Private Capital Markets
Weekly Chart Spotlight
Our private markets observations based on the world’s largest private market data ecosystem of over 12,500k funds, 125,000k+ portfolio companies and 2,000,000 proprietary cash flows.
Our private markets observations based on the world’s largest private market data ecosystem of over 12,500k funds, 125,000k+ portfolio companies and 2,000,000 proprietary cash flows.
October 17, 2024
Private Credit Outlook 2024: Opportunities and Resilience Amid Rate Cuts
As we enter Q4 2024 with a recent 50 basis point rate cut, the private credit landscape presents a mixed yet optimistic outlook. While lower rates may slightly reduce returns by decreasing the risk-free rate, they also create a surge in deal flow as borrowers look to refinance. This trend could continue with anticipated rate cuts in 2025, potentially increasing the volume of private credit transactions while moderating returns. Historically, private credit has shown resilience during market stress, outperforming median IRRs significantly. From 2000-2024, top quartile private debt funds achieved IRRs of 22%, showcasing their ability to deliver equity-like returns with lower risk. Moreover, private credit thrives in low liquidity environments, making it an attractive option for institutional investors seeking higher yields in today’s economic climate.
October 10, 2024
Navigating the Future of Infrastructure Investing - Part II
Analyzing deal size and leverage offers critical insights into the dynamics of private equity investments within the construction industry. Larger deals often necessitate increased leverage, which can heighten risk and potentially lead to lower returns. With factors like population growth, urbanization, and substantial infrastructure investments propelling the North American construction sector, private equity firms are likely to maintain a strong focus on this area in the near future. However, it's crucial for investors to thoughtfully evaluate the specific sub-sectors and deal sizes they pursue, alongside effective risk management strategies, to ensure they achieve optimal returns in this evolving market landscape.
October 3, 2024
Navigating the Future of Infrastructure Investing
Infrastructure investing is evolving amid increasing market volatility and the demand for sustainable, resilient solutions. Traditional strategies are no longer sufficient, especially after the Covid-19 pandemic intensified supply chain disruptions and accelerated technological changes. Investors now face the dual challenge of making informed capital allocation decisions while managing rising risks and identifying sectors with reliable returns. Essential infrastructure, including transportation and energy, requires stable regulations and advanced data analytics to support sound investments. As private equity investors navigate this transformed landscape, the emphasis on strategic, data-driven decisions is crucial. Additionally, rising construction spending linked to population growth and urbanization is driving interest in infrastructure secondaries, which offer liquidity and diversification in uncertain economic conditions.
September 26, 2024
Navigating the Changing Real Estate Market
In today's dynamic real estate market, fluctuating interest rates, shifting demand, and rising sustainability pressures are reshaping the landscape. Investors must move beyond intuition, adopting data-driven strategies to thrive. As logistics, multifamily housing, and data centers gain momentum, traditional retail and office spaces face uncertainty. To drive growth, investors need advanced tools to analyze market trends, identify opportunities, and manage risks, especially with ESG considerations taking center stage. In this evolving sector, success demands granular data for informed decisions, considering local markets, regulations, and economic factors—essential for unlocking long-term returns and mitigating risks.
September 18, 2024
Thriving in a Booming Buyout and Growth Market
The buyout and growth sector of private equity is experiencing a remarkable surge, fueled by an influx of new capital and substantial dry powder ready for deployment. Investors are drawn to the potential for high returns, yet they must navigate increased competition and market volatility. To thrive, they are employing a mix of traditional buyouts and innovative growth strategies. The sector's continued success hinges on a steady capital flow, alignment with evolving market trends, and enhanced risk management. Managing risk remains a significant challenge, especially with concerns about illiquidity and the pressure to deploy capital swiftly. In this environment, data-driven decision-making and strategic precision are more critical than ever.
September 12, 2024
Today's venture capital landscape
In today’s rapidly evolving venture capital landscape, breakthrough technologies and disruptive startups are attracting significant investor interest. With a variety of funds, from blended to tech-specific, catering to diverse investment strategies, the sector offers immense potential. However, one critical challenge persists: the lack of transparency and reliable, granular data from venture capitalists. This opacity makes it difficult for investors to assess risks and identify promising opportunities accurately. As technology—particularly AI and cybersecurity—continues to reshape the sector, the need for real-time, detailed data is more pressing than ever. To thrive in this dynamic environment, investors must prioritize deeper data insights to make informed decisions and unlock the true potential of their investments.
