutions introduced in 37 states. Although many of these proposals were rejected or stalled, by December 2023, at least 40 anti-ESG laws had been passed in 18 states, according to Harvard Law School. Conservative factions have also initiated boycotts against brands they consider overly progressive, resulting in considerable opposition to such brands and the ESG initiatives they support.

Investor dissatisfaction is another important factor in the declining interest in ESG initiatives. There is a growing preference for strategies that emphasize financial returns and a profit-centric approach, leading to less focus on social causes that do not produce immediate economic benefits.

According to the report, as a result of these dynamics, companies, including ETF issuers, have started to downplay ESG discussions, leading to a decrease in the promotion of related products and a subsequent decline in net flows into ESG ETFs compared to previous years. This divergence in investment philosophy has allowed ETF issuers to introduce Anti-ESG funds, which have seen increased interest over the past year. These Anti-ESG funds emphasize a more traditional profit-focused approach, attracting investors who prioritize financial returns over broader ESG goals.

While Europe, according to the report, exhibits a less polarized approach to ESG investment and has largely set a global example in ESG adoption, the past few years have seen a slight slowdown compared to the momentum of 2020 and 2021. Despite significant investment flows in 2022 and 2023, European interest in ESG has somewhat waned due to economic uncertainties, high interest rates, inflation, and geopolitical tensions, which may have led investors to shift towards other investments.

Moreover, the underperformance of certain ESG strategies, particularly in thematic areas like renewable energy, affected by rising financing costs, material inflation, and supply chain disruptions, among other factors, has played a role in fostering this cautious sentiment. Additional concerns about greenwashing and evolving regulations, covering issues such as fund reclassification and SFDR implementation, have created uncertainty for ESG investors, potentially causing them to temporarily pause investments until greater clarity emerges.

The Active Approach

The analysis of NORAM’s negative net flows in 2023 reveals a distinctive pattern: $6.6 billion in outflows predominantly came from passive funds, while active ESG ETFs were in demand, attracting $5.3 billion in new capital. This shift indicates a growing preference for active management in ESG investment. Investors, according to the study, appear to be moving towards strategies that offer greater flexibility and alignment with their specific investment goals, diverging from the constraints often associated with passive funds. For some investors, active ESG investment could offer a more dynamic approach, allowing them to have a potentially greater social impact and more direct influence over corporate behavior through activism.

According to the report, this involves deep analysis and engagement with companies in the form of activism, although it typically carries higher fees than passive strategies. By the end of 2023, the proportion of actively managed ETFs within the total AUM of ESG ETFs in NORAM had significantly increased to 13%, compared to just 3% in 2018. This notable growth underscores a substantial shift in investor preference towards active management in the ESG space over the past five years.

In Europe, passive ESG ETFs remain the predominant choice for investors, holding a significant 94% share of total ESG ETF assets. They also maintain a dominant position in terms of annual net flows. This trend persists despite a general decline in inflows into ESG ETFs on the continent that leads in ESG.

The acronym ESG stands for environmental, social, and corporate governance, introduced by the United Nations in the 2004 document titled “Who Cares Wins.” This document marked a crucial moment, advocating for the integration of these critical factors into financial analysis and decision-making. Over the subsequent 19 years, ESG has transformed from a niche concept into a central element of corporate strategy, permeating every sector of the industry, including financial instruments like ETFs.

ZEDRA Will Expand Its Corporate and Fund Services Offering

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ZEDRA, a global specialist in Active Wealth, Corporate and Global Expansion, and Fund and Pension & Incentive Solutions, together with CreaPartners, an independent provider of corporate, investment fund, and family office services based in Luxembourg, have announced their plan to embark on a new collaboration project. This partnership will merge the strengths of both organizations, marking a pivotal moment for ZEDRA as it expands its corporate and fund services offering.

With over 1,000 current employees in 16 key locations and 28 offices, this latest development further underscores ZEDRA’s ambition to be recognized as an international leader in corporate and fund services, the company explains in a statement.

With nearly twenty years of experience, the CreaPartners team, consisting of 25 professionals, has been providing central administration services for corporations, developers, investors, alternative fund managers, issuers, securitization vehicles, wealth managers, high-net-worth individuals, and family offices.

