DEER ISLE: Insights, Flows and Investment Trends

Is Alternative Investing Now a “0” Sum Game? 

Now that institutional “asset allocators” have, in general, reached their maximum allocations to alternatives – we are hearing that new capital for current investments is being reallocated from existing allocations.  Therefore, when an allocation (such as, in current market conditions, “Private Credit”) increases, it means that another allocation is decreasing (“Private Equity”).  This crowding out of private capital strategies has longer-term implications especially if Private Credit requires a base layer of equity to effectively be deployed.

Capital Provider Interest – Even with the large capital flows into Private Credit, there are still Pension Funds who are going through their internal process to approve Private Credit allocations.  More flows for Private Credit.

Private Credit – Credit spreads that have been as high as +650 to 700 are now coming down to +550 to 600 as competition for deals heightens and as the interest rate outlook improves.

Venture Capital Funds – We are seeing that emerging managers that have strong “brand transfer” embedded in their investment process can close capital even in this tough capital environment.Private Equity Middle Market – Companies looking for capital that have increasing revenues due to an increased number of clients have much more interest from Capital Providers than those that have increasing revenues due to increasing prices.  Increasing prices are related to the inflation effect, increasing clients demonstrate a strong underlying business model.