August 29, 2024
Maintaining a Strategic Asset Allocation with Private Markets
Managing strategic asset allocation in private markets presents challenges due to unpredictable future capital calls and distributions, complicating cash flow and liquidity management. Diverse market conditions can also affect the Net Asset Value (NAV), which is often determined by a manager's judgment or third-party valuations that may not reflect current market realities. Additionally, market conditions can vary across asset classes, with the performance of one class potentially influencing others. To stabilize NAV, investors need accurate models that consider the specific cash flows, liquidity requirements, and risk tolerance unique to private markets.
August 22, 2024
Market Headwinds Challenge LPs' Cash Pacing - Part II
The slowdown in distributions affects the J-curve breakeven for PE funds. The J-curve represents the return pattern PE firms encounter early in a fund’s life cycle. Initially, investments lead to short-term negative returns due to expenses. As investments mature, positive returns emerge, and the J-curve turns upward. The breakeven point occurs when the fund’s net asset value matches investor commitments. Put simply, funds are returning cash later and many of the cash pacing models deployed by many LPs, either internal or third-party, are unable to accommodate such changes. Many LPs overcommit to funds in order to offset distributions later in the fund’s life and maintain their allocation. With the J-curve breakeven now later than models might predict based on historical patterns, managing private market exposure is harder for LPs – and portfolios run the risk of getting out of balance.
August 15, 2024
Market Headwinds Challenge LPs' Cash Pacing
The market environment has significantly changed in recent years, with higher interest rates increasing borrowing costs and reducing the potential returns from debt-heavy investments. Although valuations are rising, the higher rates also lower potential exit values, as buyers now discount future cash flows more heavily. This, along with the negative impact of recent macroeconomic shocks, has dampened market sentiment, particularly with IPOs remaining scarce. As exits and realizations slow, distributions to LPs have decreased, making it harder for GPs to raise funds. The broader macro environment remains volatile, with geopolitical tensions and economic uncertainty adding to the risks that LPs must navigate.
August 08, 2024
Determining Portfolio Fit
Portfolio fit analysis evaluates whether a fund aligns with an LP's current portfolio and aids in meeting their objectives. It involves comparing the alpha outperformance and beta risk of the existing portfolio with the GP's track record. By plotting fund- or deal-level returns against public market equivalent indices, LPs can quantify the alpha and beta risk correlation for relevant public and private asset classes. This analysis helps to identify potential weaknesses and predict how the portfolio may perform in various market scenarios. By overlaying this data with the alpha/beta analysis of the GP's track record, LPs can determine if the GP's strategy is suitable for their portfolio and will help achieve their targets. For example, in the chart above a GP with an alpha of 21.2% IRR and a negative beta of -0.49 compared to the S&P 500 indicates outperformance with a strategy that tends to perform better in bearish markets and a weak macroeconomy.
August 01, 2024
Deal Level Due Diligence: Operating Margins and Value Creation
A key sign of a portfolio company’s appeal is the change in its operating margin. By comparing margins at the start and end of an investment, LPs can see if GPs have added value. The chart above shows how LPs can pinpoint factors like revenue growth, margin expansion, and multiple expansion that drive enterprise value growth. Institutional LPs often need to perform these due diligence checks due to rising regulatory demands and to safeguard investment managers. This process creates an audit trail, proving that LPs have fulfilled their due diligence responsibilities.
July 23, 2024
Deal Level Due Diligence: Operational Analysis
The chart above shows that in 2008, total debt rose further due to costly mezzanine financing, at the expense of equity. During the 2009-2011 financial crisis, new investments had higher equity ratios. More recently, investments have become more aggressive with increased leverage. Reviewing operational growth reveals whether a GP can increase sales and EBITDA through active management. Comparing financing structure with operational growth helps assess the attractiveness and health of portfolio companies. Analyzing EBITDA is crucial for mature companies funded through buyouts or growth equity: increases in EBITDA lead to higher exit valuations and investment income.
