Private Wealth

Weekly Research Briefing: Branches...

November 02, 2021

My lengthy pen was clipped this weekend by an unforeseen event, but while the content may be less in volume, it is equally important. Especially with regard to some of the private market information and stories that I came across below.

The bulk of Q3 earnings is now behind us...

The theme remained consistent with strong volumes/demand and weaker margins due to input and labor cost pressures. Some key highlights below:

Microsoft Q3 revs rose 22% Yoy to $45.3B, topping the $44B est. as Q1 Azure and other cloud-computing services grew 50% as posts upside across every key business unit/continued to show double-digit top/bottom-line growth. (Hammerstone)

Alphabet/Google reported better-than-expected 3Q results with revenue and operating income coming in 3% and 16%, respectively, ahead of consensus on strength across all advertising revenue lines and regions and nearly all verticals. (Hammerstone)

McDonalds posts top and bottom-line beat, helped by stronger than expected comp sales as global Q3 same-store-sales at +12.7% vs est. +9.9% and U.S. comp sales +9.6% vs. est. 8.1%. (Hammerstone)

Coke 3Q adj EPS $0.65 vs est. $0.58 on revs $10B vs est. $9.75B (organic revs +14%) and raises FY guide, says expects FY organic revs +13-14% and adj EPS +15-17%. (Hammerstone)

Who needs books?

Amazon's Cloud business (AWS) is such a beast. $64b revenue run rate, growing 30%+ with 30% margins.

Amazon's Cloud business


Goldman thinks the supply chain will right itself in 2022...

Tweet from @carlquintanilla

This is a notable deal in the asset management industry...

Top public market firm buying a top private market firm. Oak Hill is a leader in private debt. This deal tells you a lot about what T Rowe Price thinks about public debt investing as well as access to private assets.

T Rowe Price is buying credit manager Oak Hill Advisors for up to $4.2bn in cash and shares, in a deal that marks the latest example of consolidation in the asset management industry and illustrates growing appetite for alternative strategies.

Bill Stromberg, T Rowe chief executive, told the Financial Times that the acquisition was the Baltimore-based group’s largest dollar deal to date. He said the purchase would allow the group to pursue growth opportunities in private credit as more institutions and even wealthy individuals to mass affluent clients seek exposure to the sector.

T Rowe, which has $1.61tn in assets under management and is one of the world’s top active managers, said on Thursday that it would acquire 100 per cent of the equity of New York-based Oak Hill, which has $53bn in assets under management across private, distressed, special situations, liquid, structured credit, and real asset strategies.

Under the terms of the acquisition, $3.3bn is payable at closing, about 74 per cent in cash and 26 per cent in T Rowe common stock, and up to an additional $900m in cash is payable if business targets are reached. The high price reflects big demand for private capital and the competition for deals in the sector.

Rob Sharps, president and head of investments at T Rowe and who takes over as chief executive in January, said on a call: “There are three areas that investors are allocating their money towards. Passive, ESG and private markets.”…

The acquisition comes as investors turn to private capital strategies in their search for yield in a low-return environment. The overall industry, which includes sectors such as private credit, private equity and infrastructure, grew to $7.4tn at the end of 2020 and is expected to hit $13tn by the end of 2025, according to Morgan Stanley.


The Texas Municipal Retirement System is also making a strong statement below about their desire to invest in private companies…

“So why are we increasing our investments in PE? The goal is to enhance the trust fund’s performance, and given the returns, there is a huge opportunity set in PE,” according to Tom Masthay, director of private equity at TMRS. The goal is to reach the 10 percent allocation by 2024 but Masthay said that it will most likely “occur sooner than that.”

“PE is expected to earn an 8.39 percent compounded return in the capital market expectations used in TMRS’ asset allocation model,” he said. “TMRS’ PE portfolio has earned a 27 percent cash-weighted return inception-to date (December 2015). TMRS’ public equity benchmark earned 13 percent over the same period.”

Private equity also is attractive because the number of investable US publicly listed companies decreased by 45 percent over the last 25 years from approximately 7,200 to 3,900, according to presentation slides.

“Because most companies are privately owned, as less than 1 percent of US firms are publicly traded and 86 percent firms with 500 or more employees are privately owned,” he said. “The smaller the companies, the more value you can add.”

