Investing Outside ‘The Dot’ Rethinking the Case for Alternatives

PROBLEM STATEMENT: Since its inception, the modern stock market has created significant value for companies and shareholders alike. The benefits of public equity investing - uniform accounting standards, strict listing requirements, and a high degree of transparency - have, at least in theory, made it possible for average citizens to participate in a broad global economy and to share in economic growth to a degree that was previously impossible.

Despite its benefits, the U.S. stock market no longer holds the same opportunity for investors that it once did. A significant decline in the number of listed companies, flattening returns, and a general lack of diversity among listed companies has resulted in new and novel approaches to creating wealth; nearly all of which lie outside of public markets. So why aren’t people taking advantage of them? The wealth management industry often compounds the problem. Sure, many advisory platforms are adopting new technology, but most advisors seem stuck in a bygone, “one size fits all” era relying on the same backward looking models, narrow investment funnels, and outdated fee structures that they have for the better part of the last century. In other words, we’ve painted ourselves into a tiny investment dot that no longer fits the times.

Less sophisticated investors may have no choice but to accept this sub-optimal investment environment, with lower returns, increased danger of systemic risk in the equities markets, and low interest rates rendering fixed income securities as a much less effective tool for diversification. However, more sophisticated investors may be missing out on investment opportunities with superior reward- to-risk ratios if they limit themselves to the increasingly shrinking and homogenizing universe of publicly traded securities.

It is tempting, when faced with the issues in the public markets, to look to private equity and venture capital as potential saviors. While those asset classes have successfully captured a great deal of the value lost to the public markets, their investment approaches still involve a narrow constraints. Private equity in particular tends to invest in large private corporations that share many of the same characteristics as public companies. The private equity approach also shares many of the limitations that plague public markets. This leads us to a few important questions: What investments exist outside the dot we’ve all been painted into by traditional Wall Street? How do we find a map? Where will our explorations lead us?

We believe that the answers to these questions lie in a broad exploration of the alternative investment frontier and we constantly push ourselves to Think Outside the Dot.

BACKGROUND

Well before ventures like the Dutch East India Company in the 1600s, investors pooled their capital to share the risks and rewards of ventures that cannot be easily financed by individuals. Throughout history, stock exchanges provided companies the ablity to raise capital for expansion and have likewise provided the public the opportunity to increase their fortunes by purchasing pieces of companies. Initial public offerings (IPOs) have historically been exciting events, with some even evoking the air of a Hollywood blockbuster premiere. And like that premiere, only a few lucky investors get invited to the party.

Once a teeming pool of activity, the number of companies listed on US exchanges has declined precipitously. Although it is difficult to make an accurate count1, according to the University of Chicago Center for Research in Security Prices, the number of investable public companies peaked in 1997 with a total of 7,439. Since then, that number has dropped every year except 2014. By the end of 2017, the number of investable public companies dropped by more than half to approximately 3,600. Jay Clayton, the Securities and Exchange Commission ("SEC") Chairman, stated that “the reduction in the number of U.S.-listed public companies is a serious issue for our markets and the country more generally.”

The Wilshire 5000, ostensibly named for the number of issues it contains, has not had 5,000 domestic stocks listed on the index since 2005. Financial economist René Stulz estimates that “by 2012, the U.S. had more than 5,000 too few listings given the size of its population, its economic development, its financial development, and its respect for shareholder rights.”1 While the U.S. population

 1 Numerous factors play into how many stocks are included in academic analyses of the investable “public company” universe. This example pulls from the University of Chicago as well as the Wilshire 5000, which shows an aggregate of approximately 3,600. Other calculations can include thinly traded stocks and/or multi- national corporations which trade exclusively on the US Exchanges but are domiciled elsewhere. The count can also be influenced by methodology and timing; some aggregates do not exclude M&A activity or delistings in a given time period. For our purposes we reference multiple sources to highlight the dramatic decrease of public company activity, while relying most frequently on a conservative, inclusive number of “listed companies” 5,343 which we believes shows the broadest opportunity set, while still highlighting the limitations. Increased from 219 million to 324 million in the 40 years between 1976 and 2016, the number of listed firms decreased from 23 per one million inhabitants to 11. In terms of percentage decrease, that puts the U.S. in the same company as Venezuela.

Consequently, the pool has gotten very crowded!

Why Is the Universe of U.S. Public Firms Shrinking?

