On one of our recent internal sales calls, one of our colleagues challenged us as a group to see if we could neatly sum up where client intentions stand today as regards new product launches. Like many of these debates, it started out looking like this might be a straightforward exercise but eventually as all the different perspectives of our clients were laid out on the table it became less clear whether a succinct summing up of client intentions was possible. The best we could come up with was that intentions could probably be categorised according to three different types of clients – private market managers, distressed managers and liquid managers.
In relation to private market managers that were in the process of looking to raise new capital earlier this year, COVID essentially stopped them in their tracks from being able to secure sufficient commitments from investors and to close their funds. And if markets had subsequently remained depressed as they often would have after a normal crisis, many would have most likely abandoned any new fund raising activity indefinitely. However, the strong snap back in markets since the crisis has led to a strong recovery in investor sentiment and thus many of these funds are now out actively fund raising again, hoping to secure final investor commitments while the market remains hot.
As regards distressed managers, the opportunity to launch a distressed vehicle hasn’t looked this attractive for several years. Their pitch is that while debt forbearance and the excess liquidity provided by central banks is helping to keep many zombie companies alive for now, it’s only a matter of time before that support falls away, creating many rich pickings for any newly launched distressed funds that have plenty of dry powder at their disposal.
Lastly, the sentiment towards new product launches among the liquid managers that we work with seems to be one more of caution. The good news for them is that the strong recovery in markets has led to a corresponding recovery in existing AUM, so there is perhaps less pressure to go out and raise new assets via product launches for now. This, coupled with the fact that the risk of a significant market correction following such a strong recovery has heightened, now may not be the best time to be out marketing a new fund. Given investors disproportionate focus on the “return since inception” metric, a liquid strategy launched just after a correction is always much easier to sell than one launched just before it happens.
Just as it is with investing itself, for all of the above types of clients, timing can be everything!