Public Markets
If you know anyone who works at an Equity Long/Short hedge fund, you’ve probably heard them complain about the Federal Reserve pumping too much liquidity in the system. This especially juices the value of over levered, bad businesses (shitcos, story stocks, penny stocks…lots of names for these cos). This also makes it really hard to short anything…because short selling means you’re borrowing the shares of a company, then selling those shares…in effect betting that they go down.
December was a great month in the markets with the S&P 500 returning close to 4.5%…but hedge funds didn’t do so hot. Very notable is that the liquidity punch bowl is being removed by the Fed as we speak. We are going to #timestamp that this is a good time to go Equity L/S if you have access to a good manager.
It’s always fun to ride the wave and make money with the crowd. Picture an awesome wedding reception where the band is rocking, drinks are flowing and everyone is in celebration mode. That was 2021 in Financial Markets….as we showed in our first graphic, lots of stuff went up. But there was more than Gold/Silver, Bonds & EM that went down. A number of things didn’t do nearly as well as the broader market. Roughly 3,000 stocks were DOWN in 2021! If you made good returns in 2021, pour out a bit for these folks who have to listen to all their investor friends bragging about the party they missed.
Biotech: the XBI (Biotech Index) started last year strong…up over 10% in the first 35 days of the year. Then it went. straight. down. Ending the year down 37% and logging the worst outperformance vs the broad market EVER.
Consumer Cyclical: the segment only went up about 5% last year but a few individual names got smoked. Think Peloton…now down over 75% from levels this past summer
Video Game stocks: Activision was rocked by CEO shenanigans, but other video game companies struggled as well. ZNGA, TTWO and others all peaked around February and had miserable a miserable 2021, especially relative to the market
Private Markets
TPG is going public, targeting a $9.5bn valuation. In a move pioneered by Carlyle, they’ve chosen to list on Nasdaq (traditionally tech focused) instead of NYSE (where BX, Apollo and Brookfield trade).
This brings up an interesting topic: why do PE firms list? Most often it’s a way to deal with succession issues. When TPG was founded in 1992, it ran one PE fund, and then another, then it branched into Special Situations funds, then this, then that, and pretty soon they had $100bn in assets under management. With that kind of scaling, the firm had to professionalize and bureaucratize, and finding executives with the wherewithal to lead amongst a pool of Managing Directors became exceedingly difficult. Going public is a simpler way of providing liquidity to founders and spreading ownership across the next rung of the ladder while keeping partners’ interests aligned.
The problem is felt downmarket, as well. However, Middle Market and Lower Middle Market firms don’t have nearly the management base to support going public. This explains the surge in GP Stakes funds - Private Markets fund that make minority investments in the management companies behind PE managers. Which leads to a recent innovation in Private Markets funds. GP Stakes funds like Dyal, Blackstone Strategic Partners and Goldman Petershill provide exit liquidity to founders and help with succession and expansion issues faced by their firms. We haven’t seen the first round of exits for these funds as their strategies are new and haven’t matured yet.
Interesting and quasi-related: Sixth Street Partners (FKA TPG Sixth Street Partners, or TSSP) was spun out of TPG in a deal that culminated in 2020. Sixth Street needed capital to expand, so they sold a stake in the firm to Dyal Capital Partners. When Dyal announced its merger with Owl Rock via SPAC, Sixth Street publicly opposed the deal and filed an explosive lawsuit.
Interesting times.
What are LPs thinking? In Venture Capital investing, Beezer Clarkson and #OpenLP have shared a handy guide to Investors’ thinking heading into the New Year.
IMPORTANT: Nestled in this already excellent thread is another thread on the state of VC Benchmarks, fundraising and the competitive landscape for emerging managers. Cannot recommend enough.
Digital Assets - NFT Market facts
Must be “Thread Week” around here because we’re full of ‘em.
Opensea did $16bn in volume in 2021
While Apes, Bromatoes and other projects took off, the original CryptoPunks project remains top of the heap in appreciation and duration (been going since 2017!)
Tons of detail on how to participate in this market: minting and selling
This thread is worth your time.
Us at 25… would you join a DAO to invest in interesting projects?
Decentralized Autonomous Organizations, like the one that attempted to acquire a copy of the US Constitution, made waves late in 2021 and will be iterated upon in 2022. There are already a few popping up that have captured imaginations:
Private Real Estate investing with your homies?
LinksDAO just completed an offering for $10m with the goal of acquiring and operating a golf course.
Reminds us of the coolest Private Markets investor benefit of all time: the Trout Dividend