The U.S. public markets are not shrinking due to a lack of qualified companies. It is estimated that both the total universe of firms and the number of firms eligible to list in the U.S. actually grew by roughly 7.5% in the period between 1996 and 2012. Rather, consensus points to three primary explanations: the regulatory environment, the explosion of mergers and acquisitions, and more varied sources of capital to fund expansion.

Regulations

The Sarbanes-Oxley Act of 2002, passed in response to accounting frauds during the 1990s, added to the reporting and liability requirements imposed on public companies. Many believe that the increased auditing provisions specifically and disproportionately hurt smaller companies, leading them to seek other sources of funding rather than going public. According to S&P Global Market Intelligence, prior to the Sarbanes-Oxley Act, the average age of a company at the time of its IPO was 3.1 years. Now it’s more than 13 years. While the decline in public companies began well before 2002, it’s likely that Sarbanes-Oxley Act has contributed to delayed listings by smaller firms.

Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 significantly changed U.S. financial regulation. Dodd-Frank contributed to reduced returns on equity for certain products, causing banks to raise prices or shrink various businesses. This created an opportunity for alternative lending sources, often referred to as “shadow banking” – generally defined as lending conducted by non-bank financial intermediaries that provide services similar to traditional banks, but not subject to the same oversight.2 These shadow banks create value for their investors, but tend to operate outside of the public markets.

Mergers & Acquisitions

In any given year, the number of companies listed on the stock exchanges drops if more companies delist than new firms acquire a listing. The largest contributor to the decrease in listings is the enormous number of mergers and acquisitions (M&A), and M&A activity shows no signs of slowing down. 2018 was the third-busiest M&A year ever with more than $3.8 trillion in globally announced deals.3 As of the end of Q3 2018, deals announced involving American companies represented over $1.3 trillion.4 In addition to reducing the pool of publicly listed companies, the surge of fewer, larger companies in the public markets due to rising M&A activity could lead to industry concentration.

New Sources of Capital

With an expanding number of companies delisting, fewer and fewer are taking their place. Raising capital through the public markets, once the only option for large scale growth, created a sort of democracy amongst investors. Now companies seriously consider whether going public is worth the loss of control and increased reporting and scrutiny. Increasingly, the answer is no. In fact, private capital received by startups four or more years past their first financing round has increased by a factor of 20 since 1992.5 One analysis found that “of those startups first funded prior to 1997 that were able to go on to raise at least

$150 million, 83% did so by going public. By contrast, 64% of those startups that have reached this milestone since 2000 have been able to do so while remaining private.”6 Venture capital firms are able to bypass public markets entirely by selling their holdings directly to existing public companies. This gives young companies the global reach they need to expand without going public, as seen with the the purchase of WhatsApp by Facebook. As of 2017, only 15% of venture capital exits resulted in IPOs.7

Companies who do go public are doing so later in their lifecycles. Over the past 20 years, the median age at which a company went public increased by 37%– from eight to 11 years old.8 Take the case of Amazon’s IPO in 1997 versus Facebook’s in 2012. Jeff Bezos took three-year-old Amazon public with an enterprise value of approximately $600 million. In the subsequent five years, early public investors experienced a 12-fold appreciation in Amazon’s stock. Mark Zuckerberg, on the other hand, delayed Facebook’s IPO until the company was eight years old. Founded only 10 years after Amazon, Facebook’s market value at the time of its IPO was more than $100 billion. In order for Facebook IPO shareholders to replicate the returns of Amazon IPO shareholders, Facebook would need to reach an extraordinary $70 trillion market cap.

This is not an isolated example. Many tech unicorns, privately-held startups valued at over $1 billion, – Uber, Airbnb, Pinterest – to name a few, have delayed going public or have decided against listing altogether. Some companies have even gone in the other direction – publicly traded companies buying back their own stock in order to go private has become increasingly common.9

Many U.S. tech firms have delayed going public (as of August 2018).

 These trends benefit the private market at the expense of everyday investors. The opportunity to realize gains on the scale of early Amazon shareholders becomes all but impossible as the IPO pipeline slows to a trickle. Andrew Boyd, the Head of Global Equity Capital Markets at Fidelity, echoes this point:“the pre- IPO market has become the IPO market of the past, but it’s only available to investors such as venture capital firms, mutual funds and hedge funds able to put up large amounts of money that once were only available through public markets.”10

What Does This Mean for the Public Markets?