Ivo Hemelraad, CEO of ZEDRA, comments: “The synergies between CreaPartners and ZEDRA further consolidate our joint approach of being the preferred partner for clients in the corporate and fund sectors. We look forward to working with the CreaPartners team. I am confident that this advancement will add great value to our clients and employees worldwide, who will benefit from the wealth of knowledge and experience that the CreaPartners team brings.”

The board of directors of CreaPartners Sàrl welcomes this new collaboration and comments: “Our clients recognize us as a preferred partner thanks to our working model, advanced technology, and our deep understanding of the legal, regulatory, and tax environment in Luxembourg and internationally. We are delighted to collaborate with ZEDRA as we evolve our operations in the alternative investment sector.”

North American Managers Opt for the European Passport as a Way to Reach Clients in the Old Continent

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North American managers plan to create European funds and use the passport to attract investments in Europe ahead of reverse solicitation and National Private Placement Regimes (NPPR), according to a new study by Ocorian. The study surveyed executives in venture capital, private debt, real estate, private equity, and infrastructure fund management in the US and Canada, responsible for $1.591 trillion in assets under management.

The latest survey reveals that 41% chose the passport for future fundraising in Europe, compared to 25% who selected NPPR and the same percentage who opted for reverse solicitation as their preferred methods for fundraising in the study of passports, reverse solicitation, and NPPR.

The study shows that 61% will use placement agents to raise capital in Europe over the next 18 months, nearly half (49%) will also use direct sales teams, and 47% will rely on third-party distributors. Around 28% will use private banks. Approximately 63% have used reverse solicitation in the past to raise funds in Europe, while 40% have turned to the passport and 36% to NPPR, with one in eight (12%) using all three methods.

When asked what makes the passport more attractive, 56% chose market perception and the ability to reach more investors in more countries among their top three reasons, while 44% rated efficiency as a key attribute. The same question about NPPR found that 70% cited cost-effectiveness and 64% flexibility as the two main reasons for using it, while 69% said the amount of capital they have raised from European investors through reverse solicitation has increased over the past two years.

The research found that 82% of North American fund managers are likely to increase pre-marketing activity in Europe over the next two years, with 73% saying it is much or more attractive to pre-market in Europe due to the lower initial investment before fully establishing. However, the study found varying levels of understanding regarding the pre-marketing changes implemented in Europe in June 2021, which included specific changes to the cross-border distribution of collective investment funds under the AIFMD and UCITS Directives in the EU. Only 38% said they understood them very well, while 58% said they understood the changes fairly well.

“There is a strong appetite among North American fund managers to raise capital in Europe and a growing debate about the best methods to do so. At Ocorian, we have supported several managers seeking to test European appetite for their strategy and proposed product through pre-marketing. It is a cost-effective way to decide whether to launch an EU-authorized AIF and use its passport to conduct distribution activities across the region. We only see demand for this service increasing as North American managers conclude that the passport is the most attractive distribution method for the future,” notes Paul Spendiff, Head of Business Development and Fund Services at Ocorian, in light of these findings.

State Street Names Dagmar Kamber Borens Head of Global Markets for Continental Europe

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State Street Bank International (SSBI) has appointed Dagmar Kamber Borens as Head of Global Markets for Continental Europe. Borens will report to Anthony Bisegna, Head of Global Markets at State Street, and Andreas Przewloka, CEO of State Street Bank International.

According to the company, Borens will also join the Global Markets Executive Management Group and will retain her current responsibilities as Country Head for Switzerland, in addition to continuing as a member of the SSBI Executive Management Board. “Borens’ professional experience and progress in developing our business in Switzerland make her the ideal candidate to take on the role of driving our growth in the broader region,” stated Andreas Przewloka, CEO of State Street Bank International.

Anthony Bisegna, Head of Global Markets at State Street, added, “State Street’s markets business continues to grow, so it is critical to have the right team structure in place to support the changing needs of our clients in Europe and globally.”

In her role, Borens will be responsible for delivering the bank’s global market strategy for Continental Europe, as well as collaborating with stakeholders in Global Markets and Investment Services to enhance client engagement. “European institutions and investors are facing challenging times and are looking more than ever for partnerships that help them achieve their goals. Deepening our client relationships while continuing to drive an innovative approach to developing client solutions is essential to our ability to help European clients continue to meet their growth ambitions in a volatile environment,” concluded Borens.

