Impact of SEC Rule Changes for Money Market Funds Regulatory Update

Over the past year, the SEC has been phasing in regulatory changes for money market funds resulting from adopted amendments to Rule 2a-7. These amendments were passed on July 12, 2023, in response to the stress that money market funds faced at the start of the pandemic in March 2020 when investors rapidly pulled more than $130 billion dollars from money market funds. As a result, the Treasury and Federal Reserve had to step in to provide emergency liquidity facilities to shore up the short-term funding market. The changes primarily focus on institutional prime and tax-exempt money market funds, which have historically been more susceptible to investor runs.

This regulatory update summarizes these changes as well as which fund types are impacted.

The Growing Popularity of Continuation Funds

Historically, the private equity secondary market has been used by limited partners (“LPs”) to sell exposures at the end of their lives and as such contained only tail-end exposures. Selling these lingering exposures to private equity funds allowed LPs to clean up their balance sheets and fueled the growth of secondary private equity funds within the broader private equity space. As the market evolved, however, higher-quality assets began transacting as investors started to use secondary markets as a useful portfolio management tool. More recently, general partners (“GPs”) have come to occupy an increasing percentage of the overall market. In 2023, about $110 billion in volume traded in private equity secondaries, with about 50% of the total transaction activity represented by GP-led transactions.

In this newsletter, we provide an overview of continuation funds, including their growth, structure, transaction requirements, and considerations for investors.

Marquette Views on 2024 U.S. Equities Outlook Featured on FIN News

Published May 14, Catherine Hillier, Research Analyst, was interviewed for “Q1 2024: Small-Cap Equity Hiring Sees Uptick,” by FIN News (subscription required).

Catherine discussed the outlook for U.S. equity performance, particularly in the small-cap space in the article, which posits, “Publicly-traded large-cap companies continue to garner the attention of media and investors, but allocator interest is beginning to look down market to the small-cap sector.”

The article also referenced Catherine’s November 2023 newsletter, U.S. Equities: Surprising Strength Gives Way to Macro Risks, and commentary in Marquette’s 1Q 2024 Market Insights webinar, available to watch as a recording here.

Marquette Approach to Manager ESG Due Diligence Featured on FundFire

Published March 11, Linsey Schoemehl Payne, Chief Compliance Officer and Managing Partner, was interviewed for “Consultants Evolve Approach to Assessing Managers on ESG,” by FundFire (subscription required).

Linsey discussed Marquette’s approach to manager due diligence regarding ESG integration in the investment process, explaining the “second tier” of information Marquette’s questionnaire seeks out covering the team overseeing individual strategies and the firm’s record of engagement through proxy voting and shareholder resolution.

This article follows a feature published by Nonprofit News last quarter and reflects Marquette’s 25-plus-year commitment to providing clients with clear and thorough information when considering sustainable investment options.

Marquette Speaking at ALTSCHI 2024 Forum 7/22–23

On July 22–23, David H. Smith, CFAKweku Obed, CFA, CAIA, and Greg Leonberger, FSA, EA, MAAA, FCA will be speaking at ALTSCHI 2024, jointly produced by Markets Group, CFA Society Chicago, and the CAIA Association®.

Dave will be joining a panel on the 22nd entitled, “Opening Keynote Panel: Innovation Unleashed: The Rise of Total Portfolio Approach,” described as follows: As some of Strategic Asset Allocation’s shortcomings become clearer, select global asset owners have begun experimenting and transitioning to a more holistic approach to building portfolios. Total Portfolio Approach, while more a “state of mind,” than a tangible linear process, can offer improvements in culture, competition for capital, governance, and investment outcomes. How should investment professionals assess its fit for their organization and where should they begin?

Kweku will be moderating a panel shortly after entitled, “Keynote Panel: Private Market Investments – Time to Shine,” described as follows: As investors search for additional sources of revenue and methods for portfolio diversification in the volatile and changing environment, private markets stand out as an area of opportunity. The panel brings together leading alternatives investors and allocators to share the role private equity, private debt, venture capital, and more play in their portfolios and what they look for in managers to meet their objectives in these asset classes. Panelists will address risks and opportunities across capital structures, expected returns, and the operational requirements for managing the unique complexities in private markets.

On July 23, Greg will be moderating a panel entitled, “Infrastructure, Critical Materials, and Clean Energy Investments—What will the Path to Growth Look Like?” described as follows: What is the outlook for U.S. infrastructure, energy security, and critical minerals supply? What is the scope for public-private partnerships in the absence of a national development plan? There are still many questions about the measurement and due diligence surrounding ESG so how are fund managers and allocators capitalizing on the opportunities while minimizing the risks, and how can a more positive impact on the environment take shape?

ALTSCHI is developed and led by the CAIA Association and CFA Society Chicago and is specifically designed to provide relevant, education-focused content for individuals who manage, advise, allocate to, or oversee alternative investments. With leading allocating and management firms, the agenda will include topics such as global asset allocation, risk management, private markets, real assets, alternative beta strategies, private equity, hedge funds, ESG, crypto, and more. For more information, please visit the event webpage.

Marquette Speaking at Pension Bridge 2024 Private Equity Exclusive 7/23–24

Nat Kellogg, CFA and James R. Wesner, CFA will be speaking at the Pension Bridge Private Equity Exclusive 2024 hosted by With Intelligence in Chicago from July 22–24.