“No longer the promised-land for companies poised to grow, the public stock market is quickly becoming a holding pen for massive sleepy corporations.”11

Average markets caps matched by declining revenue growth (Sources: Center for Research in Securities Prices, University of Chicago Booth School of Business, and S&P CapitalQ).

Accounting for inflation, the average size of a U.S. publicly listed company has increased fourfold over the past 20 years.12 While total market capitalization doubled between 1996 and 2016, the average age of a public company grew by more than 50%, from 12.2 years to 18.4 years.13 With microcap, small-cap, and midcap stocks seemingly going the way of the dinosaur, it’s difficult to consider the public markets a source of diverse investments.

At the same time, the stock market has displayed growing levels of correlation. In recent years, the correlations between S&P stocks increased at a greater rate than at any time in the past 40 years other than 1987. In 2011, various sectors of the S&P 500 displayed a 95% degree of correlation, which means they essentially moved in lockstep. As stocks also tend to become more highly correlated in periods of volatility, one has to wonder if increasing volatility is also on the horizon. In fact, we’ve already started to see this happening. In January 2018, the S&P went down by 7% over the span of two weeks only to increase by nearly the same amount in the subsequent month. In December 2018, the S&P lost a whopping 16% of its value only to regain most of it by the end of the following month. Instances such as this point to a troubling degree of volatility.

S&P500 average stock correlations have surged since January 20xx (Source: FactSet, Goldman Sachs Global Investment Research).

 Relatedly, stock market dispersion – the average difference in monthly returns across all stocks – has declined. All of this speaks to a market with declining diversity and, along with it, declining portfolio protection. In the past, equity stocks could provide exposure to earnings growth while protecting against idiosyncratic business risk. As increasing numbers of “growth stocks” relocate to private portfolios, the public markets lose the diversifying effect they offered. With less and less of a difference between the “winners” and the “losers,” skilled stock picking becomes virtually impossible.

It has become increasingly difficult for actively managed accounts to outperform a given index and investors have moved trillions of dollars to passive or indexing strategies. Passive investing replicates the returns of a given benchmark as well as to maximize returns by minimizing the costs associated with buying and selling stocks. By the end of 2017, passive investments represented nearly 45% of all equity assets in U.S. mutual funds and ETFs. This is a sharp rise over the previous ten years; at the start of 2007, passive funds made up closer to 20% of U.S. equity assets.14 By 2020, passive investments are predicted to account for more than half of all retail equity flows.15 Not only are these strategies less expensive, but they consistently beat the returns of actively managed funds and ETFs. Between 2001 and 2016, research shows that large-cap funds attempting to outperform the S&P 500 only succeeded 8% of the time. Mid- and small-cap funds fared even worse. The shift from active to passive investing strategies threatens to further strengthen market correlation. E-commerce, for example is vastly overrepresented in equity indices, meaning a disproportional amount of money is flowing into a small number of stocks relative to the broader market – Apple alone is included in more than 200 indices.16

The traditional method of diversifying an investment portfolio with fixed income instruments is also no longer as attractive as it used to be. With interest rates at historical lows, this strategy can substantially reduce returns and expose investors to capital losses in bonds with a longer duration. In other words, the markets themselves have evolved and our traditional methods for analyzing and allocating within them have also demonstrated limitations.

The Future of the Stock Market

“In the race to the bottom, everyone ends up last.”17

The current bull market has lasted for nearly a decade and many wonder if this kind of growth is sustainable. According to Vanguard’s chief investment officer, Greg Davis, the answer is no. We should not expect the stock market to continue to return the yearly gains enjoyed since the bottom of the financial crisis in 2009. Historically, the average annualized return for the stock market, accounting for inflation, is about 7 percent. But Vanguard has dramatically cut its expected rate of return for the stock market over the next decade. Davis told CNBC in February 2019 that “if we look forward for the next 10 years, our expectations around U.S. equity markets are for about a 5 percent median annualized return. Five years ago, we’d have been somewhere in around 8 percent.”18

Whether in response to market outlook or to consumer tolerance, Vanguard recently cut fees on ten of its ETF products, which are already among the lowest in the market. SoFi, the San Francisco-based company that targets young investors, signaled its intention to introduce two effectively free ETFs to its customers. And there are hundreds of ETFs out there with at least partial fee waivers.

