The Future Of Alternatives From A Global Perspective W/ Shifra Ansonoff - Pt. 1

This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors.

Welcome back, Invest Like a Billionaire podcast listeners. We are really excited about this episode, and this is an interview with Shifra Amsinov. She is the global head of research at Predata.

Data superstar.

Data superstar. So, you know, as a fellow data nerd, Bob really was looking forward to this interview.

Have a data crush on Shifra.

And she did not disappoint. So she came with a about 10 slides of deep analytics and data. And so we definitely recommend, you know, you watch this episode on YouTube if you can, so you can follow along.

She came with a real macro perspective, which is really our passion as Invest Like a Billionaire experts. You know, getting the macro picture informs everything else, you know? And, you know, I started a dot-com in the mid-'90s, good time to start a dot-com. You know, I knew friends that started dot-coms in 2001, not a good time. And the point is this, that if you know what time it is and you actually invest with the wind at your back, it's a whole lot easier to make money. And even your mistakes don't matter as much as when you get the timing right. So that's why we love to focus on economics. And Shiffray is a, is an expert here. Let's figure out where the tides are going, where the big picture is going, and then it informs our investment.

And one of the really cool things about Prequin is they're not just US-focused. They're really a global organization. They have over 1,000 employees in kind of all across the globe. And so it's really this healthy, holistic picture of what are the trends happening, not just in the US, but in Europe and in Asia and emerging markets.

You'll be a much more successful investor if you understand the global markets, because America, as big as it is, is only a fraction of the global GDP and investment kind of destination. So you want to know what the rest of the world's money is doing. Right. So she, she brings the wealth of data for, from across the globe.

And if you do want to download the slides, we will have those available on our podcast website, which is thebillionairepodcast.com. You can download those. And then within the slides, she actually provided a complimentary report that you can download freebie on their alternative 2022 prediction for, yeah, amazing data. And just again, if you're enjoying this podcast, we appreciate we appreciate you subscribing on your preferred platform of choice. And if you really like the podcast, we love your support through a review. We've actually, you know, been propelled into the top 10% of podcasts, and so we're super, super grateful for our listeners and for the support you've already showed for this podcast. And lastly, if you are interested in getting notified about potential investment opportunities, we have an investor club that you can join if you go to our website, aspenfunds.us. At the top there you can see the Offerings tab and click on that and it'll take you to the Investor Club where you can sign up to get notified of potential opportunities. So with that, enjoy the episode.

Welcome to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we have a very special guest. We're very excited about Shifra Ansonoff, and she is the global head—

all the way from Singapore.

All the way from Singapore.

She is gracing us through Zoom virtually here. And Shifra is the global head of research at Prequin. And if you haven't heard of Prequin, she's going to give us a little bit of context about their firm, but they are the juggernaut of data around alternative investments. And so we thought, who better to come talk about the future of alternatives than Shifra? And so Shifra, thank you so much for joining us on this. Episode.

This is like a special moment for me. Here is a true data nerd. And, you know, and if I can say that, that is a compliment.

Oh, I love it. Geek is chic.

There you go. Well, Shiffrin, give us a little bit of background for Puigwin for some of our listeners who may not be familiar with kind of the real scale that you guys have in this space.

Absolutely. So, pre-Cuin, we've been in the business for several decades and we're— we call ourselves the home of alternatives. So we really are the go-to for market intelligence on alternative asset classes. And when we're talking about alternative asset classes, we're including private capital, inclusive of private equity, venture capital, real estate, natural resources, and infrastructure, as well as hedge fund asset classes. One of the differentiators for us is we We not only do we look at public filings and third-party sources, Freedom of Information Act. We, given the opaqueness of the market, we have a very high-touch approach where we have researchers staffed across the globe with the goal of forging relationships directly with GPs and LPs to gather information through journalistic conversations. Information that isn't readily available in all markets, whether it might be on the allocator front, what are your future plans? What are your strategies? On the GP front, what are, you know, target IRR, what are your returns on the fund level, which they don't have to divulge necessarily. So this is information we take all together comprehensively. We have 171,000 subscribers of Preqman Pro, which is our platform. And we established effectively a network where GPs and LPs can actually identify one another. They find each other on our platform. They identify what they're looking for. And we're also building out a deals database and ESG as well on the private side.

