In late July, credible news reports said that Aon and Willis Towers Watson were in settlement talks with the government, setting the stage for a deal between the two giant firms. Three days later the $30 billion deal collapsed, with the CEO of Aon saying the companies had reached an “impasse” with the Department of Justice.

According to Kellner Capital CEO George Kellner, the busted deal illustrates many of the changes that have taken place during his four decades working in merger arbitrage. 

For one, returns in merger arb used to come from digging up fresh information no one else had on deals and companies. Over time, regulators barred analysts from talking one-on-one with companies and information started pouring out of phones, including false leads like the certainty of the Aon-WTW deal closing — just days before the opposite happened. 

The uncertainty inherent in that deal became obvious when the DoJ vehemently criticized...

Yale Investments Office has selected Matthew Mendelsohn as its next chief investment officer.  

Mendelsohn is a director at Yale, covering its venture capital investments, which comprise more than 25 percent of Yale’s total endowment, according to the university’s Tuesday announcement of the appointment.

Mendelsohn succeeds David Swensen, who died on May 6 after battling cancer. Swensen was a legendary investor, pioneering the endowment model, which involves funneling a significant amount of an institution’s capital into alternative assets.  

Over the last few months, the institutional investing industry has been waiting to see who Yale would name as his successor.  

Venture capital valuations at both the early stage and late stage surged during the second quarter, a PitchBook report shows.

According to the private market data firm, the average and median pre-money valuations at early-stage companies reached all-time highs of $105.4 million and $50 million, respectively. Meanwhile, late-stage companies recorded average and median second-quarter valuations of $882.4 million and $160 million, respectively, cementing a record first half.

The report attributed the rapid valuation growth to a positive economic outlook and cash influx from nontraditional investors, including mutual funds, hedge funds, sovereign wealth funds, and corporate venture capitalists. These nontraditional investors have been particularly active at the late stage, boosting the median pre-money valuation of their deals to $235.5 million, more than four times the valuation of deals made by traditional VC firms. 

“In 2021, the...

Both private and public markets offer access to real estate investments — but according to new research, one may be more effective than the other.

In a new study published in the Journal of Portfolio Management’s real estate issue, authors Thomas Arnold, David Ling, and Andy Naranjo found that, when compared side-by-side, real estate investment trusts outperformed U.S. closed-end private equity real estate, or PERE, funds by 165 basis points annually.

The study was based on a sample of 375 PERE funds, which the researchers compared against an index of listed REITs and an index of private real estate funds. In order to accurately evaluate performance, the authors took a “horse race” approach, matching each PERE fund’s realized return with the return that would have been earned by investors in the indexes over the same investment horizon. 

“It’s an apples-to-apples comparison,” said Arnold, the former global head of real estate at...

As allocators develop larger appetites for hot, new investment managers, they have to dig deeper into the emerging manager market to find talent.  

But not every asset owner has the resources necessary to find the next Andreessen Horowitz.  

“Institutional LPs can be overwhelmed, and a lot of them don’t have the systems in place to process at scale,” said Winter Mead, a former allocator. “They’re used to a cottage industry that looks at a few dozen investments per year.” 

Enter Oper8r, Mead’s incubator for emerging venture capital firms that aims to polish them for institutional investment. Now recruiting its third cohort, the program’s alums have since scored investments from funds of funds, family offices, foundations, and other allocators.  

On the age-old question of whether investing is more art or science, luminaries of the industry have long squared off on opposing sides of the argument.

On one side are flexible value investors like Seth Klarman of Baupost Group and Howard Marks, co-founder of Oaktree Capital Management, who tend to describe building portfolios as a craft, with the investor as artisan. In fact, Marks is supposed to have once explicitly stated, “Investing is more art than science.” These investors look for value wherever it can be found and are able to invest across markets and up and down the capital stack. That can mean public stocks, private credit, and anywhere in between as long as the risk-return trade-off makes sense.

On the other side of the discussion, we find quantitatively inclined investors. Adherents of a more systematic approach to value investing, such as University of Chicago alumni David Booth of Dimensional Fund Advisors and Cliff Asness of AQR, focus on the science...

Pensions, endowments, and other investors want to know how diverse the staff and senior management are at the private equity managers they use to deploy billions in capital. 

