Positive Beginning to the Resumption
In the ever-evolving world of finance, investment funds have been treading cautiously in the current market environment, characterised by increased volatility, economic optimism versus inflation uncertainties, and concerns about the Delta variant of COVID-19.
Recent performances of various funds have been mixed, with some showing signs of recovery. For example, Sven Lindner's portfolio boasts a positive performance of 0.51 percent from the US equity ETF UBS - MSCI USA Socially Responsible UCITS ETF-(USD) A-acc. Similarly, another portfolio features a positive performance of 0.73 percent from the defensive mixed fund Kapital Plus-A - (EUR) (ISIN: DE0008476250).
In a call made a couple of weeks ago, readers were invited to share their own investment strategies by sending a screenshot of their model portfolio on derfonds, along with a few lines of explanation, to [email protected].
The capital market environment has been testing for funds, with private markets fund performance bottoming out in 2023. However, performance has strengthened in early 2025, though distributions remain sluggish. Recent U.S. funds raised have yet to reach a 1.0x distribution to paid-in (DPI) ratio since 2016, indicating slow cash returns to investors.
Fundraising has slowed significantly, with U.S. buyout fundraising down 20% in 2024 and the number of funds nearly halved. This cautious deployment by general partners (GPs) and limited liquidity for limited partners (LPs) to reinvest due to few distributions has been reflected in the market. However, mega funds have grown substantially, suggesting a "flight to quality" among investors amid uncertainty.
Deal activity rebounded by the end of 2024, with a 13% increase in deal count and 8% increase in deal value. This resurgence was aided by slightly lower base rates and easing financing costs. Banks have gradually re-entered loan markets, though activity remains below historical norms. Valuations have adjusted downward to current market conditions.
Global equity market capitalization rose by 8.7% in 2024, supported by strong corporate earnings that have exceeded expectations, particularly in technology sectors. Despite ongoing macroeconomic uncertainties and COVID-related disruptions, fixed income issuance increased, with many central banks expected to cut rates further in the second half of 2025. Bonds have gained some attraction relative to equities, with expected returns for equities lowered but still supported by resilient corporate fundamentals amid tariff and inflation uncertainties.
However, these positive earnings and some stabilization have been tempered by inflation uncertainties and the lingering effects of COVID-19 variants like Delta. This cautious sentiment among fund managers and investors has led to slower capital deployment and fundraising, alongside higher "dry powder" levels (uninvested capital).
In conclusion, investment funds are navigating the current environment by focusing on quality funds and prudent capital deployment, with performance beginning to improve after 2023 lows but tempered by slow distributions and fundraising. Market reopening and easing financial conditions have helped deal activity rebound, but inflation and pandemic-related uncertainties continue to create volatility and moderate growth expectations.
The reader's personal-finance could benefit from sharing their investment strategy, as outlined in a model portfolio, with the email address [email protected]. In the current market, many fund managers are adopting a cautious investment strategy, focusing on quality funds and prudent capital deployment to navigate economic optimism, inflation uncertainties, and concerns about the Delta variant.