Very cool.

And how many analysts do you have on staff? There was a huge number when we said it before.

Oh, we have 400+ analysts across collecting not only the third-party sources, but also the journalistic—

You guys really are huge and a global footprint as well, which I love. I mean, I think, you know, I've traveled quite a bit and And America is where obviously most of our media comes from and most of what we read and aware of, but we live in a global world and investing, you really need to be aware of what's happening globally. So you guys have this global footprint with what, 15 offices across the globe?

Absolutely. I'm normally based in New York.

And really kind of set the context for this conversation, but the whole point of our podcast is really to illuminate this whole world of alternative investments where institutions professional investors have been investing in these asset classes for many, many decades and usually very large allocations, but kind of the average high net worth or average retail investor has not. And so that's really our goal here is just to provide the education and illumination around these things. So, you know, talk a little bit about your background too. I'd love to kind of hear, you've had kind of a very cool background working at BlackRock at one point and now the global head of research.

Yeah, so if I would summarize, several decades of my career have been spent on the fintech side. So my focus has always been either providing data or investment technological solutions to customers, institutional customers. And I had the pleasure of working with the front, middle, and back office processes on investment processes with all types of customers— insurance clients, hedge funds, asset managers heavily. My years of experience at BlackRock, I was with Bloomberg initially, and I also was with Axioma, um, very premier provider of equity risk models, portfolio optimization modeling. And then I pivoted to frequent on the alt side, completing that full circuit of all asset classes, which is great.

That's awesome. Well, let's dive in. So we first wanted to kind of dive into just the research you've done on really Future of Alternatives, you put out a great piece and we'll kind of talk about that at the end. But you talk about just the growth that you are all seeing and tracking in alternatives.

Maybe before she jumps in there, we might just say, hey, if you, if you want, stop this podcast and go pull it up on YouTube because, because Schiffer's actually provided us some great data and, and some charts. So yes, you can follow along, get some visuals here.

So yeah, actually, if you turn to slide 3, As a reference, alternative— yeah, absolutely. So alternative assets under management is approximately $13 trillion as of 2021, as of last year. And our projection is that it will grow at a CAGR of 11.7% to exceed $23 trillion in 2026. And in terms of the way that this breaks down visually, The largest segment of these assets is the private equity portion, and our representation of private equity incorporates venture capital. So approximately $5.33 trillion is the summation of the PEVC assets today.

A lot larger than real estate, and which was kind of surprising to me.

Yes, it is.

Is venture capital the largest component of private equity that you're measuring?

It actually is not. It's the way that breaks down is $3.65 trillion of that is private equity and $1.7 trillion is venture capital. The venture capital actually tripled since 2016 from— it was around $537 billion and it tripled to $1.7 trillion. We're expecting it to achieve $3.5 trillion in 2026.

Wow.

Venture capital. Yeah, venture capital. Private equity is going to run from $3.65 to $7.62 $2 trillion based on our projections. And on the real estate side, admittedly, we don't have— we recognize that we don't have all structures on PREQ&PRO, particularly if there are separate accounts. We know, for instance, the core part of the market may be underrepresented. But largely what we're seeing from a growth perspective is at least private equity venture capital will be the— is the biggest segment and will remain so. In 2026.

And is this representative of the US only, or is this kind of at a global level?

Global. Okay. Yeah.

And how much of the VC world is, is, uh, is US? How much of the— what you're measuring seems like it's got to be the lion's share.

It's, it's North America is the center of gravity, 100%, uh, I would say The top of my head, probably maybe 60% is North America. Europe has a developed market for sure. Asia Pacific is growing in leaps and bounds on the venture capital front. I believe the number was around $762 billion in assets under management for VC for Asia Pacific. That was a 20% growth last year. And we're seeing a lot of interest in Asia Pacific, not just— I know with China and the regulatory landscape and GDP growth being slow, outside of China, Singapore, India, Indonesia, South Korea, huge investments. And India is actually now challenges China in attracting VC capital. India had around 46 unicorns last year. And huge sums of money. They actually had recorded $14 billion in deals in Q3, which is a doubling of what we've seen in Q2 around 7.4. And they had— edtech is huge. Once China was closing the doors there, Byju's, Think and Learn, UpGrad Education, been huge in India.

