Happy hump day, !

This week we dive into the Pension Funds turn into alternative assets and Private Equity.

Liquidity supply stands for playing a crucial role in a financial crisis. Recent ECB research shows how banks' demand for liquid assets spikes during economic shocks

Private Credit keep attracting more billion-dollars deals, with Abu Dhabi’s Mubadala Capital`s $10B move.

The Family Office Market keeps growing strongly from 2019 and is expected to maintain this path by 2030, surpassing $9T in wealth.

— PE150 Team

In this Issue:

• Data Dive

• Trend of the Week

• Liquidity Corner

• Deal of the Week

• Macroeconomics Corner

• This Week in History

• Interesting Articles

• Tweet of the Week

📚 Data Dive

Private Equities in Pension Funds: Underallocated?

As traditional asset classes like stocks and bonds struggle to deliver the stability and returns they once promised, pension funds are increasingly turning to alternative investments. Among these, private equity stands out as a clear leader, offering the potential for higher, uncorrelated returns and portfolio diversification. This report explores how pension funds are shifting their strategies in response to rising life expectancies, aging populations, and diminishing yields in traditional markets. While private equity has gained traction, significant underallocation persists, leaving pension funds with untapped opportunities to bolster their returns and better meet long-term liabilities.

Despite challenges such as illiquidity and macroeconomic uncertainties, the data paints a compelling picture of private equity’s superiority over public equities. Over the past two decades, private equity has delivered an average annual return of 11%, significantly outpacing public equities at 6.2%. Allocations to private equity increased from 14.5% in 2022 to 17.0% in 2023, reflecting growing confidence in its performance. Yet gaps remain—high-profile funds like CalPERS, for instance, are billions below their allocation targets. By addressing these gaps and increasing exposure to private equity, pension funds can harness its unparalleled long-term growth potential, securing financial stability in an evolving investment landscape.

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📈 Trend of the week

Family Offices — The Quiet Giants Keep Growing

The Family Office market is becoming an unstoppable force in global wealth management. Deloitte forecasts the number of Family Offices will surpass 8,000 in 2024, managing $5.5 trillion — a 31% jump from 2019. But it’s not just quantity; these wealth managers are swimming in deeper pools of capital, growing their total AUM by nearly 67% in just five years. Looking forward? By 2030, we’re talking about 10,000+ offices overseeing $9.5 trillion. In short: Family Offices are no longer the quiet little engines of wealth; they’re evolving into full-scale locomotives that will influence markets for decades.

💰Liquidity Corner

Tokenization of Private Equity Assets

Tokenization, the process of creating digital representations of assets on blockchain networks, has emerged as a transformative solution to address the historical illiquidity of private equity. Traditionally, private equity has been characterized by long lock-up periods, making it inaccessible for investors seeking liquidity. Tokenization changes this dynamic by enabling fractional ownership of private equity assets, allowing for easier buying and selling on secondary markets. As the accompanying chart highlights, the private equity and venture capital market, estimated at $7 trillion by 2030, is projected to see $0.7 trillion in tokenized assets. 

The chart also underscores the broader potential of tokenization across asset classes, from real estate funds to trade finance, illustrating how blockchain technology is poised to transform global financial markets. In private equity, tokenization not only enhances liquidity but also leverages smart contracts to streamline operations, automate distributions, and ensure compliance, all of which contribute to reduced costs and increased efficiency. With $1.5 trillion in tokenized real estate funds and $1.9 trillion in tokenized corporate debt expected by 2030, private equity’s adoption of tokenization is part of a larger trend reshaping financial markets.

🤝 Deal of the Week

Mubadala Capital’s Big Play in US Private Credit

Abu Dhabi’s Mubadala Capital is flexing its muscles beyond passive wealth management with a bold move into US private credit. The firm is acquiring a 42% stake in Silver Rock Financial, a $10 billion Los Angeles-based credit fund co-founded by Michael Milken’s family office. The twist? Milken’s team will now hold minority equity in Mubadala Capital—marking their first foray into outside investments. This isn’t just about ownership; Mubadala plans to steer Silver Rock into structured products and high-yield investments, expanding its global private credit ambitions.

Why it matters: Abu Dhabi’s shift from check-writer to asset manager is reshaping Gulf investment dynamics, with Mubadala Capital managing $27 billion, nearly two-thirds for third-party investors. What’s next? Expect more strategic expansions—and maybe a few raised eyebrows in US boardrooms.

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📊 Macroeconomics Corner

The macroeconomic effects of liquidity supply during financial crises

New research by Porcellacchia and Sheedy spotlights the pivotal role of liquidity supply during financial crises. Their findings show that banks’ demand for liquid assets spikes during economic shocks, driven by self-fulfilling waves of pessimism that amplify funding costs and suppress investment. The study integrates this phenomenon into a business cycle model, revealing how countercyclical liquidity policies—such as increasing bank reserves—can stabilize the economy. By reducing liquidity premiums, these measures lower banks’ borrowing costs, fueling investment and boosting GDP.

The takeaway: accommodating banks’ liquidity needs during downturns is not just a backstop for financial institutions; it’s a cornerstone for broader economic resilience.

🏆 This Week in History

Dissolution of the USSR

On December 8, 1991, the leaders of Russia, Ukraine, and Belarus signed an agreement at a hunting lodge in the Belavezha forest, officially declaring the dissolution of the Soviet Union. This marked the end of a global superpower and the establishment of the Commonwealth of Independent States, a loose alliance of former Soviet republics. While the agreement was described by Belarusian leader Stanislav Shushkevich as a “diplomatic masterpiece” that dissolved the union without bloodshed, it effectively ended the authority of Soviet President Mikhail Gorbachev, who resigned later that month. Gorbachev viewed the event bitterly, calling it a betrayal of his efforts to reform and preserve the USSR. For Shushkevich and the other signatories, however, the decision was inevitable as the union’s foundations had already crumbled, with secession by the Baltic republics and a failed coup further eroding central control.

Though the dissolution avoided immediate violence, its legacy has been far from peaceful. In the years following, conflicts erupted across former Soviet territories, most notably in Ukraine, where Russia’s annexation of Crimea in 2014 and ongoing support for separatists have led to a war claiming over 14,000 lives. The collapse of the USSR reshaped the global political landscape, and its reverberations continue to influence tensions between Russia and its neighbors today. What began as a quiet agreement in a secluded forest has left a complex legacy, closing the chapter on one of history’s most powerful empires and creating new challenges for the independent nations that emerged in its wake.

📰 Interesting Articles

🐣 Tweet of the week

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