Jamie will be moderating a Concurrent Session – Track A panel on July 23 entitled, “Healthcare – Fighting Fit,” described as follows. The U.S. healthcare industry continues to grow, buoyed by structural changes such as an ageing population. Driven by a need to offload assets and return capital to LPs, an increase of assets is coming to market. Yet the healthcare industry faces challenges, such as rises in labor costs and margin costs, alongside ubiquitous macroeconomic headwinds.

  • What opportunities might arise from State-level healthcare transaction review laws?
  • Which subsectors of healthcare promise growth in the private equity market in 2025?
  • How might changes in Federal Trade Commission and other regulations impact allocations to healthcare private equity in the coming years?
  • How will artificial intelligence focus opportunities in healthcare?
  • How can LPs capitalize on the growth of take-privates and carve-outs in healthcare?
  • How immune is healthcare to macroeconomic headwinds?

Nat will be moderating the CIO panel closing the conference, “Private Equity and the Battle for Allocation,” described as follows: Over the course of the three days of the Private Equity Exclusive many different LP strategies will have been put to the audience. In this closing session, three leading Chief Investment Officers will determine the position of private equity from a whole-portfolio perspective.

  • To what degree does private equity stack up against increased allocations to private credit and infrastructure?
  • What are the key considerations for LPs when deciding what to allocate to PE?
  • Does the denominator effect still hold relevance in portfolios?
  • Will private equity continue to outperform public markets and under what conditions might it not?
  • When will the promise of a robust and sustainable private equity portfolio take shape again?

Now in its nineteenth year, the Private Equity Exclusive brings together thought leaders from North American LPs and GPs for networking, knowledge sharing, collaboration and relationship building. For more information, please visit the event webpage.

We’re Not So Different, High Yield Bonds and Leveraged Loans

Late last year we authored an article detailing the growing differences between the high yield and leveraged loan markets, particularly the overall quality in the high yield market versus that of leveraged loans. Today, some of those most pronounced differences appear to be abating, which should translate to a more convergent outlook for the two markets as it relates to security, structure, recovery, covenants, and ultimately, performance. With the Fed poised to begin cutting rates in 2024, we felt it was important to address these emerging trends before the start of the new year.

Greg Leonberger Speaking at Pensions & Investments Chicago Fixed Income & Credit Conference 9/24

On Tuesday, September 24, Greg Leonberger, FSA, EA, MAAA, FCA will be speaking at Pensions & Investments’ (P&I) Chicago Fixed Income & Credit conference.

Greg will be moderating a panel entitled, “What Does Diversification Look Like in the New Era?” described as follows: In a world where yields are higher and investors can access an array of fixed-income options with appealing risk-return profiles, it seems that diversification would come much easier. However, that’s not always clear cut. As more money has piled into safe haven assets, does that present concentration risk? Are there certain sectors or geographies in, say, emerging markets, that can provide uncorrelated returns? How should investors approach sectors such as CLOs, MBS, and ABS, given dispersion in issuer performance and credit fundamentals? This panel will discuss the myriad approaches to diversification and the need to remain flexible and avail of tactical opportunities.

P&I’s Fixed Income & Credit series will bring together a pan-institutional group of asset allocators to discuss a range of approaches to fixed income across the public and private markets. Whether for income generation, defensive or, increasingly, return allocations, asset owners and industry providers will share their timely and forward-focused strategies. For more information, please visit the conference website.

Jessica Noviskis Speaking at With Intelligence 2024 Women’s Private Credit Summit 6/12

On Wednesday, June 12, Jessica Noviskis, CFA will be speaking at the inaugural 2024 Women’s Private Credit Summit hosted by With Intelligence in Chicago.

Jessica will be moderating a panel entitled, “View From the Field: Where Does Private Credit Go from Here?” described as follows: Private credit has captured the imagination (and the wallets) of institutional investors. Firms have shown there is a true need for their services and generated necessary returns – even as interest rates have climbed. But where is private credit headed? Where are the next great opportunities – and of course – challenges as well? Our panel of leading private credit professionals discuss where they and their firms have been concentrating, the issues that have arisen, and how they are thinking of deploying capital.

The Women’s Private Credit Summit will bring together over 200 senior women – institutional investors, general partners, and relevant industry advisors spanning private equity, real estate, tech, and distress – for a day and a half of stimulating discussion, facilitated learning, and in-depth networking and collaboration. For more information, please visit the event webpage.

Portfolio Trick or Treat

Coming into 2023, investors were cautiously optimistic about 2023 market returns; cautious considering the broad losses across asset classes during 2022 but optimistic about more attractive valuations and the inherent upside potential stemming from these price points. Nine months into the year, which of these opportunities have been “treats” for investors, and which have been “tricks”?

In this edition:

  • The biggest trick of them all: Investment grade fixed income
  • But not all of fixed income has been a trick…
  • Tricks come in all sizes: U.S. small-cap equities
  • Trick, treat, or both? U.S. growth stocks
  • Currency movements still tricky
  • More treat than trick: Emerging markets
  • If you’re not surprised, it’s not a trick: Commercial real estate