That's awesome. Now, what is driving this growth? I mean, you know, I'm looking at your chart back just 2010, it was $4 trillion. I mean, boy, we've— it's gone. It's just accelerated so much just in 10 years. I mean, and really this whole landscape, didn't it really begin around the 1990s with the Yale Endowment and the shift into alternatives? So is the growth now, is this the rest of the world catching up to kind of what the pioneers in the US were doing? Is it really what's the big, big, big picture here of what's driving alternative growth?

Yeah, excellent question. I would say that private equity VC has the highest risk-adjusted return, um, and, and we've seen it. Endowments have done phenomenally last year, and we saw the news around that. I would say their, you know, yields are very low, uh, in the market, uh, interest rates. And even though they are going to go up, and they— in Europe, you mean, in Europe, and you're— you're negative yields. And then in the US, it's going up, like it was like 2.10, but it's still You know, it's still not at a level I would say that's giving reasonable returns. And so we definitely see that, that shift where a lot of even, you know, pension funds are taking a piece of alternatives. Increasingly, we're seeing regulations relax in a lot of markets that traditionally have not allocated. That's where the returns are.

That's where the returns are, especially when you've got negative, you're fighting negative yields, right? That's chasing capital out of traditional buckets, right? When you're, you know, do you want to pay the bank to hold your cash or maybe invest, right, in something that's going to get you some yield?

I mean, it's interesting too to see like in the last really 7 years you have here about a 10.7 compounded annual growth rate of alternatives and it's actually accelerating over the next kind of 6 years and you have it forecasted 11.7, which We've been talking about this kind of big shift into alternatives already the past 10 years, but it's actually accelerating kind of per the data you're collecting. Is a lot of that maybe more developing countries kind of coming into this, or is it still in the US still accelerating as well?

Oh, absolutely. It's developing markets. I have a slide on that. If you look at slide 7, Investing across borders, we're seeing increasingly a larger proportion— yeah, larger proportion of investors that are non-domestic investing in other markets. So for instance, Israel, we see 83% of deals in 2021 were non-domestic investors. That was up from 71%.

So, so meaning that out— non-Israelis investing in Israeli markets?

Yes. Yes.

So capital is really flowing across borders. Yeah. Same in Latin America.

100%.

Latin America as well, above 60%, and that was from 45% in 2020. And there are a few reasons for this. One, certainly in the case of Latin America, emerging markets is definitely in favor. And we run investor surveys and fund manager surveys. We see that come up increasingly. And then another reason is there are certain venture tech ecosystems very special in certain markets, like cybersecurity in Israel. For instance. And the other thing that I think personally, looking at COVID, seems to have leveled the playing field. It really didn't matter if you're 9,000 miles away, right? Where you were from Silicon Valley, although Silicon Valley, they're moving to Austin, Texas anyway. But the point is that Zoom seemed to have leveled the playing field.

Hmm. I'd love to go back to kind of the slide 3 and just break down again, because we've talked about what private equity comprises in prior episodes, but I'd love to I could just kind of hear your explanation of maybe what really makes up the lion's share of private equity. I mean, these are generally more mature companies that are either currently public and being taken private, or they can be leveraged buyouts. What are some other things that comprise that world of private equity? Because it is a very, very large piece of this growth.

Yeah, it's a large piece. Certainly leveraged buyouts is a huge component. These are longer-phase investments. We definitely are in it for the long haul. A lot less risky, I would say, than venture capital. And certainly, that's, you know, those are the components that we see there. On the VC side, if I were to compare, much higher risk, if you will, than private equity, earlier stage if you're trying to get in there.

What's driving the kind of higher risk-adjusted returns in that sector? Is it just that the leverage is so cheap right now and these are operating companies that can generate very high cash-on-cash returns? What's kind of driving that?