Fundraising in the Private Equity Market Is Expected to Stagnate at $1.1 Trillion in 2024

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Bain & Company has published the latest edition of its Private Equity Midyear Report, analyzing the global evolution of the private equity market so far this year. Up until May 15, 2024, the sector has raised $422 billion, compared to $438 billion during the same period last year.

The report reveals that private equity fundraising could reach $1.1 trillion this year, 15% less than the previous year. Buyout funds are leading, with $199 billion raised, and are expected to reach $531 billion by the end of the year, a 6% increase compared to 2023. Although the activity volume seems to have stabilized, the study notes it remains at historically low levels, especially considering the $3.9 trillion in available dry powder, of which $1.1 trillion is committed capital pending investment from buyout funds.

Bain & Company explains that, as of May 15 this year, the number of buyout deals had decreased by 4% annually compared to the previous year, suggesting that 2024 could see similar figures to 2023. However, the total value of these deals is on track to end the year at $521 billion, 18% more compared to $442 billion in 2023, largely due to the increase in the average transaction size (from $758 million to $916 million).

At the same time, divestitures of buyout fund holdings have seen stable annualized growth. While the total value of these exits is expected to reach $361 billion in 2024, representing a 17% increase from 2023, this year could be the second worst since 2016. Moreover, the stagnation of divestitures is leaving private equity funds with “aging” assets and limiting capital returns to investors, who are pressing for increased distributions on their deployed capital.

According to Cira Cuberes, a partner at Bain & Company, the growing investor interest in a small group of private equity funds is changing the landscape. “For buyouts, the 10 largest funds have raised around 64% of the total capital to date. The largest, EQT X, valued at $24 billion, captured 12% of the total. This leaves most buyout funds vying for the remaining 36% of available capital, with at least one in five of these funds falling short of their fundraising targets,” she notes.

Álvaro Pires, also a partner at Bain & Company, believes the outlook for private equity investment has improved, and the total deal value in 2024 is likely to approach pre-pandemic boom years. However, he cautions that it may take at least 12 months for an increase in divestitures to also shift the fundraising trend. “Even if deal activity picks up this year, we might have to wait until 2026 to see a real improvement. In such a competitive market, companies must adapt to new macroeconomic challenges and fully understand investor expectations to develop comprehensive plans in their portfolios that meet their demands and add value,” Pires adds.

Nuveen Appoints William Huffman as CEO, Replacing José Minaya

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Nuveen has announced the appointment of William Huffman as the firm’s Chief Executive Officer. Huffman, who will chair Nuveen’s executive leadership team and be a member of TIAA’s executive committee, replaces José Minaya.

With over 30 years of experience in asset management, Huffman recently served as President of Nuveen Asset Management and Head of Equities and Fixed Income. In this role, he led a team responsible for managing a global investment business with over $1 trillion in assets across equities, fixed income, municipal bonds, multi-asset, private equity, and financing for the Commercial Property Assessed Clean Energy (C-PACE) program, providing the firm’s clients with diverse capabilities and solutions.

“Bill’s unwavering dedication to the best interests of clients and the development of the firm’s strategy has had a transformative impact on Nuveen’s business and culture, driving growth and innovation over the past 16 years. I am delighted to welcome Bill to this position and am confident that Nuveen will thrive under his leadership. We are grateful for all of José’s contributions and wish him much success in the future,” said Thasunda Brown Duckett, CEO of TIAA.

As part of the firm’s executive leadership team since joining the group in 2008, Huffman has been at the forefront of Nuveen’s evolution and played a key role in increasing the firm’s assets under management to $1.2 trillion from the $800 billion it had in 2014 when TIAA acquired Nuveen. Among Huffman’s expanding responsibilities have been leading multiple major acquisitions and overseeing the investment teams responsible for managing over $1 trillion in both listed and unlisted markets.

