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The Research Pitch |
June 10, 2023 
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The impact of accelerators: We took a quantitative and survey-driven deep dive into the largest accelerators in the US, presenting findings on capital raised, exits, valuations, founder feedback, and more. Read the report.
GenAI talk: Tech analyst Brendan Burke will be joined by Madrona investor Palak Goel and WhyLabs CEO Alessya Visnjic in a live discussion Wednesday on generative AI's various applications and key opportunities. Register here.
VC Dealmaking Indicator: In May, late-stage VC demand for capital relative to available supply continued to be overextended by 2.84x. For more on how investor-friendly the environment has become, see the new data.
Human error: In last week's top story about the rush on AI chips, we inadvertently shared a link to the wrong research. You can read the correct research here. |
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The relationship between ESG commitments and fund performance
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Amid the fervent debate about the merits and faults of ESG, the question of how it influences fund performance has remained largely unanswered.
That's especially true with respect to the private markets, where it's exceedingly difficult to collect and verify data on GPs' ESG strategies and performance.
Recognizing this data gap, we've taken a new approach, using data available in the Principles for Responsible Investment signatory database, to bring the investment world one step closer to an answer.
Signatories to the PRI make a commitment to incorporate ESG issues into their investment analysis, decision-making, and ownership practices. We wanted to compare the performance of funds raised by PRI signatory asset managers with those raised by non-signatories, so we analyzed IRR and TVPI dispersion between the two.
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| We analyzed data for PRI signatory and non-signatory funds. |
The initial results were mixed, in some cases suggesting that GPs with ESG commitments have underperformed. However, after controlling for other performance-impacting factors, we found that PRI signatory status has little to no influence on returns.
Of course, there are nuances and caveats to the findings. For one, variability in ESG program maturity, strategy, and implementation among GPs likely muddied the water. This could be the reason for the distribution of performance outcomes similar to what we see among funds raised by non-signatory asset managers.
The other explanation is that the requirements outlined by the PRI are not rigorous enough to influence returns, either because they do not mandate alignment to any one ESG philosophy or because they do not ensure a particular degree of signatory follow-through on the commitments.
Ultimately, additional investigation is necessary to arrive at a definitive answer to the question of how ESG impacts returns. Nonetheless, we hope that this research furthers the conversation about ESG in investing and its relationship to private fund performance.
For more on PRI signatory fundraising and asset class level returns analysis and regressions, read our research: Are 'ESG Investors' Underperforming?
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For large public managers, PE is no longer the top dog
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We just published our quarterly breakdown of the top six publicly traded alternative asset managers ("alts"), which now includes private GP franchises and the valuations they are fetching in control and non-control transactions.
In bygone years, private equity dominated the AUMs and fundraising at these six giant managers: Blackstone, KKR, Apollo, Carlyle, Ares, and TPG. But PE is the top dog no longer, and that's been the case for many years.
Instead, that mantle has been passed to PE's close cousin, private debt. As of the end of Q1, credit accounted for 45.5% of the $3 trillion in AUM across the big six alts and an even more impressive 54.5% of fundraising over the last year.
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| Private credit is having its golden moment. |
Why has credit become so dominant?
The short answer is that yield sells, especially in the wealth management channel that most of these alt managers have carved out and are raising increasing funds from. Higher-yielding product is also more suitable for the perpetual capital structures that are also high on the list of these managers.
The share of perpetual capital has pushed over 36%, or $1.1 trillion. These assets grew by 20.6% over the last year, nearly double the 11.2% growth in total AUM.
Related to this, and perhaps the biggest factor for the growth in credit, is these managers' collective push into long-duration insurance assets.
Whether it enters those relationships through acquisition—as KKR, Carlyle, and Apollo have all done (Athene accounts for half of Apollo's AUM)—or making strategic investments or alliances as Blackstone has done (its insurance solutions account for 17% of AUM), a major chunk of life insurance is now managed by PE. As much as 10% of the industry, by some accounts.
Insurance assets are primarily allocated to fixed income, so migrating to the private markets equivalent goes to reason.
Other key takeaways from our quarterly report:
- GP deal activity in the alts manager space got off to a slow start this year, but Q2 began with a bang: TPG's $2.7 billion acquisition of Angelo Gordon.
- The PE fundraising environment remains challenging, as even these industry leaders are guiding to lower targets after lengthy offering periods.
