I spoke on a panel at a wealth manager conference last week and the moderator asked me what the greatest opportunity for investors will be as we look ahead to 2024.
My answer was venture capital.
It might be the only time investing in venture capital came up at the conference. It’s been well documented that the over-exuberance of 2018 through 2021 flooded the ecosystem and drove outrageous evaluations. You’re seeing the fallout continue to drive headlines that imply venture is declining as an asset class. More markdowns are still to come, but that’s money that’s already been put to work.
Entry valuations are becoming much more attractive versus the past several years. Funds that were deploying aggressively in the low-rate environment, especially into later-stage ventures, will continue to see markdowns in their portfolios. However, capital being deployed now and in the near future is being put to work in a rationalized market with right-sized valuations, which we believe will drive outsized returns for investors in current fund vintages.
Many of the strongest performers in the asset class have been emerging fund managers with a differentiated strategy and sector specialization. They are experienced in their industry, with standout investing experience at a more established manager or operational experience working in the space. These are often not large name-brand funds, and they are not the kind of funds available on legacy investment platforms like CAIS and iCapital.
We believe a portfolio that includes both large established funds and these smaller managers with a unique edge carries the highest probability of achieving top-quartile returns.
-Logan Henderson, Founder and CEO
To view and download full details of the funds on our platform and in future emails like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
Walk through a practical example of how harvesting losses today can pay dividends for years to come. Read more.
We’re excited to announce the new Fund Activity view is now available in Gridline.
Members now have the ability to dive deeper into their Gridline investments and see the companies that their dollars are invested in. They can also toggle to see the portfolio companies for all Gridline products, many of which are still marked as open for investing.
Each company has a quick link to the company’s website, an industry or sector description, and which fund has invested in the company and at what stage.
This feature is just one more way we’re bringing an unparalleled level of performance detail & transparency to private market investing.
– Peter Bilali, VP Product
Barron’s recently published an opinion piece by Catherine Keating, global head of BNY Mellon Wealth Management. In the article, she once again makes the case that individuals should be investing like institutions – a point we’ve made many times ourselves, and one of the key reasons we founded Gridline.
The decline in listed publicly traded companies, the length of time companies are staying private, and bank reforms on lending all underscore the importance of increasing allocations to alternatives for generating returns and accumulating wealth.
The other characteristic that gives a leg up to institutional investors? Emotion…or lack thereof. Keating argues that just as institutions invest according to their investment policy statement (IPS), individual investors should do the same. Set your allocation targets, invest accordingly until you hit them, and then maintain for the long-term.
In essence, an investment policy acts as a roadmap for investing, providing a structured approach that reduces the influence of emotions. We are well aware that personal finances and wealth are deeply intertwined with our sense of identity, making them among the most emotionally charged aspects of our lives. Stay informed but not emotionally reactive. Engage in informed research about market trends, economic developments, and your investment portfolio, but avoid making impulsive decisions based on fear or panic.
It’s crucial to remember that time in the market is often more important than timing the market!
By focusing on long-term goals and rational decision-making, an investment policy helps investors make sound investment choices and achieve their financial objectives over the long term.
As Keating states, there is much work to be done by both wealth managers and the alternatives industry to make these types of investments available to more investors. We think we’re contributing, building a platform that brings both transparency and efficiency to private market investing.
-Logan Henderson, Founder and CEO
If you or anyone in your network are in the New York area, we invite you to join us for casual networking and a walking tour of Central Park hosted by our own Greg Kaufmann, who served as a volunteer tour guide for the Central Park Conservancy for 10 years. Learn about the park’s history, ecology, geology, and design, while networking between stops.
To view and download full details of the funds on our platform and in future emails like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
Explore the rising ESG focus in private equity, with a record $3.7 trillion in dry powder in 2022 and investors seeking ESG-aligned firms for better returns and sustainability. Read more.
AcreTrader announces another successful disposition with the sale of four farm offerings aggregated together for an average performance above underwrite of 25%. Read more.
