Onsen’s Post

Citadel’s employee fund stake triples to $9bn in four years Citadel employees have significantly increased their investment in the firm’s $45bn flagship hedge fund over the past four years, driven by strong returns and compensation lockups tied to performance, according to a report by Bloomberg. The report cites regulatory filings as showing that the combined stake of Citadel’s principals and staff in the Wellington fund rose to 20% by the end of 2023, up from 12% in 2019. In dollar terms, their investment has more than tripled to around $9bn during this period, including the holdings of Citadel’s founder, Ken Griffin. The growth highlights how Citadel is balancing rewarding its team and retaining top talent during a period of stellar investment performance. Wellington, Citadel’s largest fund, delivered annualised returns of 25.9%, resulting in higher payouts for portfolio managers, who are required to leave about half of their incentive bonuses locked in the fund for three and a half years. Ed O’Reilly, head of Citadel’s client and partner group, said: “Our employees have invested in our funds for over 30 years. The alignment of interests with our external capital partners underscores our commitment to building a lasting franchise.” However, there is a downside to Citadel’s success for investors in so far as some of the firms funds can only handle a certain amount of capital before performance starts to wane, meaning that for decades, the firm has returned profits to investors annually, including $6bn from Wellington in 2023 alone, leaving the fund with $44.8bn at the start of this year. In contrast, employees’ deferred compensation remains invested until their lockups expire, giving them an advantage as the fund grows. In addition to deferred compensation, Citadel allows principals to make voluntary investments in its funds. Over the past five years, assets in two of these vehicles, CEIF and CEIF Partners, have doubled to about $5bn. Employees pay the same fees on their invested cash as external clients. Griffin, 56, remains the largest individual investor in Wellington, with his stake in Citadel Advisors and its funds accounting for almost half of his $41.8bn fortune, according to the Bloomberg Billionaires Index. The growing employee stake in Citadel’s funds reflects a broader shift in its capital base. Over the years, the firm has replaced money from funds of funds with capital from institutional investors, such as charities and universities. By the end of 2021, institutional cash peaked at 60% of Citadel’s net assets, up from 41% five years earlier, while funds of funds dropped from 32% to 9%. Since then, employees have become the fastest-growing segment of Citadel’s investor base, rising to 29% of total assets by mid-2023, compared to 21% at the end of 2021. Meanwhile, institutions now account for 54% of overall assets, down from their peak but with their holdings still growing in value as Citadel’s net assets surged to $64bn.

AL ➕ BT 🟰🚀 Very excited to be a part of this new chapter! We will continue to deliver top-tier fund admin services to venture fund managers with the help of Josh at the helm!! #venturecapital #fundadministration #alternativeinvestments #startups #VC #fundraising #tax #accounting #finance

What’s On My Radar This Week: 1. Vista Winds Down Hedge Fund: Tech’s Gravity Shifts to Private Markets. Why It Matters: With over 8,740 private companies earning $250M+ in revenue and more than 111,000 growing mid-market companies, the best opportunities for returns are in private markets. LPs invest in GPs to tap into this potential. As institutional capital is still slow to commit to new funds, BCG forecasts HNWI investments in private equity will surge to $1.2 trillion by 2025. GPs who do not have a robust fundraising machine in place and who are unable to tap into new pools of capital (e.g., HWNIs, private wealth) will be at a disadvantage. 2. KKR’s Fundraising Supercycle: Over $300 Billion in New Capital. Key insight: Top PE firms such as Blackstone, KKR, and Carlyle are redefining the fundraising game, consistently raising capital across strategies. These elite firms understand that fundraising isn’t a periodic event that happens every 3 to 5 years—it’s a constant effort to innovate and tap into new LP capital sources. 3. TPG’s Semi-Liquid Debut: Continued Innovation in Private Wealth. The Takeaway: TPG’s plan to launch a semi-liquid private equity vehicle signals a shift towards more flexible, open-ended structures in private markets. We will continue to see more innovation on more liquid vehicles and structures to accommodate the growing interest of the wealth channel. Accredited Investors and Qualified Purchasers represent only 5% of total US households. New fund structures will be instrumental in unlocking the other 95%. Sources are in the comments

