Busting the 60:40 myth

by tradmin | February 27, 2021

“The premise of SPACs relies heavily on the reputation of the SPAC founder – their ability to raise funds from a broad group of shareholders”

Private Equity returns have beaten public market returns over the last 10, 15 and 20 year period

A 30-year investment of 10,000$ in S&P 500 would amount to 76,312$, whereas the same amount in a private equity fund would become a whopping 211,071$ – a 20x return

Individual investors allocated less than 5% of their investments to alternatives, compared to 26% by pension funds and 57% by endowment funds. America’s largest public pension plan, CalPERS put $7 billion into private equity during the 2018-2019 fiscal year. “We need private equity, we need more of it, and we need it now,” chief investment officer Ben Meng said in early 2019

The case for alternatives is well understood by HNW (High Net-Worth) investors: for instance, 67.5% of the registered investment advisors surveyed said their HNW clients are interested in private equity. And yet, on average only 10% of their client base is investing in private equity funds

In view of worldwide rising volatility and disruption, alternatives are well suited to create value through selection and a record 1.7 trillion dry powder ready to invest

Disruptive technologies, such as artificial intelligence, are helping fund managers to improve operational efficiencies while creating new opportunities for investment

Over the past 20 years, alternative investments have surged tenfold from a trillion dollars to 10 trillion USD compounding roughly at 12% per annum and slated to grow to 14 trillion USD by the year 2023. 

You may ask what are alternative investments? Alternative investment is a financial asset that does not fall into traditional investment categories like stocks, bonds or mutual funds. These include, but are not limited to private equity, private debt, hedge funds, real estate, infrastructure and natural resources.

Over the last few decades private markets have grown significantly in scale and complexity and are rife with opportunities. Quite simply put, alternative investments provide higher returns and lesser volatility as compared to private markets as we can see from the data of the last two decades.We inspect in detail how SPACs work, how has been the performance of SPACs in the past, and whether it is a fad that would fade away soon or meant to stay on.

Source – Committee on Capital Markets Regulation and Voya Investment Management (October 2017)

By investing in alternatives, an investor can easily diversify their portfolio and control risks. According to a study published on PlanAdviser.com, more than half (53%) of millennials favor alternative investments over ‘traditional diversification’. People all over the world are realizing the potential of such investments and the train is about to leave the station. Googling “liquid alternatives” yields 119 million results in half a second.

The pandemic has ruined businesses and all over the world, companies in certain sectors are being sold for cents on the dollar. Private equity companies are sitting on a cash pile of 1.7 trillion USD and are ready to take advantage of these distress opportunities and primed to push for higher deal-making. According to a PwC report, PE firms are looking to increase investments across TMT – technology, media, and telecom in the coming months as the sector has shown more recession resiliency relative to other industry groups.

 

Further reasons why seasoned or ‘accredited investors’ should make the shift towards alternatives are:

Public Markets are overcrowded and expensive – Over the last 10 years, stock market valuations have kept on increasing year on year and as of September 11, 2020, the P/E ratio of S&P 500 has reached 28.72 compared against the historical average between 13 and 15. Overcrowding in the public markets has led to such high valuations and earnings are simply not matching up to these crazy valuations. For example, TESLA trades as 970 times its earnings, and Hilton Hotels trades at 728 times its earnings. There are fewer public companies (number of listed companies have decreased 39% in the last 25 years) and companies are waiting much longer in their life cycle to go public (average age of US tech cos which went public was 4 years in 1999, which had risen to 11 years by 2014).

Private Markets Opportunities Growing – There are around 400 unicorn startups (private companies that are valued above $1 bn). With large companies and funds willing to back these companies, they don’t have a huge incentive to go public to raise funds. These companies are remaining private longer because it allows them to think and act more strategically, which means that equity investors have less access to the market as a whole. Alternative investments allow individual investors to gain access to this asset class which is designed to take advantage of volatility, dispersion, and dislocations are particularly well suited and may provide returns that have low correlations to traditional betas. The industry has crossed the 10 trillion barrier and with over 12,000 active alternative asset management institutions, the numbers are just going to grow. Furthermore, more and more fund managers are deploying artificial intelligence & machine learning (AIML) technologies to stay ahead of the curve.