In this era of artificial intelligence and abundant financial technology, or fintech, the fee structure charged by most financial advisors is becoming outmoded and more difficult to justify. The rise of robo-advisors – platforms that use technology to assist investors in reaching their financial goals – are able to perform routine asset management activities at a fraction of the cost. Similarly, passively- managed ETFs outperform actively-managed accounts while minimizing the costs associated with frequent buying and selling. While low-cost ETFs are a welcome alternative to the high fees charged by traditional wealth advisors, they essentially just repackage the same product in a different way. The public markets have become a food fight of sorts, with an increasing number of players dividing up shrinking pieces of pie.

While such competition may be a boon for retail investors, it further homogenizes the investment landscape. In this type of environment, there is the danger of a “race to the bottom,” with asset managers fighting for market share through lower fees, chiefly through economies of scale. In turn, this emphasis on size encourages uniform “whole market” allocations, encouraging maximization of assets under management and disincentivizing potential strategies with high return-to-risk ratios that cannot be scaled.

The Wall Street Model Is Not the Only Model

When people during the financial crisis spoke of Wall Street as “being too big to fail,” the underlying sentiment spoke of a system that is so intrinsically woven into the U.S. financial fabric, that it functionally is the system. Since the golden era of investment banking, prior to the Great Depression, JP Morgan, Goldman Sachs, Lehman Brothers, Merrill Lynch, and others have set the tone, written the rules, and determined fee structures. Perhaps it is time to start asking why?

The 2008-2009 financial crisis caused the U.S. stock market to lose nearly $8 trillion in value. During the financial crisis financial advisors, who typically charged around 1% of total assets under management (AUM), reaped in profits while their clients lost fortunes. That is not a system in which incentives are aligned. When an investment manager’s bread and butter is derived from the amount of assets they manage rather than performance, it creates a perverse arrangement in which the advisor is motivated more by networking for new clients than by creating stellar returns for his or her existing clients, at least in the short-term.

Furthermore, while financial advisors stress the importance of a diversified portfolio, their recommendations fall far short of true diversity. The big players in the asset management industry would have you believe that they have access to the entire universe of alternative strategies and managers outside of the public markets. This is simply not true. They have access to everything that exists on their platform. When large banks seek out managers to include on their alternatives platform, they are only interested in managers sizeable enough to make the banks’ needle jump. For a large, cumbersome bank, that equates to something in the neighborhood of $2 billion. There are numerous managers in the white space with brilliant strategies that will never reach $2 billion because their niche propositions do not make sense at that scale. Smarter operators don’t want to be on those platforms. Are they worth overlooking?

SOLUTION

There’s Room Outside the Dot. There are roughly six million companies in the U.S. - only 5,343 are listed on public exchanges. That is less than 1% of the total opportunity set. If you imagine a circle that contains all six million companies, the public markets are basically a dot within that circle. And that dot is very, very crowded.

Migrating from the dot: Number of companies by category (public, private, employees) in the United States. Sources: Kaiser Family Foundation 2017, Number of Private Sector Firms by Size; Bureau of Labor Statistics, Statistics of US Businesses, Census Bureau.

The writing on the wall points to real investment growth outside of the public markets. Aly Jeddy, a senior partner in McKinsey’s global Private Equity and Principal Investors Practice, reports that “…when we look at the most reputable consultants to the industry, what they are projecting, and what they are telling their clients, is that private markets will considerably outperform public markets in the foreseeable future.”19 In 2017, a record $710 billion in private offerings were sold through brokers. That’s a threefold rise since 2009.20 Highlighting this point, the SEC is evaluating policy changes that would increase the number of people allowed to invest in private companies. Currently, most private opportunities are limited to accredited investors, individuals whose net worth excluding the value of their home exceeds $1 million or meet a certain income threshold. The primary reason behind this is to protect retail investors against potential fraud in an investment environment that is less regulated and requires fewer disclosures than the public markets. While a valid concern, this excludes the majority of the population from participating where the most significant market expansion is occurring. Opening access to the private markets could reshape the financial landscape, allowing retail investors to diversify their portfolios through the addition of startups and alternative investments. 

What I Believe

In the same way that populations migrate to seek out opportunity, capital needs to migrate away from the public markets. According to research performed by Preqin, a tracker of data on alternative investments, the space will see explosive growth in the coming years – likely reaching $14 trillion globally by 2023. Alternative assets under management are predicted to grow by more than 50% in the next four years, representing compound annual growth of 8% per annum. The growth is being driven by investors’ desire for strong yield, alternative assets’ robust track record, and the declining number of listed companies in the public markets.