William Huffman, now CEO of Nuveen, stated: “I am proud to take on the responsibility of leading Nuveen’s exceptional and dedicated team. We will continue to strengthen our position as a market leader in fixed income, offering clients enhanced capabilities in listed and alternative markets, and investing in our wealth and institutional businesses in key segments such as insurance and pensions. An increased international presence will enable Nuveen to serve its clients in new ways, building on the solid foundation of a diverse and stable business.”

According to the firm, Nuveen’s global operating model is designed to provide specialized investment capabilities across all asset classes, meeting the needs of clients worldwide and throughout various market cycles.

20 years of experience

William Huffman is the executive sponsor of Nuveen’s Philanthropic Steering Committee and the Culture and Inclusion Council, which is responsible for developing an inclusive culture for all associates. He led the acquisition of FAF Advisors (the former asset management division of U.S. Bank), Greenworks Lending, and Arcmont Asset Management, as well as the integration of numerous subsidiaries, including Nuveen Asset Management, TIAA Public Investments, TIAA Private Investments, Symphony Asset Management, NWQ Investment Management, Santa Barbara Asset Management, and Churchill Asset Management.

Before joining Nuveen, Huffman was CEO of Northern Trust Global Investments Limited. He resides in the Chicago area and serves his community as vice-chairman of the board of directors of the Boys and Girls Clubs of Chicago, and is also a member of the Rush System Trustee and the Cancer Advisory Council.

Brian Ruder and Dipan Patel, New Co-managing Partners and Co-CEOs of Permira

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Permira, a global private equity firm, has announced that Brian Ruder and Dipan Patel will become Co-Managing Partners and Co-CEOs, while Kurt Björklund will transition to Executive Chairman, starting September 1, 2024.

According to the company, Brian Ruder joined Permira in 2008 and currently serves on Permira’s Executive Committee, chairs the Permira Growth Opportunities Investment Committee, and co-chairs the Buyout Funds Investment Committee. “Since joining, he has been instrumental in building the firm’s Technology sector team, which he co-led until 2023, and has been involved in several of the firm’s most notable transactions, including Ancestry, Genesys, Informatica, LegalZoom, Lytx, Magento, McAfee, Relativity, Renaissance Learning, TeamViewer, and Zendesk,” they noted.

Dipan Patel, on the other hand, is Co-Head of Permira’s Consumer sector team and a member of the Buyout Funds Investment Committee and Permira’s Executive Committee. He began his career at Permira in 2009 in the Technology team before joining the Consumer team in 2018 and has been key in extending Permira’s long track record of consumer investments into the digital age. Dipan has worked on several transactions, including Adevinta, AllTrails, Ancestry, Axiom, Boats Group, Informatica, LegalZoom, The Knot Worldwide, Renaissance Learning, and Yogiyo.

Following this announcement, Kurt Björklund, Executive Chairman of the firm, stated, “Dipan and Brian have been strong leaders and vital contributors to Permira’s strategy, culture, and investment track record for over 15 years. They embody Permira’s values of collaboration, creativity, and integrity and have collectively worked on 22 investments across Permira’s sectors, representing approximately €17.5 billion of capital, including LP co-investments. Appointing Brian and Dipan as Co-Managing Partners marks the next chapter in our long history of successful leadership evolution and reflects our commitment to careful firm stewardship. I am excited to remain actively involved as Executive Chairman and to work closely with them as we continue to grow the firm and enhance performance for the benefit of our investors and our team.”

On their appointment, Brian Ruder and Dipan Patel, Co-Managing Partners and Co-CEOs of Permira, commented, “It is a privilege to be the next leaders of Permira, a firm that has been shaped by the thoughtful guidance of Kurt and previous Managing Partners. Permira’s strategy is to generate enduring investment returns by supporting and building exceptional businesses. Alongside Kurt, our partners, and colleagues in our global offices, we are excited to write the next chapter of our firm.”

Regarding Kurt Björklund, in 2008, he became Co-Managing Partner alongside Tom Lister, who retired in 2022, before becoming the sole Managing Partner in 2021. Over the past 16 years, the firm has expanded its investment focus and range of products in private equity and credit, nearly tripling the size of the team and raising eight private equity funds and over 30 credit vehicles in total, representing approximately €60 billion of capital.