Amazing question. So typically we see these markets move in concert with public equity markets. So there seems to be a correlation there. We've seen the levels of We see levels coming down. A few other reasons that we see valuations high. What we've noticed is that during COVID or in the last year, last 2 years, there's been a greater interest in allocating to more seasoned fund managers. So we're seeing increasingly fund managers issuing later rounds of different investment opportunities. And there's less flows going to the earlier stage. So the, um, or like startup funds.

Sure.

And so you're paying a higher price for that. Another piece is more institutional flow is coming in. So we're seeing larger ticket sizes on average. And of course, valuations in general, that seems to be all of this triple whammy.

Very interesting. And so we've kind of heard this in other areas, but really the flight to quality and, you know, focusing on, like you're saying, the seasoned managers, Is that indicative of anything in your mind of preempting maybe volatility in the markets, wanting to make sure, reduce risk and those kind of things?

Totally. And you tend to see that in times of stress, 100%. One of the things we're also seeing that's interesting, we didn't really talk about, is that on the VC front, we're seeing actually hedge funds and private equity funds actually start to allocate VC, increasingly crossovers, um, a higher preponderance of that. I think we had 854 of those deals in 2021, and that was a rise from, I think, the 500 level in 2020. Tiger came out, Tiger Capital, and said they're investing and allocating to VC. And then we— I didn't show the charts here, but one thing we also charted is that we saw a lot more flows to the later stages like the B and the D rounds. And then, but then recently Tiger came out and said, oh, well, we want some earlier stage. Given that the values are so high, if they go earlier phase, they might actually do a little bit better.

Interesting.

Yeah, the VC markets, it may be changing here, right? With the, uh, with the, uh, return of volatility to the markets, it kind of shuts down the, uh, the exit window, right, uh, the IPO window a little bit. And also with hedge funds, you know, are, are, you know, it— hedge funds have done, you know, it's hard for hedge funds to do super well when the market has been on an unmitigated tear straight up, you know, since 20— 2009. Basically, hedge funds can't necessarily compete. But now with the return of volatility, again, I think it's likely the hedge funds are going to, are going to start outperforming again like they have, you know, in other— in previous Periods.

Yeah, yeah, we can actually talk about hedge funds too if you want to pivot there. Um, if you want, if you look at—

jump to the, the private debt because that was really interesting.

Oh, absolutely, there's a lot to talk about. Yeah, so sorry. All right, so private debt is expected to be the fastest growing asset class of alternatives, uh, 17% CAGR, growing from $1.2 trillion in assets today $2.69 trillion. Private credit is really, really hot. And it's interesting if you look at the growth is that 2020 also had a big year for private credit. And initially the thought was that, and the flows were going to distressed, that, oh wow, we're gonna, that's gonna be big. But then we had the government support. So then that sort of fizzled and now direct lending has taken over. And actually it's double the AUM of Distressed Net. So there's definitely— Wow. The other thing that's really interesting, if you look at slide 4 on private debt, on dry powder. So the dry powder is the orange portion. You can see increasingly that it's been increasing over time. It actually went up 35% to $364 billion in 2020.

Wow.

And that was the distressed. But if you look at the funds in market, 52% of funds in market as of October were direct lending.

And so the dry powder is cash sitting on their balance sheet looking for deployment.

That's 100%. But what's also interesting about this chart, what I like about it, shows how not only is it— is increasing, but it's, it's a smaller proportion of the total AUM over time. You can see that visually. And what that means is that there are Capital's being deployed. These opportunities are there.

So what's driving the growth in private debt? I mean, I'm trying to think, I'm thinking about what this is. So, you know, we're seeing a lot in real estate space. You got these bridge lenders, you know, they're taking advantage of basically a gap in the funding where the, you know, traditional funding, bank funding is not meeting the needs with with the advance rates and these kind of things. So the bridge lenders are stepping in. But what's driving this growth in private debt?

And is this mostly debt that's secured against real estate, or is it kind of encompassing all different types?

