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Goldman Sachs says hedge funds are more and more attempting to compete with VCs in non-public offers

Justin Chin | Bloomberg | Getty Photographs

Hedge fund participation in non-public offers that usually contain enterprise capital and personal fairness corporations has grown “enormously” lately as fund managers look to attempt to increase their returns, based on a report from the Goldman Sachs gross sales and buying and selling desk.

Hedge funds, which have historically invested in publicly-traded shares, have grow to be more and more concerned about non-public funding rounds being raised by fast-growing expertise firms over the previous couple of years, Goldman stated.

The report — titled “Hedge Funds and the Convergence of Non-public and Public Fairness Investments” — reveals that hedge funds have participated in a record-breaking 770 non-public offers with an mixture worth of $153 billion because the begin of the yr.

By comparability, hedge funds participated in 753 offers with an mixture worth of $96 billion in 2020.

In the meantime, within the decade earlier than 2010, hedge fund managers participated in simply over 50 offers per yr on common, with a peak of 117 offers in 2007.

Giant sums concerned

The variety of offers executed by hedge funds stays small relative to the exercise of different traders in non-public markets. Certainly, hedge funds have been concerned in simply 4% of the offers executed thus far this yr, based on Goldman.

That stated, the footprint of hedge funds has grown massive. They’ve invested 27% of the capital deployed in non-public firms thus far this yr, which displays how they have a tendency to put money into bigger offers.

Three quarters of the capital got here from simply 10 hedge funds, Goldman stated.

Certainly, Tiger World Administration and Coatue Administration are simply two hedge funds which are aggressively competing with Silicon Valley enterprise capitalists and different traders on non-public offers.

Tiger World has invested in over 20 European start-ups in 2021, up from 4 in 2020, information from VC evaluation agency Dealroom reveals.

Billions of {dollars} have already been pumped into start-ups like London fintech Revolut and U.S. enterprise software program agency Databricks by hedge funds this yr.

Job van der Voort, CEO and co-founder of HR start-up Distant, advised CNBC in July that there is a “lot of latest gamers out there” and that it is comparatively simple for some firms to boost huge sums.

“We might have named nearly any quantity and we might be capable to elevate the amount of cash,” stated van der Voort, whose firm raised $150 million at a $1 billion valuation in the summertime.

“Beforehand, funding start-ups, particularly early stage start-ups, was one thing that was unique to enterprise capitalists and what you are now beginning to see is these subsequent corporations like Tiger and SoftBank which are pleased to take smaller returns on longer time durations, and they also grow to be very aggressive,” van der Voort stated.

“They’ll mainly say, we’ll fund plenty of completely different start-ups at actually excessive valuation and push out any conventional enterprise capitalists.”

World outlook

Most hedge fund investments contain U.S. firms however Goldman stated it has noticed a rise within the proportion of investments in APAC-headquartered firms, notably in China, whereas the proportion of offers in EMEA has remained comparatively unchanged.

The overwhelming majority, 72%, of personal hedge fund offers, are within the enterprise capital house, Goldman stated, including that 44% may be classed as later stage and development fairness offers.

Of the 1,500 firms presently owned by hedge funds in Goldman’s pattern, 79% have just one hedge fund supervisor as a present investor, whereas 3% have over 4 hedge fund managers invested. 


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