- Investment vehicles, which have traditionally invested in publicly traded stocks, have become increasingly interested in rounds of private funding that are being raised by fast-growing tech companies.
- Hedge funds have participated in a record 770 private deals with an added value of $ 153 billion since the beginning of the year.
- By comparison, hedge funds participated in 753 deals with an added value of $ 96 billion in 2020.
Hedge fund involvement in private deals that typically involve venture capital and private equity firms has grown “tremendously” in recent years as fund managers seek to try to increase their returns, according to a report from the Goldman Sachs sales and trading desk.
Hedge funds, which have traditionally invested in publicly traded stocks, have become increasingly interested in rounds of private funding that are being raised by fast-growing tech companies in recent years, Goldman said.
The report, titled “Hedge Funds and the Convergence of Private and Public Equity Investments,” shows that hedge funds have participated in a record 770 private deals with an added value of $ 153 billion since the beginning of the year.
By comparison, hedge funds participated in 753 deals with an added value of $ 96 billion in 2020.
Meanwhile, in the decade before 2010, hedge fund managers participated in just over 50 deals per year on average, with a peak of 117 deals in 2007.
Large sums involved
The number of operations carried out by hedge funds remains small relative to the activity of other investors in the private markets. In fact, hedge funds have been involved in only 4% of deals made so far this year, according to Goldman.
That said, the hedge fund footprint has grown. They have invested 27% of their deployed capital in private companies so far this year, reflecting how they tend to invest in larger deals.
Three-quarters of the capital came from just 10 hedge funds, Goldman said.
In fact, Tiger Global Management and Coatue Management are just two hedge funds aggressively competing with Silicon Valley venture capitalists and other investors in private deals.
Tiger Global has invested in more than 20 European startups in 2021, up from four in 2020, data from venture capital analytics firm Dealroom shows.
Billions of dollars have already been injected into startups like London-based fintech Revolut and US business software firm Databricks by hedge funds this year.
Job van der Voort, CEO and co-founder of human resources start-up Remote, told CNBC in July that there are “a lot of new players in the market” and that it is relatively easy for some companies to raise large sums.
“We could have named almost any number and we could raise the amount of money,” said van der Voort, whose company raised $ 150 million at a valuation of $ 1 billion in the summer.
“Previously, funding for startups, especially early stage startups, was something that was exclusive to venture capitalists and what is now starting to be seen is that these upcoming companies like Tiger and SoftBank are happy to make returns. smaller over longer periods of time, so they become very competitive, “van der Voort said.
“They can basically say, we’re going to fund a lot of different startups at a really high valuation and drive out any traditional venture capitalists.”
Global perspectives
Most hedge fund investments involve US companies, but Goldman said it has seen an increase in the share of investments in APAC-based companies, particularly in China, while the share of deals in EMEA has remained relatively stable. without changes.
The vast majority, 72%, of private hedge fund deals are in the venture capital space, Goldman said, adding that 44% can be classified as post-stage equity and growth deals.
Of the 1,500 companies currently owned by hedge funds in Goldman’s sample, 79% have only one hedge fund manager as a current investor, while 3% have more than four invested hedge fund managers.