Oh, it's encompassing everything. It's not specific to real estate. So the private debt, what is a nice alternative to the public markets, particularly, you can get a much— you can get a better yield. So that's the big draw, the alternative there. And they tend to be somewhat protected actually even from inflation. You have this floating rate element to it. So your duration, it's not like a long-term bond particularly. So there are a lot of attractive aspects of the private debt market. And we're seeing a lot of deal flow there. Very, very strong interest. Um, in terms of— it's a nice alternative to have exposure as well.

Yeah, we, we had an interview with a venture debt fund, you know, a few episodes back, and, and it's very compelling because you get these really great yields, but they also— and this is, you know, lending to venture, you know, more bootstrap startups— but they also get these equity kickers. And so it's, you know, you get kind of the best of both worlds where you're getting a nice yield, you're protected for your downside, but then you do get to participate in the upside if it does happen. So I can definitely see that.

Yeah, they're getting equity-like returns but debt-like risk, you know. So yes, so, you know, definitely debt is going to have a big, big advantage in, uh, one, cash flows, right, and two, to risk mitigation.

Yeah. Talk a little bit about some of these, uh, niche strategies. I know, um, you have a great slide here on slide 5 on, uh Crypto kind of stole the show there.

Yeah, we saw the highest inflow in the niche category for hedge funds. So it's interesting, niche was one of the two categories of hedge funds that had more fund launches than liquidations. The other one was equity. The other one was what? Equities. Equity strategies. But, um, you know, in terms of what we see here, it's interesting of this chart. So Certainly before the meltdown, you know, like in 2018, we saw huge outflows on the hedge fund side. So investors were gun-shy. First half of 2020, in the throes of the pandemic, still some outflows. But given the divergence of, um, and the market dislocations, there were some good returns in 2020. So investors seem to have rewarded the asset class, and we saw some inflows coming back in second half 2020, and in 2021, we saw 11.4% return for hedge funds based on our estimates as of September of 2021, 15.5% annualized. And yeah, you know, it's— is that underperforming on an absolute basis, the public markets? But on a risk-adjusted basis, for sure they're outperforming public markets. Now, one thing that we use, I think— I don't know if you've heard of the Omega ratio. But it's like a Sharpe ratio, but it has the other moments, kurtosis, skewness. So the higher the number, the more justified you are in taking on the investment effectively. So the cryptocurrency strategies had like a 3.67 omega, which is good.

Wow.

The other niche, not so much. In a lower 2.1%. So it is kind of interesting when you look at the numbers.

Yeah, very interesting.

Yeah, you wonder if that's going to continue. I mean, who knows what the future of crypto, right? Cryptos is.

But yeah, it is interesting looking here on your chart. You have obviously the returns, net returns, but then also the 3-year volatility, which is kind of—

it's through the roof—

in kind with the returns there. it's still very, very volatile.

It's volatile. And looking at the chart, if you look at Q1 was up, Q2 was up, Q3 was down. It obviously is very volatile. And what we're projecting and we're hoping— we're very hopeful— is that if the fund managers of these types of funds can actually figure out ways of better hedging across the variations in the market, and we expect that this will be further in demand with investors. So that's what we're hoping in this coming year.

It's very difficult. Really, the financial plumbing is not really there around cryptos yet. You can't, for example, buy options or swaps that I know of, at least. I mean, they're starting to come, but they're pretty thinly traded.

Right. But it's not exactly— Yeah.

Yeah, talk a little bit now here to slide 6 on the hedge funds. So we kind of alluded to this a little bit ago, and, um, you know, Bob, you did some research on, on hedge funds and just kind of how they perform and when they perform best. And, um, you know, from our research, in, in periods of volatility, you know, hedge funds kind of outperform, kind of given the whole point of what they do. The purpose is hedging, and, you know, they have kind of underperformed, and a lot of them have underperformed quite substantially the past maybe, you know, decade or so. But it appears to be the tides are shifting a little bit. And with the volatility we've already seen kind of the first part of, you know, this year 2022, you know, what— talk about what you're seeing in the hedge fund space. Obviously we're seeing some, some, uh, net, net, uh, cash flows into hedge funds.