The World Is Experiencing Its Lowest Levels of Peace Since World War II

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Investors’ current concerns about geopolitics and political instability are entirely justified. According to the latest edition of the Global Peace Index (GPI), a study measuring relative peace worldwide by the international think tank Institute for Economics & Peace (IEP), the current state of peace is the most fragile since World War II.

The report shows that without joint and coordinated efforts, there is a risk of escalating existing conflicts and provoking new ones. Its main conclusion is that up to 97 countries have seen a decline in their levels of peace compared to last year’s edition, more than any other year since the creation of the Global Peace Index in 2008. Conflicts in Gaza and Ukraine were the main drivers of the decline in global peace, with conflict deaths reaching 162,000 in 2023.

Currently, 92 countries are involved in conflicts beyond their borders, more than at any other time since the creation of the GPI. Additionally, the global economic impact of violence increased to 17.5 trillion euros in 2023, representing 13.5% of the world’s GDP.

Two other key findings from the report are that exposure to conflicts poses a significant risk to government and business supply chains and that the degree of militarization recorded the highest annual increase since the creation of the GPI, with 108 countries becoming increasingly militarized.

The report details that 95 million people are refugees or internally displaced due to violent conflicts, and 16 countries now host more than half a million refugees. On the flip side, Spain is now the twenty-third most peaceful country in the world, having climbed seven places since last year, while North America is the region that has experienced the greatest deterioration in its peace levels due to increased violent crime and fear of violence. In contrast, the first military scoring system, driven by IEP, suggests that the U.S. military capacity is three times larger than that of China.

A Less Peaceful World

According to the GPI 2024, the world is less peaceful for the twelfth time in the last 16 years and worsens its levels of peace for the fifth consecutive year. In this regard, 97 countries in the world have deteriorated their records. The report concludes that many of the conditions that precede major conflicts are higher than they have been since the end of World War II. Currently, according to the report, there are 56 active conflicts in the world, the highest number since World War II. Moreover, they increasingly have a greater international component, with up to 92 countries involved in conflicts outside their borders, the highest number since the creation of the Global Peace Index.

The growing number of minor conflicts increases the likelihood of more major conflicts occurring in the future. For example, in 2019, Ethiopia, Ukraine, and Gaza were identified as minor conflicts. Currently, according to the report, there are 16 countries where more than 5% of the population has been forced to flee.

The Victims

Last year, according to IEP, 162,000 conflict-related deaths were recorded, the second-highest number in the last 30 years. The conflicts in Ukraine, with 83,000 deaths, and Gaza, with estimates of at least 33,000 until April 2024, caused nearly three-quarters of the deaths. In the first four months of 2024, conflict-related deaths worldwide totaled 47,000. If this rate continues for the rest of the year, it would be the highest number of conflict deaths since the Rwandan genocide in 1994.

Additionally, by mid-2023, more than half of all refugees under UNHCR’s mandate came from only three countries: Syria, Afghanistan, and Ukraine. In this regard, Syria is the state with the highest magnitude of displacement, where the impact and aftermath of the Syrian civil war have caused 56.7% of the entire population to be internally displaced or refugees.

“During the last decade, peace levels have declined in nine out of ten years. We are witnessing a record number of conflicts, increased militarization, and greater international strategic competition. Conflicts negatively affect the global economy, and business risks stemming from conflicts have never been higher, exacerbating current global economic vulnerabilities. It is imperative that governments and businesses worldwide step up their efforts to resolve numerous minor conflicts before they become major crises. Eighty years have passed since the end of World War II, and current crises urgently require world leaders to commit to investing in resolving these conflicts,” explains Steve Killelea, founder and executive chairman of the IEP.

It is noteworthy that Europe remains the most peaceful region in the world in the GPI 2024, hosting seven of the top ten ranked countries. However, it recorded a 0.24% deterioration in peace compared to last year. Of the 36 countries in the region, 13 improved and 23 worsened their level of peace. The main cause of this decline was the deterioration in militarization and the conflict between Russia and Ukraine. Consequently, European countries have re-evaluated their military spending and overall combat readiness.

The Chronic Conflict Between Ukraine and Russia

Regional conflicts like the war between Russia and Ukraine, according to IEP, illustrate the devastating human cost and complexity of modern warfare. The latest figures suggest that last year there were more than 83,000 deaths from internal conflicts in Ukraine alone, meaning that more than half of all deaths in 2023 occurred in this single conflict.