It’s no secret that the S&P500 has been on a tear through 2023, shrugging off higher rates and geopolitical concerns and posting a 15.5% return at yesterday’s market close.
That bull market has been disproportionately powered by seven technology companies (Apple, Microsoft, Amazon, Nvidia, Alphabet, Tesla, and Meta), which were up over 50% from January 1st through late September and now comprise over a quarter of the S&P.
Many of those companies are richly valued, including Nvidia’s eye-catching 187x price-to-earnings ratio. When BlackRock examined the S&P500’s aggregate P/E with and without the seven giants as of June 30 this year, it swung from 20.4x to 17.5x, much closer to long-term averages.
While it’s certainly possible that those outperforming names will continue their hot streak, studies suggest that P/E ratios for individual stocks tend to revert to the mean over time, so large run-ups in P/E ratios are often followed by pullbacks. That would mean putting up the same type of performance we’ve seen through 2023 thus far, many of these names would need to more than double their earnings in a short span.
What does this mean for investors?
The run-up has decreased the diversification investors receive from many index funds because those high multiple mega-caps now comprise a larger portion of the index, forcing index providers to change their weightings to ensure some diversification.
Now is an opportune time for investors to consider greater diversification than indices currently provide by allocating a portion of their portfolios to the private markets, where valuations have become more attractive rather than less over the course of 2023.
Finally, before we close, I want to acknowledge, on behalf of everyone here at Gridline, the unfolding tragedy in and around Israel at this time. Our hearts are heavy with concern, and we hope for the safety of our friends and colleagues in the region.
-Logan Henderson, Founder and CEO
To view and download full details of the funds on our platform and in future newsletters like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
This often overlooked strategy has gained traction in recent years and offers unique advantages for those seeking exposure to the private markets. Read more.
Buyout firms own more than 10,000 US companies, more than double the number of domestic US-exchange-listed public companies. Read more.
Later this year, we will open up access to a new portfolio allocation simulator within the Gridline platform.
This will allow investors to easily build an allocation pacing model across alternatives and public assets. Through this simulator, investors can understand how to build a self-funding portfolio & generate superior returns.
If you are interested in receiving early adopter access to this feature, please let us know by replying to this email so that we can grant your account access. As always, we appreciate your feedback on any other features or platform experiences as well.
– Peter Bilali, VP Product
This week we sat down with Phil Herget and Phil Bronner of Ardent Venture Partners. Ardent is a DC-based, early-stage venture firm and an investor in Gridline.
Sixteen months ago, Phil Herget published a widely shared Medium article on lessons learned from venture investing during the financial crises of 2001 and 2008.
Now that we appear to be in the wake of the most glaring market corrections, we wanted to look back at some of these predictions and the road ahead. A few key takeaways:
We are starting to see the green shoots of even large institutions refocusing on emerging venture managers this week with CalSTRS, the $321 billion pension plan, reaffirming its commitment to emerging managers through a partnership with Sapphire Partners.
Whether individuals are managing their investments independently or relying on wealth managers, it’s doubtful that they are maximizing their investment potential via a limited set of opportunities. At Gridline our focus is helping investors build diversified portfolios of active managers across both emerging managers and larger players.
-Logan Henderson, Founder and CEO
To view and download full details of the funds on our platform and in future emails like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
The mechanisms used align the interests of the GPs and LPs, leading to mutually beneficial outcomes. Read more.
Gridline is excited to announce our approval as a member of The Depository Trust & Clearing Corporation (DTCC) Alternative Investment Products (AIP) suite of services.
Traditionally, reporting on alternative investments relied on manual methods like hardcopies, emails, phone calls, and spreadsheets, leading to error-prone processes and hampering industry growth.
By standardizing the industry’s communication standards, AIP seamlessly connects fund managers, administrators, and custodians through automated trade order initiation, settlement, and post-trade reporting, boosting efficiency, reducing risks and lowering costs.
