Q4 2023

Portolani updates

Upcoming PMI event: 25th of January

Please book the 25th of January in your agenda to meet our upcoming European Private Debt. More information will follow soon.

The Portolani team has acquired the participation of an external Portolani shareholder, resulting in the team now controlling 70% of Portolani’s shares.

Public markets

2023 turned out to be a particularly good year for equity investors. Despite a lot of uncertainty most of the active managers posted double- digit returns. The strong returns were mostly fueled by several US tech stocks, especially those involved in the artificial intelligence “AI” hype.

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Without the magnificent seven(*), returns are much more moderate. The fact that the equity rally was driven by a handful companies, made it impossible for active managers to outperform the market. The Portolani Selection, posted a return of 15,31% versus +18,06% for the ACWI index. On index level, small caps, emerging markets, and value stocks were a drag on performance, quality and growth stocks contributed to performance. The picture, however, is vastly different on a fund level. The value managers strongly outperformed their index (Brandes +17,9% and Magallanes +21,9%). The quality managers strongly underperformed their style index, mostly because of the absence of momentum IT stocks. The same can be said for the growth managers (strong underformance versus style index), despite strong absolute returns (Artisan +19,4%, Seilern +22,5%, Guardcap +14,8% and GQG +17,3%). The 2 managers in emerging markets performed strongly (Robeco +9,9% versus +6,1% for the index). GQG was up +24,8%, fueled by a rally in Indian stocks and the strong underweight of Chinese stocks. Small caps typically underperform in harsh economic times, but both posted positive returns (Kempen +14,8%, Montanaro +9,8%).

Despite slower economic growth and the probability that a recession will occur in US and/or Europe, we continue to see that overall valuation figures of the active fund managers remain modest. The growth figures remain strong on an aggregate level, but for some funds, we noticed a slowdown in 2023. This was surely the case for small caps, where cash flow growth came down in 2023. The most pertinent question at the year-end is what 2024 will bring? Uncertainty will be ongoing, with elections worldwide, international tensions, war, and a strong probability of a recession. When investors asked Benjamin Graham, the legendary value investors, and author of “the intelligent investor”, what the stock market will do tomorrow, he said: “it will fluctuate”.

(*) Magnificent seven are companies related to the AI hype, being Alphabet, Meta, Nvidia, Apple, Microsoft, Amazon and Tesla

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Private markets

We start seeing hopes for higher liquidity in 2024, after a lackluster 2023 on that front. Large cap buyout funds such as EQT and Permira have been more active than investors feared during 2023, leading to good deployment rates. LBO entry multiples have decreased in Q3, further dropping below 10x EBITDA (Argos index, which represents midcap companies in Europe).

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On the secondary market, discounts can be seen as a barometer for the health of private markets, and indirectly, of listed markets too. Transaction prices have recently firmed up (+5% in one year), indicating that sellers are in less forced situations, helped by stronger listed markets and a decreasing denominator effect. This could mean that the opportunity window might be slowly decreasing for secondary buyers. Investors still expect to increase their allocations towards Private Debt, Infrastructure and Secondary funds.

Not withstanding the foregoing, we have observed significant activity in the secondary market. One of our recent secondary fund investments, Lexington Capital Partners X, a 2022 vintage global fund, has called 30% in the last 6 months. Since inception the fund has committed to invest over 10 billion USD, representing more than half of its total fund size.

Our initial secondary fund investment, Altamar Global Secondaries IX (vintage 2018) has distributed 115% on contributed capital after a span of 5,5 years.
Including the last distribution at the end December, the fund’s net IRR stands at 17%, while its total value to paid-in capital ratio reaches 1,85x.

Recent allocations by Portolani include:

  • Altamar Capital Partners Secondaries V, a leading midmarket secondary investor with the majority of transactions being GP-led US deals.
  • Capital Dynamics Global Secondaries VI, a leading midmarket secondary investor with the majority of transactions being European LP portfolios.
  • Committed Advisors CASF IV: we have secured an attractive direct transaction on this 2019 vintage, which enabled some clients to invest at a material discount into a past vintage which is performing well. This transaction is acquired from a French single family office.

2024 allocation:

  • We are reviewing several semi-liquid funds which enable you to invest 100% capital upfront, and manage potential medium-term liquidity based on your personal needs. These funds tend to be highly diversified and create value steadily over the medium term (approximately 3-5 years). EQT is launching their new EQT Nexus fund in this space.
  • We will quickly follow through with selected funds in the Venture Capital, Infrastructure, and Secondary spaces.

Upcoming Meet the Manager:

  • Please book the 25th of January in your agenda to meet our upcoming European Private Debt. More information will follow soon.

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