📣 OceanSound Partners Closes $1.49 Billion Fund II - OceanSound Partners, a private equity firm focused on technology and tech-enabled services, announced the close of its second fund, OceanSound Partners Fund II, LP. - The fund raised $1.49 billion in total capital commitments. - Along with co-investment vehicles and a single-asset continuation fund closed in April 2024, OceanSound has raised over $2.15 billion in cumulative committed capital. - OceanSound received support from a diverse group of existing and new limited partners, including pension plans, endowments, family offices, institutional consultants, asset management firms, and insurance companies. - The Fund was oversubscribed, with nearly all inaugural fund investors returning. - The Fund closed at its revised hard cap, above its initial hard cap of $1.3 billion and target of $1.0 billion, surpassing the $780 million inaugural fund. - OceanSound’s first fund, which targeted $550 million and closed in February 2022, was also oversubscribed. - Based in New York, OceanSound focuses on middle-market companies in government and highly regulated enterprise end markets. - OceanSound follows a structured value creation approach focusing on strategic initiatives and operational best practices. - Typical investments range from $75 to $300 million in companies with enterprise values between $150 to $750 million. - OceanSound currently manages over $3.7 billion in Regulatory Assets Under Management and has completed nine platform investments and 38 add-on acquisitions. - Its portfolio companies generate over $3.7 billion in revenue and employ over 12,000 individuals. - Joe Benavides, Managing Partner, attributed the success of the second fund to OceanSound’s differentiated investment strategy and strong execution. - OceanSound has raised two funds, returned a significant portion of capital to investors, and closed nearly 50 transactions since its inception before the COVID-19 pandemic.

It is time for asset managers to “come to Jesus” and face a new evolutionary reality of asset management.

It is time for asset managers to “come to Jesus” and face a new evolutionary reality of asset management.

It is time for asset managers to “come to Jesus” and face a new evolutionary reality of asset management.

Milwaukee, WI, June 18, 2024 -- Fund Launch Partners, a GP Stakes Fund known for its innovative partnerships with emerging fund managers, proudly announces its latest collaboration with Smart Asset Capital, a growing real estate investment firm specializing in industrial properties in Wisconsin. Smart Asset Capital marks a significant addition to Fund Launch Partners' diverse portfolio of general partnership interests. This strategic alignment is designed to accelerate Smart Asset Capital’s growth trajectory and solidify its market presence. Coupled with an investment, Adam W. Campbell and Lincoln Archibald will take on roles as Strategic Advisors, bringing their expertise on funds to Smart Asset Capital's leadership team, which includes real estate industry veterans Adam McCarthy, Brock Mogensen, and Geoff Stuhr. "Brock, Geoff & Adam are extremely well poised to capitalize on the lower-middle industrial real estate market in Wisconsin. With a proven track record and a clear vision for future growth, we are thrilled to provide them with the resources and strategic support necessary to elevate their success. This partnership aligns perfectly with our mission to back top-tier emerging managers," stated Lincoln Archibald, Chief Investment Officer. Smart Asset Capital’s investment strategy focuses on acquiring Class-B industrial assets throughout Southeastern Wisconsin, prioritizing capital preservation, predictable cash flow, and significant upside potential. The fund is targeting an initial $20 million equity raise leaning into its high cash flow strategy. Smart Asset Capital currently oversees more than $30 million industrial/CRE space and has to date delivered a realized internal rate of return of 22.8% to its investors. Their portfolio is characterized by loyal tenant bases, strategic last-mile locations, and assets with high value-add potential, leveraging trends such as the booming e-commerce sector and the reshoring of manufacturing.