Yeah, I mean, on the hedge funds, we— you can't ignore the asset class. It's not the fastest growing. We're expecting it to grow from approximately $4 trillion to, you know, $5.4 trillion in 2026. We do believe, you know, it's certainly something that you should have, you know, some type of exposure to. You have to be choosy and make sure that the fund manager you're really researching credentials of the fund manager. So definitely, we believe it will continue to be in favor with the investor community.

Yeah, I would love to see the distribution, right? Because some of these guys, right, it's like you got a couple great performers, you know, your averages are going to be, you know, here you're showing the averages, but it's easy to pick a loser, right? And in this space, and the same with private equity and venture capital, right? Super easy to pick a loser.

So, and there's survivorship bias in data too, as a nerd geek like me.

So explain survivorship bias.

Yeah, I mean, the idea is that, uh, you know, you're gonna have a lot of funds that don't make it, right? And so when you look at the data and you look back at the returns, you're charting only those that do.

So they disappear from the data sets, right?

Yes. And they just, you know You're overrepresenting the markets to a certain degree, I guess.

Yeah, yeah, very interesting. So we kind of jumped to the slide a little bit ago, um, slide 7, the investing across borders. But this is really an interesting piece that we wanted you to kind of highlight, kind of given your position in the market as kind of global head of research. You know, a lot of our investor base is, you know, very limited to just domestic US opportunities and to kind of see what's going on at a global level is really fascinating and how that even drives a lot of what we see in the appetite for risk, the appetite for returns in the US and abroad.

Yeah. I mean, I think that while we said North America is the center of gravity in a lot of these markets, the need for diversification is there. Certainly. And in fact, a lot of the flows that we see coming in the Asia Pacific and other markets is coming from North America or global firms that have a footprint as well. So, you know, I see that continuing. I see that actually Asia had the fastest growth, you know, percentage-wise. It's smaller to begin with because of that. And I see it continuing and What we've proven with COVID is that it really doesn't matter and you can be choosy and discerning about where you invest. We have teams in Dubai and there are a lot of investments all over the world that our investors are starting to look at.

And what's really driving the appetite for the emerging markets? Is it again just that search for yield? What's maybe driving the comfort from maybe the other risks that you take on when you invest in emerging market?

I think it's precisely what you're saying. I think it is the search for yield because we see that when we look at a lot of companies in the US, very overvalued. So if there is an opportunity to build out something from the ground up, I mean, I remember I ran a team at one point in Argentina and I was really, really impressed with the caliber There are a lot of parts of the world that you can see amazing ideas emerge from.

Yeah, interesting.

So there's a lot of internet talk, I guess, and a lot of high-profile fund managers and others talking about China is the future and all this. And honestly, partly I want to laugh. I mean, it's like, really, are we going to put take all of our bank accounts, we're going to invest in the Chinese Communist Party controlled country. And America still is the best destination. If you look at real estate values compared to Asia or Europe on a value basis, it's still better. You look at the financial plumbing, the rule of law. I mean, America is just a great destination. And I can imagine a European searching for yield or searching for a best place to park a lot of capital. America's still going to be— it's got to be top on the choices. Are we seeing a lot of capital flows to America, is what you're saying?

Definitely. Still a lot, and that's the predominant destination for sure. And before the whole conflict that we're experiencing with Russia, I mean, Central Europe was actually a very interesting place where we were seeing money flowing. So a lot is changing for sure.

Yeah.

What's kind of the data that you're tracking with China? Because in our circles, a lot of folks are concerned that, hey, the US may lose its position as a reserve currency and the Chinese It's a very large country, obviously, large economy. And, you know, is that something that you're seeing as a, you know, a big shift over time? I mean, we're kind of on the other side of that argument a lot of times. I know Ray Dalio just wrote a book on kind of the changing world order and kind of made this case for why China is the future, right?

America's time is up.

America's time is up. And, you know, we don't really see that, but I'd love to see from your perspective, you know, what you're seeing.

I mean, actually, China was when, you know, a year ago we predicted that would have the highest growth potential. And we're actually building out teams there right now as we speak. We do believe that it's certainly a very attractive place still to invest. It's just a matter of, you know, we'll have to see how things shake out over time. And certainly our assumptions would change. Obviously, a lot of our forecasts are based on history. Right. And we have to continue to shift it. And when we were looking at our forecasts, we were too conservative initially when we were initially forecasting in the throes of the pandemic. And we reset on the real estate side. I remember we were projecting just a 3.4% CAGR back in 2020 because we felt real estate was suffering.

