Companies may use an exemption under Regulation D to offer and sell securities without having to register the offering with the SEC. When relying on such an exemption, companies must file what’s known as a “Form D” after they first sell their securities. Form D is a brief notice that includes basic information about the company and the offering, such as the names and addresses of the company’s executive officers, the size of the offering and the date of first sale.
Most alternative funds (companies) file a Form D exempting from SEC registration requirements the interest they offer in their funds. New fund offerings require the fund, and its Advisor, to file a Form D within 15 days of receiving its first investor commitment to invest in the fund. Existing fund to their previous filing. Two of the many pieces of information in these filings that are worthy of inspection include: 1) the total number of investors in the fund and 2) the total amount of invested capital.
Convergence’s Form D database includes all Form D filings dating back to 2009 and contains almost 200,000 filings. Convergence has created a rich historical time series linking these filings to the 17,700 + Advisors in our database, creating a new and unique set of observations at the market, fund type, advisor and strategy level. More importantly, our clients eliminate the time and cost required to slice and dice big data to derive value.
HEDGE FUND VIEW
Illustration #1: 3-Year View-Hedge Fund Capital Flows
In 2016, $325bn flowed into Hedge Funds. $65bn, or 20%, went into New Hedge Fund launches and $260bn, or 80%, flowed into existing Hedge Funds. Capital raised in 2016 for new Hedge Funds declined 35%, down sharply from the $101bn raised in 2015 and capital flowing into existing Hedge Funds declined 20% from the $327bn raised in 2015. Overall flows into hedge funds are down 24% over 2015, up from the 14% decline seen in the 2015-2014 period.
Illustration #2: 3-Year View-Hedge Fund Filings
Total Hedge Fund Filings grew at a 1% CAGR over the 3-year measurement period. Total New and Existing Hedge Fund Filings rose 2% over 2015 and New Fund Filings declined 6%. Filings by existing Hedge Funds rose 4% suggesting that investors are more willing to invest more capital with current managers than with new managers.
PRIVATE EQUITY VIEW
Illustration #3: 3-Year Private Equity Fund Flows
In 2016, $283bn flowed into PE Funds. $109bn, or 39%, went into New PE Fund launches and $173bn, or 61%, flowed into existing PE Funds. Capital raised in 2016 for new PE Funds increased 4%, up slightly from the $105bn raised in 2015 and capital flowing into existing PE Funds declined 4% from the $181bn raised in 2015. Overall flows into PE funds are down 1% over 2015, up from the 3.5% decline seen in the 2015-2014 period
Illustration #4: 3-Year Private Equity Fund Filings
PE Fund Filings grew at a 11% CAGR over the 3-year measurement period. Total New PE Fund Filings rose 9% over 2015 and Existing PE Fund Filings increased 11%. Filings by existing PE Funds rose 11% over 2015, suggesting additional capital was called to fund deals or additional capital flowed into existing PE funds still open. We expect to see large increases in PE capital[i] flows in coming months as investors begin making commitments to new PE funds launched in 2016.
Despite performance woes, capital continues to flow into new and existing Hedge Funds!
Although overall period-period growth is down, Hedge Funds continue drawing investors. Despite media reports of a declining industry our data shows positive net capital flows. New Hedge Fund formation was brisk in 2016 with over 1,700 new hedge funds launched. While the average amount of capital raised by these new funds is lower than prior periods, investors appear committed to the asset class.
The number of New Private Equity Funds grew significantly in 2016!
New PE Funds are projected to grow 9% over 2015, better than the 8% growth experienced in 2014-2015 and we expect to report increases in the number of amended filings in the months ahead. Growth opportunities continue for service providers seeking to grow and expand in this market.
For more information on Convergence, this report and our analytical and research products please go to our website at www.convergenceinc.com or call John Phinney @ 203-956-4824 or George Evans @ 215-704-7100.
[i] 2016 numbers are projections based on historical growth rates