Membership to the AIP is another evolution of Gridline’s mission to enable a more efficient and scalable alternative investment industry.
We have discussed the level of uncertainty in public equity markets, but there are a few fundamental changes that are exacerbating this uncertainty. The impact of market concentration is increasing volatility, and rising inflation is causing investors to reconsider their approach and look beyond the public markets.
In 1996, over 8,000 companies were publicly traded in the US, but by 2022, this number fell to under 4,200, yielding a ~50% reduction in investment opportunities. This, in turn, created greater concentration, with the S&P 500 accounting for roughly 80% of the total US equity market capitalization and, even more concerning, the five largest companies representing 24.2% of the index’s total market cap.
Additionally, the resurgence of inflation has further complicated the investment landscape. Public equities, which have long been viewed as a hedge against inflation, have shown vulnerabilities during periods of rising prices, making it more difficult for investors to achieve positive real returns.
One way to address these complex challenges is to invest in a carefully constructed portfolio of alternative assets. These assets, which include private equity, venture capital, private debt, and real assets, can help to protect investors from market vulnerabilities while generating compelling returns. When built well, these portfolios can deliver returns in excess of public markets, generate those returns with lower volatility, protect against inflation (or benefit in the case of assets like farmland), and expand the universe of investable options.
While the idea of an alternative portfolio is appealing, its implementation is hindered by challenges. Private market access is limited, and there are no private-market index funds, requiring investors to construct their own diversified portfolios. Return dispersion is significant, making manager selection a critical function. Lastly, the dynamics of capital commitments, calls, and distributions require active cash flow modeling and management.
Gridline has developed solutions to overcome these challenges, enabling investments in well-constructed portfolios of best-in-class managers and providing easier management of cash flows and performance. We partner with our members to deliver more robust and resilient investment outcomes, and I’d recommend you join our webinar at 1p ET this afternoon to learn more about the market and our approach.
-Logan Henderson, Founder and CEO
Join us today at 1:00 pm ET to discuss how you can expand your portfolio to include diverse asset classes and under-the-radar managers through simple-to-execute strategies. During the session, you’ll hear about:
We hope you’ll join us, but if you can’t attend live, register, and we’ll share the recording with you after the session.
To view and download full details of the funds on our platform and in future emails like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
Emerging fund managers have some inherent advantages over established managers that lead to outperformance. Read more.
Private debt continues to establish itself as a significant player in today’s financial landscape, experiencing robust growth as an asset class. The industry, worth $1.5 trillion, has experienced a compound annual growth rate (CAGR) of approximately 10% in the past decade. This growth trajectory is expected to accelerate, considering the current macroeconomic landscape, with the combination of a floating-rate structure and market-based pricing for private debt offering the potential for enhanced risk-adjusted returns in response to the rise in interest rates.
Preqin’s most recent quarterly update reveals compelling statistics for the second quarter of 2023. During this period, $71 billion was raised with the lion’s share of these fresh investments flowing into direct lending ($42 billion) with mezzanine debt also enduring ($18 billion) during the second quarter.
The first private debt fund we partnered with was VSS Structured Capital, a leading name in the industry, with the last three funds being ranked #1 in the Preqin Mezzanine Category by Net IRR, and Pitchbook naming VSS’s flagship fund family, the top-rated Credit family across all types.
Given the significant interest Gridline members have expressed in the asset class, we’re excited to announce the upcoming launch of our partnership with a leading direct lending firm that has originated over $150B in loans across a 25-year history. The firm has a significant track record of generating consistent net returns and current income while maintaining low defaults and credit losses.
This is an opportune moment to enter the private credit markets as risk-free rates are at their highest levels for a generation and credit spreads – the amount investors are compensated above risk-free rates for extending risky credit – are at or above their long-term averages.
-Logan Henderson, Founder and CEO
To view and download full details of the funds on our platform and in future emails like these, visit app.gridline.co/signup and answer a few quick questions that allow us to verify your identity and learn about your allocation strategy. There is no cost or commitment to create an account on Gridline.
