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PE & VC News

The year is almost over, which makes now a perfect time to take a look back and see how job growth in the financial industry did compared to other industries.  Here’s a look.

The Broad View

Before looking at the growth in jobs in the financial sector compared to all other sectors, here’s a background view on overall job growth in the economy.

The figure here is the year-over-year growth in job growth from 1969 to November 2017.  In the current business cycle, employment growth peaked at 2.27% in February 2014.  Since then, growth has been a relatively steady deceleration path.

Overall, although growth has been decelerating since 2014, the economy is still adding jobs, and at a fairly healthy pace.

YY Growth in Employment

The Financial Industry by Economic Cycle

Shifting now to the financial sector, the following is a look at growth in jobs in the financial industry by business cycle.  Each line represents the year in which employment growth peaked and thereafter the economy deteriorated.

Interestingly, the current business cycle (the one that last saw a peak in employment growth in January 2008) is about 120 months “long”, which is quite long by historical standards.  The only cycle depicted on the graph to have lasted longer is the 1990s extraordinarily long expansion/boom.

Perhaps surprisingly, the current recovery/boom is the weakest on record.  This likely stems from the incredible amount of difficulty the financial industry had to deal with in the aftermath of the housing market-induced global financial crisis.

Financial Employment

Where Does Finance Fit It?

Now, shifting to the question of interest – How does the financial industry job growth compare to other industries in 2017?

Interestingly, although probably unsurprising to followers of the reshaping of the American labor market, the industry that has added the most jobs in 2017 so far is Professional and Business Services, with over 500,000 jobs added.  In second place is Education & Health, with job growth of around 425,000.  Rounding out the top three is Leisure & Hospitality at around 280,000 jobs.

The middle-of-the-road group is Natural Resources (mining, extraction), with job additions of around 250,000.  In fifth place is Manufacturing, adding about 180,000 jobs in 2017 so far.  And then to the industry of interest – Finance – which has added about 130,000 jobs in 2017 so far.

Industries that have performed weaker than Finance include Trade, Transportation, and Utility; Government, Retail Trade, and Information (Computers/Software).

Overall, not a bad year to be looking for a job in finance, although not incredibly great either.

Employment Growth in 2015 by Sectorr

Conclusion

Perhaps unsurprisingly, job growth in the finance sector recovered slowly following the end of the global financial recession.  In 2017, the financial sector grew by about 130,000 jobs.  Not incredible, but good enough to place the financial sector around average of all other business sectors.

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Pitchbook, the private equity and venture capital data provider, is out with an interesting look at e-commerce startups in the U.S.

Without looking at the following list of the 18 most valuable startups in the U.S., which companies would you guess would be on the list?

Would you guess Dollar Shave Club, or Jet, or Bonobos?  Well, if you guessed any one of these three, you’d be wrong, because these three have already gone public.  The question is regarding non-public, venture capital-backed startups.  Who’s in the top 5?  Take your guess, because here’s Pitchbook’s list.

The Top 5

Interestingly, in first place is Warby Parker.  Headquartered in New York and founded in 2010, Warby Parker’s most recent round in April 2016 valued the company at $1.2 billion and raised $100 million.  What does Warby Parker do?  Warby Parker offers prescription glasses and sunglasses, mostly through an online platform (the company has a few retail establishments).  Some may be surprised that a business as old as eyeglasses could spawn an e-commerce startup worth $1.2 billion.

In second place is Letgo, a mobile app company founded in 2015 and headquartered in New York, that allows users to buy from, chat to, and sell to other users locally.  Pitchbook places its most recent value at $1.0 billion.  Kind of like Craigslist, only different.

In third place is Ipsy, founded in San Mateo, California in 2011, with an estimated valuation of $800 million.  The company is a subscription service box, offering subscribers who pay $10 per month, a bag of 5 cosmetic samples each month.

In fourth place is The Honest Company, founded in Los Angeles, California in 2012, with an October 31, 2017 valuation of $860 million.  The Honest Company provides consumer goods with a little bit of a twist, focusing on the supply chain of products to the marketplace, and placing a high value on what it considers ethical consumerism.

Rounding out the top 5 is Rent the Runway, headquartered in New York, and founded in 2009, the company’s most recent round of funding valued the company at $750 million.  The company offers designer dresses and accessories.

Places 1 to 5 Source: Pitchbook

Places 6 to 10

Shifting now to the bottom half of the top 10, the following graphic has the list.  The list includes Vroom (buy, sell, and finance used cars), Memebox (beauty and makeup products), The RealReal (authenticated luxury consignment), ThredUp (fashion resale website), and Boxed (wholesale products in bulk).  The valuations range from a high of $636 million to a low of $400 million.  Perhaps not surprisingly, 3 of the 5 companies on this list are headquartered in San Francisco and the other two in New York.

Places 6 to 10 Source: Pitchbook

Places 11 to 18

The final 8 members of the top 18 most valuable e-commerce startups in the U.S. includes (listed below) Allbirds, Moda Operandi, Stitch Fix (just went public), 5 Miles, Adore Me, Spring, Bark Box, and Hubble.

Places 11 to 18 Source: Pitchbook

Conclusion

In an interesting list of the top 18 most valuable e-commerce startups in the U.S., the list includes companies operating in consumer goods, peer-to-peer commerce, luxury goods, and a bunch of other industries.  Overall, the American startup community is alive and well in 2017.