Very actively and far down the road of exploring raising a new GP/LP small cap value fund. In a family account, I have a documented 4 year track record of compounding capital in the low 40%s, via a small cap value strategy. What this means, from January 1, 2020 - May 7, 2024, I turned $205K into $1.2 million. Candidly, my stock picking has been exceptional and arguably top decile, in the sub $500 million market cap. arena. That said, as good as the stock picking has been, I realized I needed to team up with a seasoned and strong portfolio manager, as being a good analyst and good PM are two different skillsets. Therefore, last May 2023, I've started working with a Family Office in Greenwich, CT to apply the model/ playbook via a small sleeve of capital ($3 million) and this strategy has worked well. I feel confident that we can scale the strategy. We have one anchor investor, who is a successful Boston entrepreneur and a few other LPs that are very interested. However, we are looking to raise an additional $5 million to $6 million, in excess of these engaged investors, to justify all of the expenses of setting up the lemonade stand. To paper this like a $1 billion hedge fund would and to hire accountants / auditors. Candidly, it is expensive, hence why we need enough starting capital before launching it. All of that leg work has been done, but again, we need critical mass to justify the expensive of setting up the lemonade stand. To be clear, capital is abundant, but finding the right capital is very tricky. We have explored conversations with wealthy individuals and a few institutions, etc. but we didn't want to work with them. We are looking for far sighted capital and for people that are serious about investing in small caps. We are looking for a 3 year commitment in order let the capital compound. Lastly, I can document all of my stock picking, as there is a public record of my writings and research and the Fidelity returns are easy to empirically document. That said, we're not looking to talk about Sharpe ratios other hedge fund consulting silliness. The process is old school, bottoms up fundamental analyses. We don't pretend we can time market or have an edge reading macro trends. This is about talking to management teams, figuring out businesses and sectors. It has a contrarian bent, albeit it artfully, as stock picking is very much an art. It is a skillset that took twenty plus years to acquire via being the trenches, on a daily basis, and taking some expensive medicine (losses). All par for the course and part of the journey to get better as an analyst and investor. At 43 year old, I'm as passionate about this as I've been, and I'm just starting to scratch the surface and only starting to get good as analyst. My best work hasn't even been sniffed ; ) If anyone is really serious about small cap value and wiling/ able to make a 3 year commitment, let me know. We targeting $1 million minimums per LP. Cheers! Michael R.

Bill Ackman Halts Pershing Square’s U.S. Closed-End Fund IPO Bill Ackman, the renowned hedge fund manager, has made headlines by withdrawing the initial public offering for Pershing Square's U.S. closed-end fund. Initially planned as a $25 billion endeavor, this offering was poised to become the largest of its kind in the United States. However, the journey encountered unexpected hurdles that led to a significant downsizing and eventual withdrawal. 🚦
 ~The Backstory Ackman's ambitious $25 billion target was slashed to a modest $2 billion after a series of critical investor feedback sessions. These meetings included one-on-one discussions and larger town halls, where concerns over current market conditions and the viability of closed-end funds were prevalent.
 ~Understanding the Market Dynamics Closed-end funds have historically appealed to retirees seeking stable income through assets like junk bonds and debt. However, recent jumps in interest rates have caused many of these funds to trade below their asset values, leading to skepticism among investors. Ackman's U.S. fund was designed to mirror Pershing Square Holdings Ltd., its European counterpart, which trades at a significant discount.
 Ackman's proposed fund would have invested in 12 to 15 major North American companies, focusing on those with substantial free cash flow and investment-grade ratings. The fund was also set to charge a 2% management fee (waived for the first year) and no performance fee, distinguishing it from other offerings.
 ~Investor Concerns and Strategic Decisions Despite these offerings, notable potential investors like Seth Klarman's Baupost Group withdrew their interest, adding to the pressure. This decision underscores the market's apprehension, with investors questioning the timing and asking whether waiting for post-IPO trading would be more beneficial.
 John Cole Scott, president of CEF Advisors, highlighted the importance of aligning fund structures with traditional equity funds to mitigate discounts and enhance investor appeal.
 ~Looking Ahead: A Strategic Pause Bill Ackman is now pausing to reassess and refine the offering, with plans to return potentially in September. This strategic pause allows Pershing Square to realign with investor expectations and adapt to the prevailing market climate.
 Kim Flynn, president of XA Investments, emphasized that the patience in delaying the IPO could ultimately be rewarded, aligning with optimal market conditions for success.
 ~Broader Implications and Future Prospects The withdrawal may have ripple effects on Pershing Square's broader strategic plans, including a potential IPO for the management company, which Ackman has projected for 2025 or 2026.
 🔍 What insights can we draw from this development, and how should investment 

strategies adapt in response? Join the conversation and share your perspectives! #BillAckman #PershingSquare #IPO #InvestmentInsights #StrategicManagement