Join us on Thursday, August 31st at 1:00 pm ET. We’ll be discussing how you can evolve your portfolio to include diverse asset classes and under-the-radar managers through simple-to-execute strategies. During the session, you’ll hear about:
We hope you’ll join us, but if you can’t attend live, register and we’ll share the recording with you after the session.
With $3.7 trillion in dry powder, private equity firms are seizing the chance to acquire assets at discounted prices, setting themselves up for substantial gains. Read more.
The Earth has been witnessing unprecedented climate events, exceeding the boundaries of what was once considered normal. We just experienced the warmest month ever recorded on Earth, with July 3rd marking the hottest day in recorded history. The world’s oceans are alarmingly warm, causing catastrophic bleaching and death of coral reefs, particularly around the Florida Keys. Even in the dead of winter, Antarctic sea ice levels are plummeting, reaching historic monthly lows. Wildfires have been ravaging across continents, darkening skies in North America, Europe, and North Africa.
These events emphasize the urgent need for comprehensive and innovative solutions, and we are shifting from scientific consensus into significant government policy. Recent legislative actions, such as the Inflation Reduction Act, CHIPS Act, and Infrastructure Investment and Jobs Act, have allocated over $500 billion to US climate spending over the next decade.
An increase in spending won’t solve the problem by itself and success requires meaningful partnerships between the public and private sectors. We need smart individuals responsible for managing and allocating capital, and as part of that, we’re excited to announce our latest investment opportunity is focused on solving this problem.
The landscape of climate investing has witnessed a transformation in recent years, presenting a compelling combination of contributing to the fight against climate change while generating returns for investors. The companies they invest in are not only disruptive but also strategically positioned to make a meaningful impact through innovative solutions.
The climate crisis is upon us, and it is vital for us to act swiftly and decisively. As governments and entrepreneurs increasingly tackle the complex problems arising from climate change, we are excited to partner with forward-thinking individuals toward a more sustainable future.
-Logan Henderson, Founder and CEO
By integrating technology and transparency, Gridline enhances operational efficiency, lowers the barrier to entry, and improves investor confidence. Read more.
Savvy investors know that to capitalize on the growth potential of AI, they need to have access to private market investment opportunities that have the potential to yield significant returns. Read more.
This week Blackstone released its latest quarterly earnings report with a notable stat – They became the first private equity manager to hit $1 trillion in assets. While Blackstone has moved beyond private equity to include real estate (now its largest division and the nation’s biggest landlord), hedge funds, credit and infrastructure investing, and more, it is a watershed moment.
Public equities, bonds, and cash are considered the three main asset classes, with everything else being considered an “alternative” asset class. While there are some unique characteristics that define alternatives, such as structure, liquidity, and risk, the size of the market relative to the traditional core asset classes is a factor.
The global public equity and bond markets are north of $100 trillion, while there are roughly $13 trillion in alternatives. Investors’ appetite for alternatives only continues to increase, with Preqin forecasting assets reaching $23 trillion by 2026. The uncorrelated return profiles and active risk management offered by alternative fund managers in down markets are a valued commodity, and Blackstone achieving $1 trillion in assets proves the thesis.
Alternative assets have historically been highly concentrated amongst institutional investors, with individuals accounting for just 16% of alternative assets under management globally but controlling roughly 50% of global wealth.
Gridline was started to solve a simple problem – the alternative investment market is broken. Investors want to increase their allocation to alternative assets, and private fund managers are seeking to capture non-institutional capital. The current model is antiquated and must evolve into a robust digital platform that can efficiently handle the large, growing demand for alternative assets.
We are in the early stages of a long-term growth cycle, solving the challenges that have historically throttled the ecosystem by building the digital infrastructure to increase transparency, enhance operational efficiencies, and lower barriers to entry.
-Logan Henderson, Founder and CEO
In private markets, the disparity in information can lead to lucrative investment opportunities for savvy investors. Read more.