More sources of information available to investors – Individuals have much higher access to information regarding private markets. There are hundreds of financial research software that can help an investor conduct proper due diligence on private companies as well as private equity funds. Some of the most used databases are Pitchbook, CB Insights, Mattermark, Tracxn, S&P Capital IQ, Eikon, and the Bloomberg Terminal. Apart from providing investors with quality data, some of these platforms also allow for making models and risk analysis. The free internet also has huge coverage of private companies and markets which enable an investor to make a rational decision.

Change in regulations paving way for easier access to private markets – The Securities and Exchange Commission in the USA is changing the way alternative investments are going to be regulated. Chairman Jay Clayton has said he’s eyeing an overhaul of all regulations around private placements, with the intent of making them more accessible to individual investors. It appears the democratization of alternatives is an SEC priority. In fact, its December press release recognizes the key role that pooled investment vehicles, including private and regulated funds, can play in providing a more level playing field for individual investors and allow them to gain from excess or uncorrelated returns from participation in the private markets. The European Commission has issued its much-awaited report on the Alternative Investment Fund Managers Directive (AIFMD). The report is short – only six pages of substance – but gives a clear sense of the direction of travel.

Asset owners’ evolving needs – Asset owners are looking for ways to optimize their alternatives allocations, with goals that extend beyond performance and diversification. In many instances, investors are seeking strategic relationships with alternatives managers that have the potential to create value on several levels. Investors want to invest in causes or technologies they are personally interested in. The new-age investor also wants to invest in companies following ESG (Environmental, Social, and Corporate Governance) norms. According to consultancy firm Mercer, more than three-quarters of respondents (76 percent) incorporate ESG criteria when investing in alternative asset classes and that most believe ESG improves risk-adjusted returns and is an important aspect of risk and reputation management. New platforms are emerging which allows for customization in the alternatives. iCapital in the US, Moonfare in Europe, and Torre capital in Asia are changing the way people invest in alternatives.

 

While we advocate for allocation to alternatives, we don’t want to wish away the inherent risks. Some of the risks while investing in private markets are:

Illiquidity – While private markets are gaining higher liquidity over time with the deepening of the secondary market and lingering overhaul of regulations, certain assets in private markets are highly illiquid and an investor must be aware of the amount of time their capital may be locked for 5-10 years. Only dedicate that portion of your portfolio which you are comfortable investing for long term, and where a little bit of volatility would not unnerve you.

Smart Allocation: We at Torre Capital do not recommend investors to allocate more than 10% of their portfolio to alternatives across asset classes. It is always better to ask for advice and understand the role of alternatives in your portfolio given your current asset allocation and your financial goals before you make your first investment. Smart allocation that allows you to stick to your investing plan would always yield higher returns than investing just based on returns offered or relative “hotness” of an asset class.

Novice Effect – During the cryptocurrency mania in 2016, everyone wanted to jump on the bandwagon rather than regret missing out on a huge opportunity and a lot of amateur investors lapped up various cryptocurrencies only to suffer a major crash and lull for a long-time. Although interest in alternatives is heating up, novice investors should do proper due diligence of where their money is going and not bet on gambles promising enormous returns.

Manager Selection – Manager selection in alternatives matters. Unlike in public equities, where the difference between top- and bottom-quartile managers in any one-year averages about 2.5 percent, in private equities that spread approaches 20 percent. Picking the right or wrong manager matters hugely if an investor is looking for discretionary portfolio management.

 

We at Torre Capital pride ourselves on our promise to always look out for our investor interests. Irrespective of incentives offered, we only bring investments that make sense for our investors. Our motto is principal preservation over principal protection, and we conduct multiple levels of due diligence before offering an investment on our platform. We request you to always do your homework before investing, and reach out to us in case of any queries!

Momentus will have approximately $310 Million in cash on the balance sheet, to be funded by Stable Road’s $172.5 Million of cash held in trust (assuming no redemptions) and $175 Million from a fully committed common stock PIPE at $10 per share, including investments from private equity growth investors, family offices and niche top-tier public institutional investors.

 

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3D gaming comes of age

by tradmin

“Since 93 out of the 100 largest gaming studios are Unity’s clients, more than half of all mobile computing, PC and console games on the market are made using Unity’s platform.”

Unity IPO lists on 17th Sep 2020, one of the many in an avalanche of US tech IPOs to hit the market in the next 6 months.