- Private equity deployment continues its slump in the new year. Other asset classes, including credit and secondaries, are seeing more activity than PE.
- Private wealth stays in scope with more perpetual vehicles launching. Meanwhile, retail redemption requests have subsided from the flare-up in January.
For more on these six top alt managers and GP franchises in private markets, download the free report: US Public PE and GP Deal Roundup
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Enjoy the read!
Tim Clarke
Lead Analyst, Private Equity |
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Top-performing VCs have been shifting their early bets from crypto to AI.
That's one of the notable takeaways from our new Emerging Tech Indicator, which tracks early-stage activity of the world's most successful VC firms.
Elsewhere, total deal value in our proprietary ETI dataset reversed a three-quarter decline—even if the increase was relatively small.
A lot more industry trends are revealed in the full report: |
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Digital twins—virtual replicas of real-world assets created by sensor data and analytics—are set for massive growth.
As a concept, their roots stretch back to tools used by NASA in the 1960s; today, they're used in the automotive, energy, healthcare, and manufacturing spaces.
According to our estimates, the market size for digital twins reached $6.5 billion in 2022, and it's projected to grow to $15.6 billion by 2025.
Our Emerging Space Brief explains what's behind that growth, types of digital twin processes, and more: |
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Total investment value in cleantech has fallen over 40% since last year, per our latest Clean Energy Report.
Investors see an opportunity to expand solar energy production outside of Chinese companies, and the Inflation Reduction Act is giving the vertical a major boost.
But there are still roadblocks—including a critical minerals shortage—on the horizon: |
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A number of events coming up this month:
- June 20: Healthcare analyst Aaron DeGagne will host Zane Burke, CEO of Quantum Health, in a discussion of care and benefits navigation, how it optimizes patient access to care, and what the future holds. Register here.
- June 21: Despite elevated stress in the banking system and tightening credit conditions, PE dealmaking has remained resilient. Our analysts will dive deep into where the PE landscape stands. Register here.
- June 28: With fewer avenues available, PE and VC exits in the first half of 2023 have been exceptionally slow. As a result, LP- and GP-led secondaries opportunities abound. Our webinar will dive into these increasingly creative and bespoke liquidity solutions. Register here.
- June 28: VC analyst Kyle Stanford will be speaking to venture trends in turbulent times at the Collision Conference in Toronto. More details here.
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Tech analyst Brendan Burke weighs in on Lightmatter's $154 million Series C round at a $720 million valuation:
"This deal demonstrates that silicon photonics will play a central role in the future of AI computing.
"Nvidia's outlook demonstrates the tremendous growth opportunities for chip companies in generative AI, yet even the most advanced GPU architectures retain high energy costs and increasingly expensive fabrication costs at smaller nodes.
"Photonic computing converts binary values into photons that can more rapidly transfer data than digital bits with less heat loss. Photonics can continue to improve AI training efficiency in the long run, creating the opportunity for large standalone chipmakers to be created in the emerging space.
"Lightmatter has optimized its hardware to train leading neural network types including computer vision, NLP, and deep learning recommendation models. The company claimed to reduce training times by 10x compared to Nvidia's A100, though these test results have not been verified by a standards body and the company has since shifted its value proposition to speeding inference times, which we believe has greater commercial potential.
"The company's blade server named Envise optimizes its chip clusters for leading NLP models such as GPT-4, offering the potential for computing resources that are not limited by the end of Moore's Law."
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Brendan Burke
Senior Emerging Technology Analyst
AI & Machine Learning |
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Our insights and data featured in the press:
- When it comes to venture capital, "there are multiple examples that speak to how things can change overnight within the China market." [WSJ Pro]
- Why VCs and other gaming investors should consider generative AI as an emerging opportunity. [Forbes]
- The climate tech applications that VCs are most excited about. [Fortune]
- Enterprise resource planning startups may be less flashy than other parts of enterprise SaaS, but their potential for cost savings "keeps them attractive during periods of economic headwinds." [WSJ]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. |
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Highlights from our other recent research:
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change)
- US PE Middle Market Report
- Real Assets Report
- Insurtech Report
- Supply Chain Tech Overview
- Are sodium batteries poised to disrupt the battery market?
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Since yesterday, the PitchBook Platform added:
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15
VC valuations
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1936
People
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534
Companies
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8
Funds
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