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Preqin, the investment intelligence data provider, recently released their special report on the state of private equity funds of funds across the world.  Here’s a look.

Where are the Private Equity Fund of Funds Managers?

First, a question – where would you guess the most managers of private equity fund of funds are located?  The United States?  Europe?  China?

Unsurprisingly, almost half of the private equity fund of funds managers are headquartered in the United States (141 out of 293).  Is the second place surprising?  Interestingly, in second place is not a European country, but rather China at 33.  Finance is moving full steam ahead in the Communist country.  The rounding out the top five are Germany at 21, the United Kingdom at 18, and Switzerland at 15.

Other members of the top 10 include France at 13, Spain at 6, and a host of countries at 5 (Denmark, Italy, Japan, Luxembourg, Norway, and South Africa).

by Country Source: Preqin

 

Are Private Equity Funds of Funds Gaining or Losing Ground?

Perhaps the question everyone wants answered is if private equity funds of funds are increasing as a proportion of the total private equity investment universe.  Before looking, take a guess.  Would you think investors are looking to spread out risk among private equity managers, and thereby opting for funds of funds?  Or, perhaps would you guess investors have fees on their minds, and therefore look to minimize allocations to assets with higher management fees, which includes private equity funds of funds.  Here’s the answer.

Interestingly, private equity funds of funds fundraising as a proportion of all private equity fundraising is generally on a downward trend.  Since peaking in 2007 at around 15 percent of all aggregate private equity capital raised, the percentage of total private equity investments allocated to funds of funds has declined precipitously to 4 percent.

A similar trend emerges for the number of funds closed. After peaking in 2007 at around 18 percent, the number of funds of funds closed has declined to about 9 percent of all private equity funds.  Hmm.  Not pretty.

PE fund of funds proportion Source: Preqin

 

What about Investors’ Views of the Key Issues Facing Private Equity?

Shifting now to the reason behind the previous two trends – investors’ perceptions of the private equity industry.  What would you guess is the top concern of investors considering putting money into private equity funds?  Return?  Fees?  Liquidity?  Here are the responses.

Interestingly, the top concern among investors in private equity is the pricing/valuations picture (86 percent).  Apparently, investors are concerned that private equity funds are overpriced.  Intriguing given the relative pricing nature of publicly traded equities and other asset classes.  This concern likely shows up in investors’ concerns about the state of other asset classes.

Are you surprised by the second view – deal flow?  Apparently investors appear keyed in on what the deal flow environment looks like (51 percent).

Other concerns on the list include exit environment (41 percent), fees (38 percent), performance (32 percent), regulation (16 percent), ongoing uncertainty in global markets (11 percent), availability/pricing of debt financing (11 percent), and transparency (10 percent).  It’s an interesting time to be considering private equity.

pe views Source: Preqin

 

Conclusion

Overall, in an interesting review of the state of funds of funds within the private equity universe, investors have a host of concerns and interesting trends to consider.

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Why Don’t Ex-Startup Founders Make for Better VC Partners?

October 30, 2017

In an interesting piece out of CB Insights, Dan Mindus and Max Wessel pose the question – “Do Ex-Startup Founders Make the Best Venture Capitals?”  What would be your guess?  The “intuitive” answer, at least among entrepreneurs, is that ex-startup founders do make for better VC partners.  Why?  Because successful ex-startup founders have walked the […]

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Is Private Equity Headed for a New Buyout Boom?

October 2, 2017

By most measures, the global economy is continuing on a healthy, expansionary path.  Leading the way is the American economy, with the most recent growth figure coming in at a 3.1 percent annualized pace.  The healthy state of the global economy begs the question: is private equity headed for a new buyout boom? Here’s what the […]

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Which Firms Back the Most Unicorns?

September 18, 2017

The question here is simple – which financial firms have the largest exposure to unicorn companies?  Take a guess, because the answer follows shortly.  But, before getting into the list, a review of the top unicorn companies follows. The List of Unicorns First, what is a unicorn?  A unicorn is a company with a private […]

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Who Is In the New Class of Unicorn Startups?

August 21, 2017

CB Insights, the financial data tracking firm, recently put out a list of a new US-based companies on the “unicorn” startup list (a unicorn is a privately-held company with a valuation of at least $1 billion).  Who’s on it? Just a Little Background Before getting into the list of companies with newly minted valuations of […]

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Where Are 2017 Private Equity-Backed Deals Heading?

July 25, 2017

We’re a little over half way through 2017, and so far it’s been as an interesting year as expected.  We’ve seen equity markets explode through the roof, home prices continuing to rise, a seemingly never ending investigation into potential Russian meddling in the 2016 Presidential election, rumors of war with North Korea, and a host […]

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How Might Pending Federal Reserve Rate Hikes Affect Venture Capital?

June 26, 2017

This past week the Fed announced another quarter point rate hike.  The Federal Funds target rate will soon range from 1% to 1.25%, a full 1% higher than the when the Fed began its so-called “tightening” cycle in December 2015. Question: How might the upcoming Fed tightening moves affect the venture capital markets?  Here’s some […]

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The Jobs Report Stunk. What Does the Financial Jobs Picture Portend for the Latter Half of 2017?

June 12, 2017

Friday’s jobs report could aptly be described as a stinker.  Month-over-month employment growth came in at +138K, a fair bit below analysts’ expectations.  Early month’s growth figures for 2017 were also revised lower, to +50K for March and +174K for April.  The May results beg the question – is the economy header for a recession, […]

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