To do that, the Institutional Limited Partners Association, a group that includes more than 500 institutional investors, has revised its due diligence questionnaire — referred to as the DDQ — and its diversity metrics template. The documents, which are standard forms that private equity firms fill out to help investors search for and vet managers, were last updated in 2013 and 2018. Private equity general partners and investors can comment on the drafts, which will be finalized and released in the fourth quarter, up until Sept. 24.

Most of the changes concern diversity, equity, inclusion initiatives. In the DEI section of the due diligence forms, ILPA added 12 questions, including on topics such as how firms are tracking and measuring diversity, and modified...

Since 2003, only 90 SPACs, or special purpose acquisition corporations, have been liquidated, but soon there may be one more: Bill Ackman’s $4 billion Pershing Square Tontine Holdings.

Ackman told shareholders Thursday night that he plans to dissolve Tontine, the largest SPAC ever launched, give investors their money back, and offer them warrants on a new security he has developed that is a twist on the SPAC format. 

It’s all contingent on approval from the Securities and Exchange Commission and the New York Stock Exchange, which he hopes to have soon.

The news was a shock to investors who’ve endured a series of disappointments surrounding Ackman’s SPAC that, as Institutional Investor has reported, left many of them with heavy losses. The stock tumbled from its peak of $34 earlier in the year and finally went below $20, its IPO price, for the first time Thursday.

Corporations fighting to cut their carbon footprint are increasingly turning to carbon credits, a process that is becoming more navigable as verification and registration tools mature.

But behind every effort to deploy voluntary carbon offsets stands two things: an unassailable third-party standard and a registry that tracks the climate mitigating projects.

The private sector is in search of effective climate tools as pressure mounts from investors and consumers for more progress on fighting rising emissions. Carbon dioxide in the atmosphere hit another record in May this year, rising to 419 parts per million, a jump of about a half of a percentage point from the same month in 2020.

With the climate clock ticking, companies and individuals are expected to pour $100 billion into the carbon offset market by the end of this decade, up from about $300 million in 2018, according to Mark Carney, who is heading up a major private sector task force on how to improve...

After many institutions posted record-breaking performance in the latest fiscal year, some industry experts speculate that asset owners — particularly chief investment officers — will decide to go out on a good note and retire by year’s end.  

Enter the next generation, the Institutional Investor Rising Stars. These 12 allocators, who work across the U.S. in both public and private institutions, are expected to be the next best leaders for pensions, endowments, foundations, health care funds, corporate plans, and family offices.

The editorial team selected the II Rising Stars from a pool of talented allocators nominated by their peers and bosses in May and June. Each of the selected Rising Stars will be honored during Institutional Investor’s fourth annual Allocators’ Choice Awards, to be held on September 22 at the Mandarin Oriental hotel in New York City. 

Asset owners still have time to vote for their...

The majority of fixed-income managers’ excess returns come down to just two things: a bond’s life, or duration, and the quality of the company that has issued it. 

With that in mind, Northern Trust Asset Management set out to research how low-cost systematic approaches can improve potential outcomes for fixed-income investors. The research shows that using a factor-based or systematic approach can help expand the sources of return for investors, particularly as they struggle with low yields and the possibility of future inflation.

Factors are sources of return beyond what the market overall can deliver and can be increasingly accessed using low-cost funds. Factors are more widely accepted and used in equities — think of the value or growth premium. But better data, bond prices, and trading efficiency in corporate bonds has fueled a growing body of academic research on fixed income factors. 

NTAM researchers found that 70...

When it comes to environmental, social, and governance investing, regional context is imperative, according to Rayliant Global Advisors’ founder Jason Hsu.

ESG initiatives allow investors and managers to reduce their exposure to regulatory risks by avoiding companies that may not align with local policy goals, organizations Hsu called “policy black swans.” But in a recent blog post, the Rayliant chief investment officer argued that the ESG issues that plague one part of the world may not extend to another.

For instance, in China, where Rayliant is focused, major social issues include unaffordable housing prices and a low birth rate. While investors in Chinese companies may see great value and regulatory risk aversion in implementing strategies that combat these issues, investors in Western companies have little use for the strategies. And vice-versa. 

“I realized ESG has to be quite localized,” Hsu told Institutional Investor....

