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ProShares Global Listed Private Equity ETF (PEX)

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  • Mon, Mar. 30, 8:09 AM
    • David Swenson - the investment manager of the Yale endowment - ushered in the private-equity era nearly three decades ago with his success in allocating part of the portfolio to "alternative" assets, writes Andy Kessler. The so-called Swenson model has been widely copied since, and last year 765 P-E funds raised $266B, up 11% from 2013.
    • Private-equity, however, has peaked, argues Kessler, noting a number of reasons, among them the ending of the three-decade-plus decline in interest rates, a slowdown in bank lending for the leveraged deals upon which P-E runs, and the threat of tax reform in which interest rate deductions for debt could be targeted.
    • Most importantly though, says Kessler, P-E is an economic growth killer. Buying out a drugstore chain and loading it with debt isn't investing in the productivity of the economy. Instead, it does just the opposite - generating wealth for the endowments and pension funds invested, but destroying it for the economy.
    • Kessler throws in one more reason P-E is done: The industry is fresh out of big targets. The bust of Energy Future Future holdings means utilities are out, and what's left in food following the Kraft purchase? Tech? Forget it, as the money required to service debt squeezes out what's needed for R&D.
    • Among those reading this morning: BX, KKR, CG, APO, FIG.
    • ETFs: PSP, PEX
    | 12 Comments
  • Thu, Mar. 26, 11:37 AM
    • Private-equity buyouts of $17.14B YTD are at their lowest level since 2012 as banks - with regulators looking over their shoulders - cut back on the amount of debt they'll extend for takeovers. Leveraged loan volume this year of $26.5B is 82% less than the same time frame in 2014, and the lowest since 2009.
    • Fewer and smaller deals, along with less leverage means less risk, but also means lower returns for buyout firms. It also means lower prices for sellers.
    • “The limitation on leverage has taken away some buying power and in some cases, created a gap between sellers’ expectations and the price that private-equity firms can justify paying,” says Carlyle Group's (CG -1%) Pete Clare.
    • According to S&P Capital IQ, 21% of P-E deals this year have been financed with leverage at or above levels deemed risky by regulators; that's down from 35% in Q4 and 60% in Q3.
    • Along with Carlyle, Blackstone (BX -0.9%) in its annual report warned leverage restrictions could hurt its business. Apollo Global (APO -1.7%) and KKR (KKR -1.2%) included similar language in both their 2013 and 2014 filings.
    • Source: WSJ
    • ETFs: PSP, PEX
    | 3 Comments
  • Wed, Feb. 25, 11:51 AM
    • Undeployed capital, or dry powder at private-equity firms, hit a record $1.2T last year, according to Preqin, and since the investors who committed this money are already paying fees, the pressure is on invest it at a time of high prices. Global average exit multiples hit 12x EBITDA last year, the highest since 2008, according to Reuters.
    • "Prices are as high as they ever were," says Ralf Huep, General Manager at Advent. "There is ample capital to be invested and a lack of target companies. The dry powder is too much for what (the industry) gets going every year."
    • Funds need to be creative is the consensus at an industry conference in Berlin this week.
    • Previously: Blackstone eyes Buffett with envy, looks to move in on deals (Feb. 25)
    • ETFs: PSP, PEX
    | 1 Comment
  • Tue, Jan. 27, 10:35 AM
    • “Challenges in energy and credit are likely to damp results,” says BofA's Mike Carrier, who expects the strongest quarter at Blackstone (BX -0.8%) and the weakest at Carlyle Group (CG -0.8%).
    • A Bloomberg survey of analysts finds them seeing a 73% Y/Y profit decline at Carlyle, 63% at Apollo Global (APO +0.2%), 60% at KKR (KKR -1.4%), and Blackstone - the most diversified - at just 32%.
    • The P-E industry is entering the later stages of a selling cycle which began in 2012 and has made investors a fortune, but now is under pressure to put a whopping $1.2T to work. It should find ample opportunity in the energy sector.
    • ETFs: PSP, PEX
    | Comment!
  • Thu, Jan. 22, 1:14 PM
    • "The pace of change has been surprising," says Igor Rozenblit, the SEC's co-head of private-funds compliance, noting P-E firms have put a stop to some of their worst violations, but still have room for improvement.
    • The SEC last May said it found illegal fees or severe compliance shortfalls in more than half the P-E firms it reviewed starting in 2012.
    • Firms including Blackstone (BX +2.9%) and KKR (KKR +2.9%) have ended the collection of certain fees, begun disclosing previously hidden charges, and refunded some bills to investors.
    • A report in the WSJ from last night, says KKR refunded money to investors in some of its buyout funds after the SEC found they had been overcharged.