July 12, 2024
Deal Level Due Diligence: Scrutinizing Risk and Return
This week's chart displays the total value to paid in capital (TVPI) performance attribution from an example manager. This visualization of distribution can serve as a health check for the portfolio. A large proportion of deals have TVPIs greater than 1.0, which indicates that many investments are at least returning the initial capital invested, which is a positive sign. Conversely, 7 deals in this example manager have TVPIs less than 1.0, which reflects underperformance. Evaluating this, alongside other performance measures, such as pooled and capital weighted means, and additional metrics like internal rate of return (IRR) and distributions to paid in capital, should be done to fully understand a GP’s deal level return profile.
July 4, 2024
Fund Level Due Diligence: Differentiating Between Opportunities
The J-curve chart depicts a fund’s historical and expected liquidity, illustrating the manager's ability to manage assets and cash flow through different market phases. It reveals actual investment returns and risks by comparing portfolio company cash flows with net investor cash flows, accounting for fees, expenses, and carried interest. Since general partners can influence these factors, it's crucial for limited partners to distinguish between returns from asset performance and those from financial maneuvers.
June 27, 2024
US Tech Deal Spotlight
(1) Post-GFC (Global Financial Crisis), tech deals have shown a clear division between winners and losers. (2) The period from 2009 to 2022 experienced significant pricing multiple expansion due to a favorable monetary environment. (3) Tech deals made in 2021 stand out for showing the weakest returns, reflecting potential overvaluation or adverse market conditions at that time. (4) However, more recently, there has been a noticeable drop in deal pricing. This adjustment in pricing, coupled with a rebound in returns, suggests a correction in the market and is interpreted as a positive sign, potentially indicating more sustainable and realistic valuation levels going forward.
June 20, 2024
US PE-backed Company Revenue CAGR by Investment Year
The chart illustrates a trend of (1) increasing average revenue growth for private equity (PE)-backed companies, starting from the aftermath of the Global Financial Crisis (GFC). This upward trajectory highlights a steady improvement in revenue growth rates over the years. (2) A significant acceleration in revenue growth is observed from 2016 onwards, culminating in a peak in 2020, where the compound growth rate surpassed 50%. (3) Despite a decline in growth rates for deals made in subsequent years, these rates continue to be robust and historically strong. This suggests that while the peak growth witnessed in 2020 has not been maintained, PE-backed companies are still experiencing healthy revenue growth in recent years.
June 13, 2024
US PE pricing multiples by sector
The chart illustrates several significant trends in deal pricing across different sectors over time, highlighting the effects of major economic events and shifts. (1) In the consumer sector, prices remained stable for 15 years but peaked during the COVID-19 pandemic, only to revert to levels from a decade prior. (2) The healthcare sector, consistently popular, saw a post-COVID surge in deal prices, which quickly fell back to pre-pandemic levels. (3) In the tech sector, pre-GFC pricing was viewed as unsustainable, a concern that proved accurate during the financial crisis. (4) Post-GFC, a benign credit environment coupled with a substantial increase in money supply led to inflation in deal prices across all sectors.
June 7, 2024
US deal default rates by stage
The chart illustrates that (1) venture capital (VC) defaults peaked in 2009 following the Global Financial Crisis (GFC). (2) During the GFC, default rates for VC, buyout, and growth deals converged. (3) By 2009, defaults had returned to normal levels, with VC defaults at 45% and buyout/growth deals at 20%. (4) A general trend of decreasing defaults continued through 2020. (5) However, the onset of the COVID-19 pandemic led to a significant reversal, with default rates surging back to crisis levels. This suggests that while the financial markets had stabilized post-GFC, they were still vulnerable to large-scale disruptions such as the pandemic.
May 30, 2024
US private equity performance by stage
The chart highlights the performance trends of different investment strategies post-Global Financial Crisis (GFC). (1) Venture capital (VC) saw unprecedented returns for deals made in 2012, but these returns have declined since then. (2) Growth deals rebounded significantly in 2010 but have displayed more volatility compared to other strategies. (3) Buyouts were somewhat impacted by the GFC and have shown a muted recovery. (4) All strategies have followed a negative trajectory since 2017. Overall, the GFC created a favorable environment for deals, with Growth and Venture strategies benefiting the most.