The pandemic was the catalyst for 100 Women in Finance’s first truly global capital introduction event to connect female fund managers to institutional allocators. 

As live events shut down around the world, the group launched Global FundWomen Week and quickly attracted about 200 female fund managers and almost 400 institutional allocators from around the world. 

The group had been hosting smaller, regional capital introduction events since 2014. Now the second annual global event — to be held September 20 through October 1 — has 300 fund managers signed up, with more than 260 people from allocator organizations registered to attend.

“This year, we’re zooming in on chief risk takers — the women who put on trades in public and private markets, alternatives, long only, across the liquidity spectrum, and across asset classes,” said Ulrika Robertsson, global committee chair of the event and co-founder of Impactus Partners, a 100...

Some of the big banks that propelled Bill Hwang’s Archegos Capital Management by orchestrating his total return swaps have been selling down the shares they ended up owning in Gaotu Techedu — formerly known as GSX — that had soared as a result of Hwang’s swaps. 

But not Goldman Sachs. While Goldman appears to have steered clear of the Archegos rout, it may have gotten stuck in the more serious China crackdown that has sent the stock down to $3 per share. 

The savvy investment bank was widely reported to be the first bank to unload the stocks it beneficially owned for Hwang as a result of the swap arrangements that allow funds like Archegos to avoid disclosure of their positions.

But Goldman, possibly on behalf of other swaps clients, jumped back in during the second quarter. This was before Chinese regulators said in late July that they would ban education firms from making profits, raising capital, or going public. The...

Investors often use the percentage of capital allocated to fixed income to define how risky a portfolio is — but that’s a faulty way to measure risk, according to a new paper by John Delaney, Willis Towers Watson’s senior investments director. 

Historically, corporate pension plan investors and other asset owners have associated less fixed income with higher risk. For instance, Delaney wrote that a portfolio composed of 60 percent equity and 40 percent bonds is often considered riskier than one that’s majority bonds.

“There’s been an emphasis on the idea that my fixed income has to track my liability exactly, and there’s flaws in that logic,” Delaney told Institutional Investor. “If I’ve got, for example, 40 percent in fixed income, and that tracks the liability exactly, that doesn’t really matter if the other 60 percent completely loses money. I’ve failed my overall objective.” 

Delaney argued that using fixed income as a key...

On a typically humid day in July, Hans Humes rode his bicycle from Brooklyn to the West Village, where we met at the quintessential Village diner, the Bus Stop Café.

The 57-year-old hedge fund manager, with his salt-and-pepper beard and cycling shirt, looked like anyone you might find having a beer at Farrell’s, a no-frills bar not far from where he lives. He sounds like a trader, too, with his profanity-endowed lexicon.

Greylock Capital Management and its founder have faced hard times, and not because they specialize in distressed debt.

After three consecutive years of losses, the fund saw some of its positions devastated in markets whipsawed in 2020 by the Covid-19 pandemic. Investors began withdrawing money from it. It’s now managing about a third of its $1.1 billion peak.

Fees on equity investments aren’t simply on a slow downward march. In fact, an in-depth analysis of multi-year data by Investment Metrics for Institutional Investor shows some counterintuitive trends in what investors pay to have their stocks professionally managed.

Between March 2018 and March 2021, the smallest pensions, endowments, and other institutional investors saw the largest rise in post-negotiated fees, according to the analysis. These institutions, which had assets between $100 million to $500 million, experienced a 5 percent increase, according to the analysis. In contrast, the largest investors, those with more than $1 billion in assets, saw a more modest increase of 2.5 percent. But institutional investors that had between $500 million and $1 billion experienced almost no fee changes. 

Damian Handzy, head of research and applied analytics at Investment Metrics, said he expected the largest funds to have experienced less of...

Pension funds that develop environmental, social, and governance frameworks without government interference tend to have an easier time incorporating those programs into their investment process. 

This is just one of the conclusions of a recently published paper entitled “The Origins of ESG in Pensions: Strategies and Outcomes,” which included an analysis of how Canada’s Public Sector Pension Investment Board has been incorporating ESG into its portfolio since 2001. 