    • ETFs: PSP, PEX
    | 1 Comment
  • Tue, Jan. 6, 2:38 PM
    • One of today's worst-performing sectors as oil tumbles below $48 per barrel is private-equity. It was late last year Blackstone's Steven Schwarzman told investors he was itching to buy into the dive in energy, a promise he made good on in the first session of this year. In general one would think the plunge is a good thing for the opportunistic types who manage these companies.
    • In late December, it was estimated buyout firms had lost a combined $11.7B in 27 publicly traded oil producers since June, and that was with oil nearly $10 higher than it is today.
    • ETFs: PSP, PEX
    • Other individual names: KKR (KKR -2.1%), Fortress Investment (FIG -2.7%), Apollo Global (APO -3.5%), Oaktree (OAK -3.9%),  The Carlyle Group (CG -2.8%), Ares Management (ARES -1.8%).
    | 1 Comment
  • Dec. 30, 2014, 12:16 PM
    • It's getting harder for pension funds, endowments, and wealthy individuals to put their money into the most sought-after P-E funds, writes Dawn Lim in the WSJ. As of Nov. 13, according to Preqin, 55% of roughly 280 funds for which there was hard-cap data had reached or surpassed their maximum size vs. 43% last year, and levels half that amount a few years back.
    • Preqin data also show fund-raising is getting quicker - it took an average of 16.4 months to raise capital for funds closed this year, two months shorter than the time it took in 2013.
    • Private-equity is also on track to return record amounts to investors this year, and with net annualized returns nearly doubling that of the S&P 500 over a 10-year period. It's no wonder investors are rushing to put this money back to work in new funds.
    • ETFs: PSP, PEX
    | 5 Comments
  • Oct. 29, 2014, 10:05 AM
    • At issue, reports Reuters, are how net returns - also known as net IRR - are reported in private equity firms' marketing materials. Typically, net IRR deducts investors' fees and expenses, but P-E fees are not standard, and different investors pay different amounts.
    • By including the general partner's money in the calculation - they don't pay any fees - the performance figures would be inflated, and the SEC is investigating whether this is being properly disclosed.
    • The SEC has already been looking under the hood of the P-E industry - mostly regarding fees - but the emphasis into these performance figures signals a new phase in the probe.
    • A Reuters review finds Blackstone (BX +0.2%), Carlyle Group (CG -0.3%) - for example - do not include money coming from general partners in their IRR calculations, but Apollo Global (APO +0.1%) does.
    • ETFs: PSP, PEX
    | 1 Comment
  • Oct. 19, 2014, 10:08 AM
    • Remember last summer's private-equity legal settlements which ensnared sector names like Carlyle Group (NASDAQ:CG), Blackstone (NYSE:BX), KKR, and the P-E arm of Goldman Sachs (NYSE:GS) for colluding to keep a lid on the prices of buyout targets? Needless to say, management didn't bear the burden of the settlement penalties, but neither did the shareholders. In the case of Carlyle at least, the $115M fine was shouldered by the investors in one of its buyout funds.
    • Those investors include state and city workers and retirees from across the country, and chances are they were unaware they were responsible for these costs due to the highly secretive nature of the agreements made between P-E and the pension funds which invest in them.
    • Disclosure "would cause substantial competitive harm," says a Carlyle spokesman. “This is an overreach on Carlyle’s part, and frankly it violates the spirit of the indemnification clause of our contract,” says NYC Comptroller Scott Stringer, who oversees three city pension funds invested in that particular Carlyle vehicle.
    • Private-equity firms now manage $3.5T in assets, and pension funds have been among the more willing investors, with 10% of their assets - or $260B - in P-E. Yet the terms of their deals - including what they're paying to take part - are hidden from view despite open-records laws demanding just the opposite.
    • “Hundreds of billions of public pension dollars have essentially been moved into secrecy accounts,” says former SEC lawyer Edward Siedle. "It’s very damning legal boilerplate that sums up the fact that they are the highest-risk, highest-fee products ever devised by Wall Street.”
    • ETFs: PSP, PEX
    | 6 Comments
  • Aug. 6, 2014, 3:34 PM
    • The deal which could be disclosed in coming days calls for China Life to pay $250M for an ownership stake of between 2% and 5% in P-E firm TPG, reports the FT. The sale would be the latest in TPG's efforts to raise so-called permanent capital from investors as it decides whether or not to pursue an IPO.
    • It would also be the first Chinese investment in the P-E industry since CIC got smoked (at least initially) taking a $3B stake in Blackstone at the top in 2007.
    • The move is consistent with China Life strategy to diversify its investments into overseas markets, says analyst Chen Xingyu.
    • ETFs: PSP, PEX
    | Comment!
  • Jun. 11, 2014, 3:30 PM
    • “I’ve seen retail come in and out of this asset class at exactly the wrong time for three cycles,” says Apollo Global's (APO +0.9%) Josh Harris. “This is about the time that retail floods in right at peak multiples and gets hammered, and then at the first sign of trouble flees.”