TMRS’ PE portfolio as of September 30 has $5.4 billion of commitments and a net asset value of $2.4 billion, including 40 different managers and 69 investment funds. “Year-to-date we have $1.6 billion of commitments, and we should end up at around $1.8 billion by the end of the year, which will be a new annual record for us,” he said. “High levels of re-ups led to active year of commitments.”


Overheard in the halls of Hamilton Lane this week…

  • We’ve talked about unicorns, the once mythical creature, but they feel like a common sight these days (read more about unicorns here and here). But there is another fun term used in the private markets that is still quite rare but feels like it too is on the rise. A dragon, while less popular jargon, is defined as an investment that returns an entire fund. By definition, in a world of diversified funds this a high bar to meet. It depends both on having a great investment and a significant portion of your fund allocated to that deal. In the current market where GPs continue to put up impressive returns, a good portion of this outperformance appears to be coming from investments that achieve significant upside and returns in excess of 5x and maybe even 10x. Several of these are creeping into Dragon territory and it’s a theme we find interesting. We hope to come back in the future to offer more data on how this has evolved over the year and maybe become more common, but anecdotally 2021 may be a more appropriate year of the dragon even if 2024 is the next year of the dragon according to the Chinese zodiac.
  • (Live event) ticket buying is happening at the last minute (majority in three days leading up to events) and managing inventory has become harder than ever. Mobile ticket delivery has gone from ~25% pre covid to over 65% today. For concert fans, 2022 is shaping up to be a busy year for performers with significantly more tours than normal given the backlog. Expect this might lead to fatigue and lower prices as the year goes on.
  • Some light at the end of the port logjam tunnel… There is typically a lull in Chinese manufacturing around the Chinese New Year (Jan/Feb depending on the year), which creates a natural down period which should help get some of the excess volume through the ports (even some minor help will be good).
  • Major global travel tour company likely to cancel many end of year and winter bookings if COVID countries cannot retreat from their CDC Level-4 rating. Needs to be Level-3 or lower.

Great news for our clients last week regarding an investment to help this impactful food service company expand operations...

RealEats has just raised some real money. The meal delivery service announced on Tuesday (Oct. 26) that it had concluded a $16.3 million Series A funding round.

RealEats, a weekly subscription service that says it gives customers the chance to “enjoy the nutritional benefits of real food,” plans to use the funds to move into a new 80,000-square-foot facility in Geneva, New York and to support the launch of a new meal line.

The Series A was led by Hamilton Lane (NASDAQ: HLNE) on behalf of the New York State Common Retirement Fund, along with GNC, Armory Square Ventures and Excell Partners.

"We are thrilled to partner with such highly strategic and supportive investors who share our vision for a healthier food future," said Dan Wise, founder and CEO, RealEats America Inc., in the press release. "This capital raise is a testament to the dedication of our amazing team, the delicious real meals they make and our incredibly loyal customers across the country. RealEats is poised to expand significantly with this infusion of capital and the growing consumer demand for healthy, real food."


Why did we help our clients invest in RealEats?

  • COVID has accelerated the move toward prepared food delivery
  • Meals are easy to make, healthy and have great tasting reviews
  • Subscriber growth has moved from linear to exponential
  • Locally sourced products from the Finger Lake Region of NY prepared at the Geneva, NY kitchen
  • Proven CEO and management team

RealEats Chef's Picks


Here is another great private company that we have helped our clients invest into two years ago...

Market leader, significant market opportunity, and 95%+ customer retention with a blue-chip customer list.



If you are looking to add a "do good" resource to help your employees, Benevity might be worth a call…

Here are few companies that use their software solution along with the total charitable impact that their employees have made since joining Benevity.


Finally, here is a debt and preferred equity investment that we made for our clients into the cybersecurity industry…

Again, this was an opportunity to invest with a market leader in SSL certificates, which is an industry with significant barriers to entry and little customer concentration. As a result, the business has solid margins and predictable recurring revenues. A solid foundation for investing in not only the debt but also the company’s equity.

DigiCertHamilton Lane

Have inflation concerns? Read about our views on inflation in Drew Schardt’s latest piece.

Explore Hamilton Lane:


The author has current equity ownership in: Alphabet Inc., Microsoft, Amazon, Coke & McDonalds.

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

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