Unity Technologies is the creator of an end-to-end development platform that is used to build immersive and multi-platform applications such as mobile devices, home entertainment systems, laptops and computers, and augmented and virtual reality devices. In 2004, Unity was founded by Nicholas Francis, Joachim Ante and David Helgason. The company will shortly be traded on NYSE under the single-letter “U”.Digital channels, if used efficiently, could transform the customer experience by offering better products at a much lower price point by eliminating useless intermediaries.

Company Highlights

Growth in Revenues and Expenses: The company has seen increase in sales in the market and innovative solutions divisions. From $380.8 Million in December 2018 to $541.8 Million in December 2019, reflecting an annual rise of 42%. The key costs of Unity are to investments in R&D and recruiting skilled workers to retain the innovative technological niche in the market. The company’s costs rose dramatically by 33.5%, from $429.8 Million in 2018 to $573.9 Million in 2019.

No Debt: Unity is a zero-debt company with its valuation soaring from $6.28 Billion since its last round of financing in May 2019 to $10.01 Billion while it filed for an IPO in a short span of 1 year.

Acquisitions: Unity’s new acquisitions include Applifier, deltaDNA, Finger Food, Multiplay and Vivox, which have improved the platform ‘s versatility, added the main creative talent to the staff, and further strengthened Unity’s one-stop integrated platform to meet developer demand.

Market Share: Since 93 out of the 100 largest gaming studios are Unity’s clients, more than half of all mobile computing, PC and console games on the market are made using Unity’s platform.

Business Verticals: Unity’s SaaS operates with a remarkable net expansion rate; and it can also assert exposure to domains such as mobile ads, 3D animation and AR / VR content. It also enabled Unity expand globally by growing the number of customers producing yearly revenue of more than $100,000 by 39% to 716 in the reporting period of June 2020.

Key Players: Unity’s strategic partners in the gaming market are Sony Corporation, Microsoft, Nintendo are big tech giants who try to keep innovating and releasing next-generation gaming consoles provide….download the complete report here

 

Wall Street’s dream week, crazy week for the IPO market

by tradmin

“U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks.”

23 new IPOs were listed at NYSE and Nasdaq combined, making it one of busiest week in Wall street in last few years. Wall street is for visionaries, people who can look forward and measure up the market moves. It’s not for people Reminiscing the past and wallowing in its sorrow. Corona pandemic was past and the recovering economy, potential successful vaccine and rising sentiments among investors are already showing signs. Wall street has always been front runner and rightly so. The last week has seen crazy amount of IPO activity in the market and many more billion-dollar companies are soon to follow.

Snowflake’s share soared on the first day of trading with its valuation doubled from $33 Bn to over $70bn, making its initial public offering the largest ever for a software firm. Snowflake is a cloud computing company, that went public on NYSE on 16th Sep 2020 and raised $3.36 Bn. The overenthusiasm among the investors pushed the first day trading price to $245 — more than double its IPO price — in New York trading. Multiple VC and early stage investors have been able to mint billions of dollars from the IPO. The share got additional traction after the investment interest from Ventures and Berkshire Hathaway.

JFrog a DevOps software development company also went public on 16th Sep 2020 with IPO priced at $44 raising $509 Mn at the company valuation of just about $4 Bn. By end of the day JFrog’s stock soared 47.3%, closing at 64.79. JFrog was reportedly valued at $1.5 billion last year and IPO provided a huge valuation boost to the company. The soaring valuation of the company shows how much the investors are willing to pay for high growing SaaS company.

Unity Software went public with a blockbuster IPO this Friday, with its price jumping 44% by the end of the day. The company raised proceeds of around $1.3 Bn by selling 25 million shares at $52. Its stock raised as high as $76 in early day trading lifting company’s valuation to around $20 Bn. Unity is world famous gaming development studio that is known for hits such as “PokemonGo”, “Call of Duty:mobile” etc. Unity expected its IPO price to be round $34 – $42, but the enthusiasm about the stock among the public helped company go with IPO at $52. Sequoia Capital and Silver Lake were the biggest investors in Unity before the IPO, with Sequoia owning more than 24 per cent. Unity reported loss of $54 Mn this year, even though its revenue is on the rise, reporting $351 Mn earnings last year, 39% up from previous year. Gaming is the fastest growing segment in media category with 2.5 billion gamers worldwide and $140 Bn in revenue which is also consistently rising exponentially.

