Commodity Watch: Where’s my money?

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/36adb453-e50e-4c12-a3c7-3906bf7fb8ed/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-v2.jpg?language=en" alt="Ahmad Al Sati v2" title="Ahmad Al Sati v2" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>In 2021, Private Equity (PE) funds distributed $700 billion back to their Limited Partners (LPs) (~29% NAV). The distributions in the subsequent 3 years have been sub-par averaging ~10% of NAV as investments have outpaced distributions. Lower distributions mean funds’ average life is increasing. According to MSCI Private Markets, the amount of assets in funds exceeding their average liquidation life e.g. 15 years for Venture Capital funds reached $250billion in 2024 - an all-time high. The numbers are staggering. Today, 29,000 companies together valued at $3.6 trillion sit unrealized in private pools (Pitchbook, Preqin) with a holding period of 6 years - a 15 year high!</p><p><br></p><p>Even in exits, LPs are getting less than they bargained for with most positions selling below their mark. The decline in distributions occurred despite strong public markets. Historically, public market disruptions result in muted distributions. If the April turmoil extends, LPs may end up receiving even less cash.</p><p><br></p><p>Cash matters. No matter your net worth, everyone has bills to pay and obligations to meet (generational, philanthropic, etc...). Secondaries and continuation vehicles have helped alleviate some of the backlog. As did partial exits (dividend recaps and minority sales). But these solutions are not a panacea. At times, sellers may have suffered remorse or sticker shock. The new money demands a return and focuses on the best assets leaving others behind. Some of the engineering may in effect extend the time of a full exit.</p><p><br></p><p>Distributions from private credit have helped LP portfolios. Higher interest rates buoyed private credit’s floating loan portfolios with dampened volatility. Yet, rising rates are also risk as they increase the likelihood of restructurings and markdowns. Some private credit portfolios are also exposed to PE risk because they effectively finance them. Private credit now provides 90% of the financing for middle market private equity (up from 36% in 2014). A dislocation across the middle market (think AI for software or trade for industrials) could ripple through portfolios across multiple funds with similar assets. Unlike VCs, credit funds cannot afford permanent loss of capital in one part of the portfolio – the overall returns are just not high enough.</p><p><br></p><p>Diversification of collateral is key. Asset based finance provides income and asset diversification. Financing everyday life means continuous inelastic demand for: food (wheat), electricity (natural gas) and essential goods (toilet paper). The components of these products (wood pulp) cannot be onshored nor disrupted by Artificial Intelligence (AI cannot make titanium from scratch yet). Their value is established across mostly large liquid markets where they are consumed and traded globally. Each underlying commodity has its own supply demand dynamic and geographic exposure making a global disruption event less likely. Financing them generates regular, short duration, contractual income unrelated to financial assets. The benefits are clear.</p><p><em>The above is an extract from a LinkedIn post by Ahmad Al-Sati from 01/06/2025.</em></p><p><br></p>