    • Presenting today at the Morgan Stanley Financials conference (earlier coverage), Harris isn't buying the pitch of Blackstone's (BX) Steve Schwarzman and Carlyle's (CG -1.9%) David Rubenstein that mom-and-pop investors are going to be significant contributors to P-E assets under management.
    • "I think some of what you’re seeing is simply a [up] cycle," says Harris, "and it will turn around a bit ... We're going to be disproportionately an institutional platform."
    • ETFs: PSP, PEX
    | Comment!
  • Jun. 5, 2014, 10:03 AM
    • High-fliers in 2013, the private equity names have struggled this year, but Oppenheimer is a buyer on the dip as the fundamentals remain strong. The team's favorites are Carlyle Group (CG +0.5%), KKR (KKR +0.7%), and Fortress Investment (FIG +0.9%).
    • ETFs: PSP, PEX
    | 1 Comment
  • Apr. 25, 2014, 7:56 AM
    • Private equity firms have been aiming to reach a new group of investors, and KKR is making it happen, teaming with Nasdaq OMX (NDAQ) to form an exchange in which investors can sell a portion of their stakes in KKR buyout funds. KKR is likely to file regulatory paperwork as soon as this month, reports the WSJ.
    • The institutions and wealthy individuals who invest in P-E buyout funds (with minimums of millions of dollars required) typically must agree to have their money tied up for a decade or more, but this deal will allow them to sell smaller investors slices for as little as tens of thousands of dollars - the investors can cash out earlier than usual and the P-E firms get a far broader range of investors.
    • The already-public listings of P-E firms on major exchanges - with BX, CG, APO, FIG for instance, joining KKR - offer mom and pop investors shares in the parent companies rather than the individual buyout funds.
    • ETFs: PSP, PEX
    | Comment!
  • Apr. 8, 2014, 12:27 PM
    • With private-equity deals getting larger again - witness Blackstone's (BX) agreement to buy Gates Global for $5.4B - club deals are coming back into fashion.
    • The $1.6B in equity needed for the Gates purchase is more than even Blackstone wants to commit to a single deal, and - after a partnering deal with TPG fell through - Blackstone is canvassing fund investors to help pay. Club deals were popular amid the pre-crisis buyout boom, but have fallen out of favor since.
    • At issue are the returns from investing in these vehicles. A study of 600 buyouts over a 3-decade span found they delivered an IRR of 16.5% - not too shabby. However, by introducing adverse selection - i.e., the chance investors might pass on or might not get invited into the tastiest deals - the return drops to less than 1%.
    • ETFs: PSP, PEX
    | Comment!
  • Apr. 7, 2014, 1:28 PM
    • The private-equity industry largely escaped regulatory scrutiny prior to the financial crisis, but no more after Dodd-Frank mandated greater oversight of asset managers. According to a Bloomberg, an SEC review finds more than half of P-E firms inflate fees and expenses charged to portfolio companies, raising the prospect of a wave of sanctions from the agency.
    • Last month, the SEC filed a case against Clean Energy Capital and founder Scott Brittenham, accusing them of misusing more than $3M in funds. The money, says the SEC, should have gone to investors. Clean Energy denies the accusation.
    • “The industry is going to be forced into change because, frankly, when your big investors are public plans and other money that’s run by fiduciaries, you can’t afford as a business matter to be deemed to be engaging in fraud,” says attorney Barry Barbash. “Fraud doesn’t sell very well.”
    • ETFs: PSP, PEX
    | 1 Comment
  • Apr. 3, 2014, 10:54 AM
    • Acknowledging the Street is already way long the stocks, Bernstein nevertheless starts coverage of Apollo Global (APO), Blackstone (BX), and KKR with Outperform ratings, noting P/E multiples of 11x for alternatives is way below that of traditional asset managers at 16x (a fact also noted by Blackstone's Stephen Schwarzman).
    • At current valuations, says analyst Luke Montgomery, investors are paying only for cash flows from existing funds and get the going-concern value and any positives from yet-to-be-launched funds for free. "More important, they get a free option on the significant growth opportunities we see for these firms."
    • “Their advantage is extremely difficult to replicate, which means these firms have a large halo effect and are operating in a league of their own with little competition in their path. Meanwhile, the larger scale of these firms is generating outsized cash flow that is supporting a push into higher growth, less scale-constrained strategies, like credit and real estate."
    • Apollo is Montgomery's "Credit Growth Play," while Blackstone is "The Innovation as Cycle Muting Play," and KKR is "The Economies of Skill Play." If he had to pick from among the three, it would be KKR given valuation and its differentiated strategy.
    • Previously: Positive P-E sector coverage launched at Bernstein
    • Related ETFs: PSP, PEX
    | 5 Comments
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PEX Description
ProShares Global Listed Private Equity ETF seeks investment results, before fees and expenses, that track the performance of the LPX Direct Listed Private Equity Index.
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