Sure.

As you know, and now we raised that up to 7%. Since then, and we've already surpassed the asset under management that we were predicting in 2025. So of course it's going to change with the zero COVID policy 100%.

Yeah, interesting. Well, let's maybe jump to the next slide here. You have in slide 8, so record year for venture capital.

Oh yeah, this is, this was a fun one. So it's very interesting here. You can see The chart on the left is circled. So we had an all-time high, the highest record, $187 billion in aggregate capital that was raised in venture capital globally. And that was across 1,400 funds. And if you can see the, the bars in the chart, that represents the number of funds that have been closed in venture. That's been coming down. So what that's saying is that there's more capital raised across a smaller number of funds. Going back to what we were saying before, valuations, ticket sizes, the average fund sizes have grown. The chart on the right talks about the projected fundraising. So we can see that starting in 2025, we're seeing that we'll hover above $200 billion in assets under management to achieve, I believe, $209 billion in 2026.

Awesome. And again, so venture capital is investing generally in earlier stage companies, and you're saying, you know, within that kind of private equity, you know, subset of the data on the first chart, you know, that's going to make up a big part of the growth going forward is kind of these— the venture capital side of this. Is that right?

Yeah, yeah.

Okay, yeah, that's, that's really interesting.

Flip to slide 9. That's more on the venture side. Where we're talking on the deal side, the, the level of aggregate deal value that's raised. Also, you can see $470 billion or so, and the number of deals has come down over time. Same thing, same concept, more, um, a higher deal value on an average level. And then the other chart that's interesting on the right, we actually surveyed our investors and fund managers. What is the number one challenge facing venture capital returns. And both fund managers and investors were aligned in that valuations was the number one challenge that they see. Sorry, I didn't mean to cut you off.

No, I was actually going to call attention to the fact that you've actually put in the slides a little QR code for a free download of your 2022 predictions and for alternative assets. So take advantage of that. But actually, I actually opened that up and read through that, and I was going to point out the stat you just said. And I believe the second most challenging was basically competition for deals, right? And so I can imagine all this. I mean, you've got lots of money chasing a very few amount of deals, and how many great unicorns are there really going to be? At some point it's going to be a little saturated.

Yeah, it is interesting kind of breaking down the data. I mean, it's obviously simple math if, you know, they're raising more money, but there's less deals and less funds, you know, to spread it across. Then that means valuations are increasing. You know, how much of the growth in this sector is basically just valuation growth, right? Not even, you know, new entrants of, you know, new companies raising capital, but is it purely just valuations and, What are you kind of seeing?

We see primarily valuation. It is very hard on first-time fund manager. It's increasingly very difficult. Actually, there's a chart if you flip to— for first-time fund managers, it's in the deck.

Yes, I think—

yes, slide 13. So effectively, over time, we've, we've been seeing first— now this is representing real estate, but it's the same concept is that we've seen first-time fund managers struggling. The proportion of funds closed by first-time fund managers plummeted in 2021. So what that really means to me is that you, if you wanna make it in the space and start a fund, you really need to differentiate yourself well because a lot of the flows are going to the seasoned managers. We're also seeing another interesting stat, not on there, But in 2011, first-time managers secured 54% of experienced managers' average fund size, $184 million versus $341 million. In 2021, that dropped to 31% of average fund size, so $168 million versus $542 million. So, you know, increasingly that, that's sort of how we're seeing that play out, not just in real estate but in VC, private equity as well.

Is that again just kind of the same driver to kind of de-risk a little bit and go with more experienced managers to achieve better risk-adjusted returns? Is that kind of the same concept?

Bingo. That's exactly what we think.

Yeah. That's really interesting. I mean, I know this kind of gets more into the economic side of things, but obviously when valuations get this high, a lot of times there's a reversion to the mean at some point in the private equity space and venture capital. That's interesting. I mean, it's something to keep an eye on with the valuations there.

