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The private markets have always sold two things: access and selection, but a New York-based firm is challenging the traditional model.
At the start of the summer, private markets index manager NewVest became the first PE fund manager to launch a closed-end fund strategy on the London Stock Exchange Group’s blockchain-powered Digital Markets Infrastructure platform.
DMI lets fund managers issue fund interests as digital tokens and automate back-office fund administration, making it easier to sell stakes in funds to family offices, wealthy individuals, and other non-institutional investors, alongside the usual institutional LPs.
While this may be a first for the LSEG, NewVest launched its first investable passive private markets index fund in 2023 and has completed commitments to almost 190 private market funds.
For its flagship PE50, it identifies the largest PE funds expected to raise capital in the year and commits capital to the 50 largest funds that satisfy its pre-defined investment criteria and are open and available for the firm to invest in. Following a logic similar to that of a market-cap-weighted stock index, the commitments are capital-weighted based on each underlying fund’s target capitalization.
Instead of trying to identify outperforming managers, the model hinges on the fact that these funds usually capture more than 70% of the asset class’s capital raising in that vintage and that buying all of them, weighted by size, gets an investor close to the pooled capital-weighted net returns of the asset class as a whole without having to pick a single winner.
“Investors are always trying to find top quartile funds, but it’s extremely difficult to do so consistently since—as academic research has consistently shown—managers exhibit limited persistence of relative performance from one fund to the next. In other words, a manager’s past top-quartile performance is not in any way indicative that top-quartile performance will continue to be achieved in that manager’s successor funds,” said Edward Talmor-Gera, founder and CEO of NewVest.
For now, institutional capital accounts for about 56% of the total commitments raised from third-party investors, with the remaining coming from high-net-worth individuals or family offices. |