Migration Asset Management strongly believes in putting power back in the hands of investors: our mission is to lead the capital migration away from the narrow constraints of traditional investing to the wide open landscape of alternative investments. We seek out best-in-class managers that are overlooked by Wall Street platforms and typically only available to institutions and family offices. We seek to create resilient portfolios that hold up across multiple market cycles and that factor risk in a very meaningful way.

“Without a sense of purpose, no company,  either public or private, can achieve its full potential.”

Blackrock Founder, Chairman and CEO Larry Fink

One of Migration Asset Management’s fundamental tenets is a fee structure based solely on performance. Our goal is to create aligned incentives and true partnerships with our clients.

There’s a Lot of White Space – Where to Look?

When we talk about alternative investments, what does that mean? When people categorize alternative investments, they typically refer to an investment that falls into private equity, hedge funds, real estate, infrastructure, private debt, or natural resources.21 But in many ways, the term alternative is obsolete. According to Aly Jeddy, “there is no longer the alternative allocation that sits in the corner of a portfolio. This is a mainstay. As it becomes the mainstay, the performance expectation, or the very definition of what constitutes good performance, is changing. “22 Moreover, many of these “mainstay” investment areas are becoming nearly as crowded as the public markets. Take private equity for example, investors are allocating more capital to private equity today than in any other time in history and as a result, average purchase price multiples are at historic highs – last year, 75% of private equity transactions involved multiples that exceeded ten times EBITDA. Not only is the space congested, but it is currently priced at a level that could make it difficult to return comparable profits to the past.23

Migration Asset Management seeks out niche investments that exist away from the crowds and well outside of the dot. Two of our investment portfolio's current focus areas are alternative credit and currency trading.

 Alternative Credit

Historically, companies in need of working and growth capital turned to their only option: banks. But banks tend to be large, slow-moving, bureaucratic institutions that cannot always meet the dynamic needs of their customers. This has led to a vibrant world of alternative sources of credit and the investment vehicles that drive them. Migration Asset Management's investment portfolio currently includes two types of alternative credit: supply chain finance and asset- backed lending.

Supply chain finance is a financial transaction and a type of debtor finance in which a business sells its accounts receivable contracts to a third party (called a factor) at a discount. One of the primary reasons that businesses will factor their receivable assets is to meet immediate cash needs. These businesses are often suppliers to larger buyers, for example a company that manufactures cups for Starbucks.

The Migration Asset Management investment portfolio includes managers who offer working capital solutions for small and medium sized businesses where the transaction flow is easy to understand and very predictable. These full recourse, short-term loans are secured by receivables as well as physical collateral and other guarantees.

Asset-backed lending is where a merchant bank makes a hard money or bridge loan, in which the underlying asset is held as collateral. This kind of loan is mostly seen in real estate, and the merchant bank holds a first position on the loan; if the borrower defaults on the loan, then the bank takes possession of the asset. The Migration Asset Management investment portfolio includes managers who originate short-term, first position loans secured by real estate without using leverage.

Stringent underwriting along with strong collateral means that investments in both factoring and asset-backed lending are anticipated to provide steady returns along with protection against economic downturns.

 Currency Trading

Correlation of selected asset classes (Based on a period from January 1980 to March 2012 (1) Managed Futures: Barclay CTA Index, (2) Bonds CarCap US Agg Total Return Value Unhedged, (3) U.S. Stocks S&P 500 Total Return Index. Source: Bloomberg.

Commodity Trading Advisors (CTAs) capture investment opportunity through the price fluctuations of various futures and options markets, also called managed futures. These include commodities such as energy, metal, and agricultural products as well as financial instruments, such as foreign currency, government bonds, and equity indexes. Because managed futures have low long-term correlation to traditional asset classes such as stocks and bonds, they add diversification to a conventional portfolio.24

Some of the CTA managers included in Migration Asset Management's investment portfolio specialize in foreign exchange trading, or forex. At a high level, forex trading programs are built around specific macroeconomic tracking factors which can signal short term price anomalies. This generates buy or sell cues that aim to capitalize on these discrepancies. Consistent adherence to the programs’ proprietary algorithms, paired with solid risk management, is anticipated to create returns that are consistent and replicable.