According to the report, the war in Ukraine has caused nearly 6.5 million refugees by March 2024. In fact, the migration of young Ukrainians is significantly impacting the country’s ability to recruit new soldiers. It is estimated that nearly 30% of the population are refugees or internally displaced, a figure that rises to nearly 60% for young people of both sexes.

As a result of the war, Ukraine’s militarization continues to increase, with deteriorations recorded in the indicators of armed forces personnel, military spending (% of GDP), and nuclear weapons. Without a foreseeable immediate end to the war, Ukraine has become the fifth least peaceful country in the world, only surpassed by Yemen, Sudan, South Sudan, and Afghanistan.

On the other hand, Russia’s overall peace level deteriorated by 0.28% last year. It now ranks 157th in the GPI, making it the seventh least peaceful country in the world in 2024. According to the report, this conflict is an example of a “forever war,” where prolonged violence becomes seemingly endless, without clear resolutions, exacerbated by external military support, asymmetric warfare, and geopolitical rivalries. The conflict between Russia and Ukraine has led many European countries to re-evaluate their military spending and overall combat readiness, with 30 of the 39 European countries recording a deterioration in this area last year.

 Tensions in the Middle East

The Gaza conflict has not only had a significant impact on the region but also on global peace. The conflict between Israel and Palestine escalated dramatically in 2023 following the terrorist attacks on October 7 and the subsequent military invasion of Gaza. Since then, more than 35,000 deaths and a severe humanitarian crisis have been recorded. The report details that Palestine experienced the fourth largest deterioration in peace in the GPI 2024, falling nine places to 145th. Israel, for its part, dropped to an all-time low of 155th place, the largest deterioration in peace in the GPI 2024. Ecuador, Gabon, and Haiti were the other countries with the greatest deterioration in peace.

The conflict has also had a significant impact on the media. According to this year’s edition of the Global Peace Index, media articles in Israeli media with negative sentiment towards Palestinians increased by 85% in early 2024, compared to 30% in 1999. Beyond the Israel-Palestine conflict, the Middle East region is in a delicate balance of forces. Syria, Iran, Lebanon, and Yemen are also in active conflicts, with increasing economic consequences and a high risk of open war. A further escalation of the conflict would have severe consequences for the global economy, potentially triggering a global recession. According to the report, Syria’s economy contracted by more than 85% following the start of the civil war in 2011, and Ukraine’s economy contracted by 29% in the year following the start of the conflict in 2022.

The Global Economic Impact of Violence

The report explains that the global economic impact of violence in 2023 was 17.5 trillion euros or 2,188 euros per person. This represents an increase of more than 145 billion euros compared to last year. This increase is largely driven by a 20% rise in GDP losses due to conflicts. Spending on peacebuilding and maintenance amounted to 45.602 billion euros, representing less than 0.6% of total military spending.

Violence and the fear of violence directly influence the economy, generating costs in the form of material damage, physical injuries, or psychological trauma. Fear of violence also alters economic behavior, primarily reducing the propensity to invest and consume. Spending on prevention, containment, and treatment of the consequences of violence diverts public and private resources from more productive activities towards protective measures.

Additionally, violence generates economic losses in the form of productivity deficits, foregone income, and spending distortions. The total economic impact of violence has three components representing the different ways violence affects economic activity: direct costs, indirect costs, and a multiplier effect.

Global Peace Levels

The report explains that Iceland remains the most peaceful country, a position it has held since 2008, followed by Ireland, Austria, New Zealand, and Singapore, which is in the top five for the first time. Yemen has replaced Afghanistan as the least peaceful country in the world. It is followed by Sudan, South Sudan, Afghanistan, and Ukraine.

The Middle East and North Africa (MENA) region remains the least peaceful. This

area is home to the two least peaceful countries in the world, Sudan and Yemen. Despite the tensions in this region, the United Arab Emirates recorded the greatest improvement in peace in the Middle East and MENA, climbing 31 places to 53rd position in 2024. Although most peace indicators have deteriorated over the past 18 years, there has been an improvement in the homicide rate, which decreased in 112 countries, while the perception of crime improved in 96 countries.