As we come back from celebrating the 4th of July – a salute to independence, hotdog eating contests, and fireworks – and enter the second half of 2023, one of the key tenets that we should be celebrating is American Ingenuity. While there are many unknowns in how the rest of the year will play out, we do know that a focus on harnessing innovation, creativity, and problem-solving will play a pivotal role in shaping the world we live in.
America has a history of embracing new ideas, and this entrepreneurial spirit has led to countless inventions, technological advancements, and groundbreaking discoveries. There are a few notable examples that are currently most exciting to me and provide limitless possibilities:
We see innovation coming to life in the portfolio companies of some of our current funds, specifically Greycroft portfolio companies, Prezent and Hopscotch, in AI and healthcare respectively, Warburg Pincus’s investment in climate company Eco Material Technologies, and Marlinspike’s investment in Voyager Space.
From the founding of the nation to today, this ingenuity continues to drive progress, resilience, and innovation across all aspects of society. There are many things we can do to support American Ingenuity, from investing in next-gen companies, supporting policies that promote innovation, starting businesses, or learning and exploring new ideas. No matter what happens, this spirit will undoubtedly guide us towards a brighter future.
-Logan Henderson, Founder and CEO
The private markets have already witnessed the emergence of eight new AI unicorns, including OpenAI, which boasts a valuation of $29 billion. Traditional indices like the S&P500 often fail to capture such explosive growth. Read more.
Private market investments provide unique opportunities for investors to directly impact the growth trajectory of their investments, potentially leading to higher returns. Read more.
When making an investment decision, there are numerous factors to consider, but one of the most important is risk aversion. Investors seek to maximize their expected return for a given level of variance (risk) in their portfolio. It is not a fixed characteristic and can change over time depending on an investor’s individual circumstances and goals. It’s also important to note that investors don’t just care about variance — ie, they don’t just care about the ups and downs of their portfolio — they care about when the variance shows up.
Many people will focus on risk aversion through the lens of investment amount. Committing smaller investment amounts, even to riskier assets, feels less risky. When most investors start to explore private markets, they begin making angel investments which are typically smaller investments into early-stage operating businesses. When losses occur (the business fails), they appear less severe, given the timing and the fact that failures happen over an extended period of time.
But the returns of angel investors are highly dependent on their own actions, and those who dedicate more time to due diligence, possess industry experience, and provide mentorship to the invested companies tend to achieve higher returns.
But is that effort worth the investment amount?
Many sharp observers have noted that Venture Capital returns follow a power law distribution with a small number of wildly successful investments responsible for most of the returns. When a notable Venture LP looked into this effect across the managers they allocated to between 1985 and 2014, they found that 6% of venture deals returned more than 10 times the money invested in them. A well-diversified portfolio across a large number of investments is more likely to find a few high-potential companies, and the best way to accomplish that mix is through fund commitments.
In venture investing, it’s a mix of quantity and quality. While investing smaller amounts may seem less risky, a lack of due diligence and diversification can undermine this strategy and ultimately contradict the risk-averse investor’s objectives.
-Logan Henderson, Founder and CEO
Join us on Thursday, June 29th at 11 am ET for an interactive Meet the Manager session with Lacey Mehran, Managing Director at VSS to discuss structured credit and how firms can capitalize on the current market environment to drive returns for investors.
VSS is a private investment firm that invests in the Healthcare, Business Services and Education industries. Since 1987, VSS has partnered with lower middle-market companies working closely with management teams, providing flexible capital solutions to drive growth.
This webinar is open to Gridline Members. If you would like to join us, please complete the process to sign up for an account and we will send you your personal link to join the webinar.
An unprecedented transition of wealth is on the horizon. With the youngest of the 73 million baby boomers reaching 60… Read more.
Private markets have grown by 170% in the past decade alone. They are now a bedrock asset class for investors seeking higher returns and less correlation with traditional asset classes. Read more.