CONCLUSION

From a public policy perspective, the SEC has its hands full balancing the shrinking public markets and increasing regulatory costs with ensuring that investors are sufficiently protected from fraud. Indeed, the subprime mortgage and financial crises that bottomed-out the equities market in early 2009 only highlighted the challenges of the current system, and further increased the high regulatory fixed costs faced by public companies, driving the continued consolidation and homogenization of the investment landscape over the past decade.

Until (and if) regulators find a solution that simultaneously protects investors while controlling the high costs that are driving the continued convergence and increased correlation in publicly traded equities, sophisticated investors are doing themselves a disservice if they continue to limit themselves to the space of publicly traded securities that has become increasingly anemic and hobbled by the major Wall Street players.

Technology will not save us either. Advances in computer science and artificial intelligence cannot replace the role of human beings in the due diligence and vetting process for alternative investments. Indeed, portfolio analysis driven by computing power overwhelmingly focuses on automating the process of analyzing data scraped from standardized accounting numbers for publicly traded companies, an approach that does not address increased correlations and vulnerability to systemic risk.

Migration Asset Management is moving past the narrow constraints of traditional investing, moving past alternative investments such as private equity that are alternative in name only, and moving towards niche, overlooked strategies and managers. By leading a capital migration into the untapped white space beyond traditional markets, Migration Asset Management is working towards potential solutions to the problems plaguing the industry.

Important Disclosures

The investment strategy, portfolio composition, and description of terms set forth herein are summary in nature and are subject to change without notice. Investors are strongly urged to carefully review the Confidential Private Offering Memorandum for funds associated with Migration Asset Management for additional information. The information in this document is confidential and is being provided for your confidential use with the express understanding that without prior written permission, you will not release this document or discuss this information contained herein or make reproduction of or use this information for any purpose other than a preliminary evaluation of the information contained herein. The information contained in this summary has been prepared from original sources and data that Migration Asset Management believes to be reliable but Migration Asset Management makes no representations or warranty, express or implied, as to its accuracy or completeness. Nothing contained herein is or should be relied upon as a promise as to value or a representation as to past or future performance.

This information has been prepared solely as a preliminary document regarding the private investment funds described herein. This summary does not constitute an offer to sell or an offer to buy securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation with respect to a fund will be made only through the Fund’s Confidential Private Offering Memorandum, including its footnotes and Membership Interest Purchase Agreement, and will be subject to the terms and conditions contained therein. This summary is qualified in its entirety by the offering materials which will include, among other things, a description of the risks associated with an investment in a private fund. In making an investment, investors must rely solely on their own examination of the Fund and the terms of its offering materials including the merits and risks involved, not on information or representations made, or alleged to have been made, or otherwise.

An investment in any of the Migration Alternatives Funds involves a high degree of risk, and investors should not assume that an investment in the Funds will be profitable. There can be no guarantee that any of the Fund’s objectives will be achieved. The following should be considered before making an investment in the Fund: NO ASSURANCE OF INVESTMENT RETURN – past results of the investment manager are not necessarily indicative of future performance of the Fund; no assurance can be made that profits will be achieved or that substantial losses will not be incurred; NO OPERATING ACTIVITY - the Funds have little operating history; LIMITED TRANSFERABILITY OF AN INTEREST IN THE FUND(S) – the interests in the Funds have limits on liquidity and restrictions on transferability and resale; DEPENDENCE ON THE MANAGING  MEMBER,  INVESTMENT MANAGER, OR GENERAL PARTNER – the members or limited partners will have no right or power to participate in the management of the fund; the members or limited partners must rely on the managing member, general partner, and the investment manager to make investment decisions in accordance with the Fund’s objectives and policies; the investment strategy is subject to change without notice; LEVERAGE – the use of leverage by the Fund or the managers of the underlying funds may increase the exposure to adverse economic factors such as significantly rising interest rates, downturns in the economy, or deterioration in the condition of any given portfolio investment.

References 

1 Stulz, René. “The Shrinking Universe of Public Firms: Facts, Causes, and Consequences,” The National Bureau of Economic Research, NBER Reporter 2018 Number 2.

2 Nash, Ryan and Beardsley, Eric. “The Future of Finance: The Rise of the New Shadow Bank. Part 1,” Goldman Sachs, March 3, 2015.