I mean, it seems like we've entered this thing since 2009 where it's almost we've ended the business cycle or there's been an attempt to end the business cycle through monetary policy, right? And, you know, it's just keep rates incredibly low and keep incredibly the QE programs going, et cetera, and just markets go up. We love inflation as long as it's dealing with our asset prices, right? And not our consumer prices. And so it's a regime change, really, because it used to be you could see— you had a pretty clear business cycle, and it's easy to buy at the bottom. And now there is no bottom, right? It just keeps going up. So it's an interesting—

actually, you mentioned inflation. Inflation's interesting if you want to talk a little bit about that.

Yeah, absolutely.

Yeah, please. So slide 10, this talks about venture capital. So we've run empirical studies to measure the impact of inflation on various asset classes and alternatives. What's interesting is we didn't see a strong statistical significance at all with VC. And inflation. We see it more with private equity on the leveraged buyout side, right, because the cost of cash. But on the VC side, rather, we see the aftermath. So in an inflationary environment, governments will raise rates, and at that point in time, investors tend to allocate away from the riskier asset classes to interest-bearing securities, which, which makes sense. Now the Chart on the left, and it represents that as rates go up over time, you see that the aggregate capital raised goes down, although it's not a very strong relationship, as you can see there. The chart on the right shows a similar concept, but with the number of deals that have completed, and you can see fewer deals are completed in a very—

Explain that to me. Why, why, when interest rates go up and inflation, why are there fewer deals? Happening?

I, you know, valuations in general, you know, when you're—

come down—

have a higher rate, they'll come down. So, you know, that seems to be contributing there.

And this is venture capital, so it's not private equity that would have— that'd be impacted by the kind of weighted average cost of capital, or this—

well, oh, this one happened to be VC, a chart that I showed. But private equity, we do see more stronger statistical significance. Sorry, but yeah, we see a more imparable relationship there.

Yeah, very interesting. Well, you know, talk again, just kind of any other— what are kind of the bigger macro drivers you're seeing just, you know, internationally that maybe U.S. investors are maybe more limited in their understanding? I mean, something we've talked about already, but, um, you know, what are— if you kind of maybe sum up some of the kind of big picture, broad strokes thoughts on just the future of alternatives and where this is going and really where the opportunities are as investors kind of bringing this back down to a practical level. We all want to outperform on the upside and underperform on the downside. And what are the opportunities maybe for investors to look into?

Yeah, broadly, definitely on private equity, venture capital, for sure. We see a lot of potential new ideas, new technologies coming to market. I could talk a lot. I know we're going to talk about real estate, but there's certainly a lot of opportunity on the core side in real estate. Asia Pacific, I think, historically has been undervalued. I believe that there's a lot of potential there as well. I mean, there are new funds every day in Singapore being brought to market. So I think being open-minded and discerning— there's going to be a whole retailization of vaults as well, where, you know, that's a theme in the industry. So we're going to see opportunities for people to get involved with alternatives. And yeah, I mean, just keep your eyes and ears open. Hedge funds— don't ignore hedge funds. Sure.

Yeah. And just real quick, what do you mean by retailization? Is that like the crowdfunding side of things, or what do you mean by that?

There are opportunities where— these are some themes that we're starting to hear about emerging on the institutional side where we'll be able to allow retail investors to sort of have a piece of the pie, if you will, of certain types of vehicles and products with some exposure. Alternatives. It's something that we're exploring a bit right now.

Okay, awesome. Well, Shifra, this was super, super interesting. Thank you so much for all the data here. And again, for those that may be listening to this in their— in the car ride, definitely encourage you to go back and watch this on YouTube so you can follow along on the slides. And we will make these slides available to download. And as Bob Fraser mentioned, um, Shifra did us a, uh, a great service by providing a free report that you can scan with your phone. There's a QR code in the slide deck and you can get the complimentary report and it's Alternatives in 2022. And I believe there's a second one which is Women and Alternatives 2022. So free reports. Shifra, thank you so much for coming on. And, you know, listeners, stay tuned because we've got part 2 coming on another podcast episode talking all about real estate. So really excited about that one.