04 Oct Q3 2023

Portolani update

Our team is glad to announce that Vincent Daelemans, Head of Private Markets, has joined our management team and becomes Partner. This is the result of Vincent’s contribution to build a robust PMI programme for our clients over the last 3 years.

Ann-Michèle Verheyden, Head of Legal, Compliance and Risk, also joins the management team and keeps running our accreditation process with the FSMA as Investment Manager.

These promotions further demonstrate our team’s commitment for the continued development of Portolani for the years to come.

Upcoming PMI event: 17th of October

Join us for an interactive lunch with Altamar Secondaries at Sensum restaurant in Ghent. The senior investor team leading the secondaries committee will highlight how Altamar seizes the current market conditions for favourable small cap deals across the US and Europe.

Kindly RSVP before the 10th of October by emailing info@portolani.eu

Public Markets

Equity markets saw significant volatility in Q3, driven by various factors. The surge in oil prices is expected to fuel global inflation, subsequently leading to higher interest rates. Among equity styles, value equities performed best, gaining +1.23%. In contrast, growth stocks faced challenges amid these concerns, declining by -2%. Quality stocks remained narrowly above water with a gain of +0.23%. Smaller market cap companies experienced a steeper decline of -1.47% compared to larger firms, which saw a decrease of -0.46%. The emerging markets index lagged slightly, ending the quarter down by -0.03%.

Value equity funds outperformed the group’s index. This outperformance was driven by rising energy prices and banks benefiting from higher interest rates, which provided strong support to value stocks. Specifically, Brandes recorded a notable increase of +2.7%, while Robeco saw a rise of +1.66%. Magallanes maintained its focus on European industrial companies and achieved an increase of +0.82%. Companies with small market capitalisation traditionally perform worse in harsh macroeconomic times. Kempen managed to mitigate the impact by incurring a modest loss of -1.73% through a careful selection of quality stocks. Montanaro, on the other hand, prefers to invest in growth stocks and incurred a loss of -8.69%. Among emerging market funds, GQG emerging markets was the big outlier with a +4.62% rise. The fund underweighted China and made nice capital gains in Brazilian energy stocks. Ashmore and Robeco lagged slightly behind the index. Among funds investing in quality stocks, Artisan and Heptagon Yacktman outperformed the index. Large exposure in financial stocks (Artisan Value) and energy stocks (Heptagon Yacktman) increased returns. The dispersion in returns was greatest in growth stocks. Volatility in artificial intelligence stocks remained very high. Seilern performed the least with a fall of -4.8%. GQG Global Equity increased by +3.83%.

The Magnificent Seven stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla) are up 86% YTD, concentrating more and more value within the S&P 500, which is up 14% YTD.

Private markets

Buyouts: whilst the GDP growth remains muted (0,5% annual rate until Q2 in Europe and 2% in the US), buyout volume has started to tick up again. The US buyout activity is outpacing the European one, and midmarket managers have outperformed large-cap managers over the last 3 quarters. We’ve noticed that the best GPs are managing to reach their fundraising targets, but most managers are scaling down the size of their funds.

Secondary investments: Attractive opportunities persist in the current market, offering entry discounts of 20% for buyout funds and 30% for Venture Capital funds. The denominator effect has slowed down as equity markets have rebounded YTD. However, we believe the market is fundamentally opening up to the secondaries concept, and tradeable volumes remain very high compared to the available capital: dry powder is only about equal to yearly deal volume.

Private debt: the market offers very appealing opportunities, with high base rates, high margins and comfortable arrangement fees. Second lien strategies (which focus on loans or debts that are considered secondary or subordinate to other debt) can target 15-17% returns, which are similar to equity returns.

Venture Capital: early-stage companies remain focused on efficiency in order to preserve cash and postpone additional funding. However, a few sizeable IPOs, such as Arm, Instacart, and Klaviyo, have recently breathed new life into growth exits. These companies had been waiting on the sidelines for the past 18 months. Considering their lukewarm post-IPO share price performances, it remains uncertain whether this initial activity will lead to sustained IPO volumes for the rest of the year.

Upcoming available allocations :

1. Altamar Secondaries V is a follow-up to the successful strategy that our core manager, Altamar, has proposed to us since 2017. Previous vintages are currently valued at 1.92x and 1.24x with net IRRs of respectively 18% and 19% respectively.
2. Private debt is an attractive strategy for a 2023 allocation: higher rates, combined with higher arrangement fees and margins are pushing up potential returns. We are finalizing the final candidate for an allocation within this strategy, while also considering the appropriate tax structure. Kartesia and HIG are the leading candidates.
3. Direct secondary transactions: we are reviewing several options to acquire stakes from LPs in older vintages, or continuation funds. This could enable you to put 100% capital at work immediately and for shorter investment durations. We will discuss these custom opportunities with each of you on an ad-hoc basis.