3 Mattioli, Dana; Cimilluca, Dana; and Dummett, Ben. “A Big Year for Deals—and Deal Makers,” Wall Street Journal, December 30, 2018. https://www.wsj.com/articles/a-big-year-for-dealsand-deal-makers-

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4 Stebbins, Samuel. “The 10 biggest mergers and acquisitions of 2018,” USA Today, Dec. 10, 2018. https://usatoday.com/story/money/business/2018/12/10/mergers-acquisitions-2018-10-biggest- corporate-consolidations/38666639/

5 Ewens, Michael. “The Evolution of the Private Equity Market and the Decline in IPOs,” Harvard Law School Forum on Corporate Governance and Financial Regulation, Sept. 28, 2017. https://corpgov.law.harvard.edu/2017/09/28/the-evolution-of-the-private-equity-market-and-the- decline-in-ipos/

6 Ewens, Michael. “The Evolution of the Private Equity Market and the Decline in IPOs,” Harvard Law School Forum on Corporate Governance and Financial Regulation, Sept. 28, 2017. https://corpgov.law.harvard.edu/2017/09/28/the-evolution-of-the-private-equity-market-and-the- decline-in-ipos/

7 Bloomberg Editorial Board. “Wall Where Have All the Public Companies Gone?” April 9, 2018. https://www.bloomberg.com/opinion/articles/2018-04-09/where-have-all-the-u-s-public-companies- gone

8 Wilson, Cullen and Buenneke, Brian. “The Shrinking Public Market and Why it Matters,” Pantheon, June 27. 2017.

9 Calvin, Geoff. “Take This Market and Shove It,” Forbes, May, 17, 2016. http://www.fortune.com/going- private/

10 Wilson, Cullen and Buenneke, Brian. “The Shrinking Public Market and Why it Matters,” Pantheon, June 27, 2017.

11 Wilson, Cullen and Buenneke, Brian. “The Shrinking Public Market and Why it Matters,” Pantheon, June 27. 2017.

12 Thomas, Jason. “Where Have All the Public Companies Gone?” Wall Street Journal, Nov. 16, 2017. https://www.wsj.com/articles/where-have-all-the-public-companies-gone-1510869125

13 Wilson, Cullen and Buenneke, Brian. “The Shrinking Public Market and Why it Matters,” Pantheon, June 27. 2017.

14 Whyte, Amy. “Passive Investing Rises Still Higher, Morningstar Says,” Institutional Investor, May 21, 2018. https://www.institutionalinvestor.com/article/b189f5r8g9xvhc/passive-investing-rises-still- higher,-morningstar-says

15 “Why Passive Investing Is on the Rise,” StreetAuthority, March 1, 2018. https://www.streetauthority.com/why-passive-investing-rise-30701793

16 Holmes, Frank. “Are We Headed for a Passive Index Meltdown?” Forbes, September 19, 2018. https://forbes.com/sites/greatspeculations/2018/09/19/are-we-headed-for-a-passive-index- meltdown/#79c98e9a413e

17 Holmes, Frank. “Are We Headed for a Passive Index Meltdown?” Forbes, September 19, 2018. https://forbes.com/sites/greatspeculations/2018/09/19/are-we-headed-for-a-passive-index- meltdown/#79c98e9a413e

18 Belvedere, Matthew. “Vanguard dramatically cuts its expected rate of return for the stock market over the next decade,” CNBC, Feb. 11, 2019. https://cnbc.com/2019/02/11/vanguard-cuts-expected-return- for-stock-market-over-the-next-decade.html

19 “Why investors are flooding private markets,” McKinsey & Company Podcast, September 2017. https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/why- investors-are-flooding-private-markets

20 Eaglesham, Jean and Jones, Coulter. “Opportunities to Invest in Private Companies Grow,” Wall Street Journal, Sept. 23, 2018. https://www.wsj.com/articles/opportunities-to-invest-in-private-companies- grow-1537722023

21 https://www.prequin.com

22 “Why investors are flooding private markets,” McKinsey & Company Podcast, September 2017. https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/why- investors-are-flooding-private-markets

23 Diorio, Stephen. “Private Equity and The New Science of Growth,” Forbes, March 1, 2019. https://www.forbes.com/sites/forbesinsights/2019/03/01/private-equity-and-the-new-science-of- growth/#55839cf02370

24 https://www.managedfuturesinvesting.com