During the prolonged economic recovery, we’ve regularly heard that private equity has disproportionately benefited from the search for yield.
Most of this has been on the debt side, evidenced by the thriving junk bond market, although it also bleeds into private equity fundraising (more cheap debt = larger PE deals = larger PE funds).
On the surface, this correlation seems steady. Rates have begun to rise and PE fundraising has cooled slightly. But many LP sources believe that the search for yield by bond buyers has been overtaken in importance by a broader search for alpha by diversified institutional investors; pointing out that some of those buyout fund commitments appear to have been redirected to growth equity (sometimes with the same managers).
Bottom line: Private equity fundraisers often rely upon past performance, but that’s mostly for pitch-deck posterity. It’s really more about selling the brass ring, no matter how fast the carousel is spinning. So long as the top quartile stays ahead of the S&P 500, tickets keep selling.
• Wall St calendar: No IPOs are expected this week, but Renaissance Capital reports that there are 77 U.S. issuers currently on file (45 of whom have been keeping their filings current):
“This summer has been the busiest since 2014, and we… estimate that 70-90 more U.S. IPOs could raise over $20 billion by year-end.”
• Capitol Hill calendar: Social media gets grilled by Congress tomorrow, with Twitter CEO Jack Dorsey testifying twice, Facebook COO Sheryl Sandberg testifying once and Google execs testifying… (checks notes)… zero times.
• Today in Social Capital: Two more departures to report from the troubled Silicon Valley venture firm. One is investing associate Tejinder Gill, who is heading to Collaborative Fund as a principal. The other is Alex Chee, the MessageMe co-founder who joined early last year as head of product development. No word yet on Chee’s future plans.
⛽ Reading list: Bethany McLean has a new book out next week on how fracking has changed the world, including an argument that our next financial crisis could be hiding in the private equity-backed oil patch. Particularly given that many fracking companies are valued more on their acreage than on their financials (shares of dotcom-era “eyeball” metrics). Axios’ Ben Geman has more.
📣 Pro Rata Podcast: On Sunday night we discussed the U.S.-China trade disputes, and this afternoon’s episode will dive into Nike’s deal with Colin Kaepernick. Subscribe via Apple, Google Play or other podcast platforms.