RE: US data = AMAZING15 Aug 2023 18:54
From Jefferies - I guess variables impacting PE also apply to VC.
Is the Long Winter for Listed Private Equity Finally Over?
We said last week (see “Private Equity Stirring” Monday 7th August) that successful exits are the key to a recovery in listed private equity. Matt Hose wrote, “Resurgent exit activity would help validate carrying valuations by crystallising structural conservatism in marks”. The Q2 Marks Outlook looks encouraging as the big GPs are reporting positive Q2 valuations. Last week KKR reported Q2 marks + 5%, and TPG reported +2.5% bringing the average across the U.S. listed GPs to +3.3% for the quarter. Meanwhile, the bid/offer spread between buyers and sellers of assets is narrowing as the pressure on GPs to return cash to LPs grows. That should increase the number of exits. Pantheon’s (PIN LN) buyback programme announcement might just have been the kicker that was required to jolt investment trust investors to sit up and take notice of the improving market backdrop for private equity. Share prices across the sector started to move and people are beginning to notice. Despite the positive signs, there are ongoing compelling reasons why listed PE funds trade at a discount to NAV. The evergreen structure (no pull to par as you get closer to cash), limited secondary market liquidity, limited transparency, discounting of future fee loads and concerns about the impact of the rising cost of debt as well as hidden layers of debt (via subscription lines and NAV financing). Extraneous factors such as FTSE index inclusion (a headwind when ETF flows are negative) and the regulatory treatment of reporting of PRIIP fees (most, but not all, LPE funds are PRIIPS) also continue to impact the sector disproportionately. As a result of this, the listed PE market is analogous to the private equity secondaries market where the supply of paper outstrips demand and where there are forced sellers for non-economic reasons. But, as Michael Oliver Weinberg, Professor of Economics and Finance at Columbia Business School, argues in Institutional Investor, Now Is the Time to Buy Private Equity Secondaries. Savvy investors, he says, can “conservatively underwrite investments to a midteens net return with an attractive risk profile” if they “sharpen their pencils”. We would echo those thoughts for the listed PE sector. Despite all these factors mentioned above, the last time LPE discounts were as wide as they are today was in January 2009. The next three years saw a huge rally and a handful of savvy institutional investors took full advantage of others’ pain. It is interesting to observe that, after a long absence, those same clever folks are back in the market today being “brave when others are fearful”.
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