The C$204.5 billion ($162.6 billion) fund served as a case study for researchers Judith Stroehle, the research and program lead for the Oxford Said Initiative on Rethinking Performance at the University of Oxford’s business school, and Stéphanie Lachance, a managing director for PSP’s responsible investments team. 

“We find that the regulatory environment of pensions is not always a supporting factor for the integration of ESG, and that pensions confront...

Whi Tarek Mansour was an equity derivatives intern at Goldman Sachs in 2016, he thought there had to be an easier and less expensive way for investors and businesses to hedge their risks. At the time, institutions were scrambling to hedge the implications of Brexit.

Investment banks can create complex structured instruments that align with these types of risks, but they are rarely an exact fit. 

“Institutions are buying expensive, complex products, which don’t exactly correlate to what they want,” Mansour said. “Why isn’t there an exchange where the underlying itself is the event, because events are tangible to all of us?” 

So when Mansour, who was born in Lebanon, graduated from Massachusetts Institute of Technology in 2018, he and his co-founder Luana Lopes Lara, who has a master’s in CS from MIT, decided to start their own exchange. Called Kalshi, it’s the first federally regulated exchange where participants can trade on...

Famed short seller Carson Block has a new revelation on Tesla and Elon Musk: He’s bullish on them.

Last week, Block awoke from a dream about Chamath Palihapitiya to a new insight about Musk, whom in the past he has called a “liar,” according to an investor letter detailing the short seller’s new world view, which Institutional Investor has obtained.

“The reality is that a certain amount of bullshit is necessary — even desirable — in life,” Block wrote in the letter dated August 11 from his new home in Austin, Texas, where he has relocated after more than a decade in the San Francisco Bay area.

Maybe the Texas heat has gotten to him, but the Muddy Waters Capital CEO is now is embracing Musk as a brilliant tactician. “Jedi Mastery is being able to set your audience’s acceptance level for the amount of bullshit you want to deliver. Nobody embodies this better than Elon,” he continued.

On June 13, a Reddit user calling himself Krurd posted a warning on the social media site: “Don’t buy calls on pre-DA SPACs.”

Krurd, as it turns out, is a 35-year-old unmarried Chicago psychiatrist who had invested, and subsequently lost, nearly $1 million — all of his savings — in call options on Bill Ackman’s special-purpose acquisition company, Pershing Square Tontine Holdings, before it found a merger partner and inked a definitive agreement, or DA. 

SPACs are simply publicly traded boxes of cash — blank-check companies — that exist to take a private company public via merger. Until that time, however, investors in a SPAC have no clue what they are buying. That hasn’t stopped them from rushing in.

“Just because I have specialized training doesn’t mean I can’t be just as much of a fool as the guy next door,” the psychiatrist lamented to Institutional Investor in an hour-long phone conversation in July.

In adopting environmentally-friendly portfolio strategies, investors often worry about the repercussions for returns. But Mike Chen, PanAgora Asset Management’s head of sustainable investments, argues investors can have the best of both worlds: low carbon emissions and high returns. 

For a new white paper, Chen created a simulated carbon reduction portfolio aimed at minimizing risk and limiting carbon emissions. He then compared the simulation to a benchmark, which was, in this case, the MSCI World Index. 

Although simulated performance results have several limitations, he found that cutting carbon exposure had little impact on performance up to the 80 percent carbon reduction level, while an “optimization solution,” a portfolio that yielded the highest possible returns, was possible with up to a 90 percent carbon reduction. 

“This confirms what we’re seeing across the portfolio, which is that you don’t have to give up...

It might not be a return to the glory days before the global financial crisis, but the next decade for hedge funds is looking relatively rosy.

Hedge fund research firm PivotalPath argues that a combination of better performance and an investor base with realistic expectations about what hedge funds can deliver is creating conditions for a thriving hedge fund industry over the next five to 10 years. 

PivotalPath’s composite index, which includes all of the hedge fund strategies the firm tracks, was up 11.3 percent in 2020, its best year since 2013. Performance for the rolling one-year period ending March 2021 was approximately 26 percent, ranking in the top three performance records going back to January of 1998. 

Jon Caplis, CEO of PivotalPath, said that another signal that is informing his optimistic view is an analysis of hedge fund alpha, or the excess returns managers produce over their benchmark. That’s a signal of hedge...