Sumo Logic: Sumo logic was the third venture backed software company listed this week, on 17th Sep 2020, on the exchange with the price above its anticipated range. The company raised $326 Mn with shares priced at $22, with the day closing at 26.8 a 22% jump in the closing price. Sumo logic is pioneer in continuous Intelligence with applications across digital transformation, cloud computing and analytics. Sumo like many others going public this week has shown solid revenue growth but also equitably growing losses. But the multiple times oversubscription of the company shares and the rising stock price shows the confidence investors have on the company and its growth potential.

Investors are bullish on the market and wall street is riding on the positive wave. Past few weeks have seen strong IPO activity after a long dull period, with 23 new IPO listed on NYSE and Nasdaq just this week. List of IPO listed during this week:

Billions of dollars have changed hands with number of VCs and early stage investors making big exits. Just a month ago when the companies were worried sick about corona and its potential impact on the investments and their portfolio, last few weeks have seen a complete shift in scenario. Sequoia a leading VC was largest owner of Unity, had 8.4% stake in Snowflake and some ownership in Sumo Logic had around $9 Bn worth in these three companies, earning health profits with exits. Many other investors have seen a profitable run and the IPO fever is not expected to end any time soon.

Whatever be the reason, be it the recovering economy from the pandemic, be it the strengthening investor sentiment or be it the escape from the future political uncertainty from elections IPO market is up and running. U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks. 

Project Management Simplified?

by tradmin

“The stock might be valued at around 45x forward revenue at the mean of this valuation, which would be among the highest multiple for valuations in the entire tech industry”

Imagine we told you that in the coming week you could invest in a company which has carved out a new space in the category of software? Hold on to that thought. Let’s say the company has recurring revenues, experiencing consistent growth in the recent past – capturing clients from government offices to professional cosmetics including a third of the Fortune 500 names. What if we say that the Co-Founders have already had a proven track record working with Facebook and that 98% of its employees would recommend it to a friend as a great place to work? If all of this interests you, read on…

We are talking about Asana – a work management software-as-a-service platform that helps teams orchestrate their work, from daily tasks to cross-functional strategic initiatives. Asana’s distinguishing factor is its integration capabilities including over 100+ popular applications that combine Dropbox, G Suite, Salesforce, Mail Chimp, and Slack. The company will shortly be traded on NYSE under the ticker symbol “ASAN”

 

Company Highlights

Asana has over 82,000 paying customers as of July 31, 2020 and over 3.2 Million free activated accounts since inception, representing a large opportunity to convert these accounts into paying customers.

The dollar-based net retention rate of Asana was over by 120% as compared to 2019. They don’t have a lot of meaningful product releases to date but the core features are worth the buck, as their biggest customers are spending more than they did a year ago. For customers with an ACV greater than $50,000, Asana’s NRR expands to over 140%, indicating that its biggest customers are spending significantly more than they did a year ago.

The company’s focus on user experience underscored by sleek and intuitive design is not easily imitable. This indicates the extra productivity and admin features, Asana brings to its premium subscribers including advanced admin controls, specialized support and custom branding.

With already 41% of its business com­ing from outside North America, there is a huge potential to expand internationally by tapping enterprise-wide deployments with optimized budgets and its workflow-automation capabilities.

Asana has experienced a strong business growth in recent years, and trends seem to remain robust, although growth has been slowing modestly. Revenues were up by 86% year-to-year growth at $142.6 Million. In its most recent quarter ending July 2020, Asana recorded 57% year-to-year growth.

However, the market for work management solutions is increasingly competitive, fragmented, and subject to rapidly changing technology. The situation would only become more complicated for Asana, given the low barriers to entry in the industry and highly differentiated SaaS products.

With the current hype for anything SaaS, Asana’s IPO could open trading at a minimum of $9 – $10 Billion valuation just double the last reported secondary market valuation of $5 Billion, replicating the reactions in the lines of SaaS companies like Zoom, Tesla, Snowflake and Unity. The stock might be valued at around 45x forward revenue at the mean of this valuation, which would be among the highest multiple for valuations in the entire tech industry. Read the full report to find out how?

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