May 23, 2024
US private equity deal performance and pricing
The chart illustrates the post-Global Financial Crisis (GFC) landscape with a swift V-shaped rebound in pricing after an initial dip (1), reaching unprecedented levels by 2022 (2) before softening in 2023. Despite this, (3) subsequent deals continued to yield exceptional money multiples returns, indicating resilience in investment profitability. However, (4) an overall downward trend in pricing, interspersed with occasional recoveries, alongside a general decline in returns over the analyzed period, suggests market volatility and challenges for investors amidst changing economic conditions. The chart underscores the importance of navigating the evolving financial landscape with adaptability and strategic decision-making to capitalize on opportunities while managing risks effectively.
May 16, 2024
Deal IRR by Total Debt/EBITDA
This analysis highlights the vital role of cash flow data in private market investments, offering insights into real returns, risk assessment, liquidity management, and performance evaluation. By focusing on deal cash flow data and operational metrics rather than leverage, investors gain clarity on wealth impact and can monitor portfolio company health, anticipate liquidity needs, and evaluate fund performance against objectives. Additionally, it enables flexible and thorough analysis at various levels, emphasizing the importance of cash flow data in informing investment decisions and optimizing performance in private markets.
May 6, 2024
Real Estate Funds Portfolio - Occupancy rate vs Net Operating Income
By analyzing historical trends and operational metrics, investors can forecast future performance and identify areas for improvement within portfolio companies. Access to accurate quarterly data, particularly in sectors like commercial real estate, empowers investors to anticipate market shifts and adjust investment strategies accordingly, mitigating risks and maximizing returns. This proactive approach contrasts with relying solely on General Partner reports, which may lead to missed opportunities and late reactions to market changes.
April 26, 2024
Debt Pricing by Deal Tranche Class by Percentage
Debt tranches are typically categorized based on their priority of repayment and associated risk levels. The pricing of each tranche class by percentage reveals the market's perception of the risk associated with each tranche. As noted within the chart, higher-priced tranches typically represent higher-risk positions, while lower-priced tranches indicate lower risk. For example, the higher interest rates associated with mezzanine debt reflect its increased risk compared to senior debt, including subordination, lack of collateral, hybrid nature, and higher leverage levels. These factors contribute to the pricing of mezzanine debt and help compensate lenders for the additional risk they assume.
April 19, 2024
Deal Default Analysis by Investment Year
Embarking on a journey through time, the Deal Default Analysis chart serves as our compass, guiding investors through the peaks and valleys of investment risk. Reflecting the percentage of deals defaulted over time, calculated from the total number of deals with a TVPI less than 1, this tool aids in assessing investment risk. Clear spikes in 2007/2008, 2019, and 2022 signal challenging economic and market conditions, reminiscent of the Global Financial Crisis and subsequent tumultuous periods. In navigating these turbulent waters, understanding risk is paramount for investors seeking safe harbors amidst uncertainty.
April 11, 2024
Financing Structure at Entry by Investment Year (Median)
The Financing Structure at Entry by Investment Year (Median) chart serves as a critical gauge for finance professionals, offering a comprehensive view of a company's financial dynamics over time. By analyzing the distribution of equity and debt at the point of investment across different years, investors gain valuable insights into the company's debt management strategies, its capacity for financial agility, and its overall financial robustness. This metric enables investors to assess the company's ability to navigate debt levels effectively, maintain flexibility in capital allocation, and sustain its financial health throughout its growth trajectory, thereby informing investment decisions and risk management strategies with a deeper understanding of the company's financial landscape.
April 4, 2024
US Deal Default rates by stage 2005-2023
In the wake of the 2008 Global Financial Crisis (GFC), venture capital defaults surged to a peak in 2009 (1), marking a turbulent era for investors. However, post-crisis, a semblance of stability emerged as defaults converged (2), offering a glimpse of recovery. By 2009, default rates for VC and Growth deals normalized to 45% and 20% respectively, signaling a return to equilibrium amidst ongoing efforts to mitigate risks. A steady decline in defaults ensued, guiding the industry towards resilience. Yet, the onset of the COVID-19 pandemic in 2020 unleashed a fresh wave of uncertainty, pushing defaults back to crisis levels (3). As financial professionals navigate these stormy waters, the tale of VC defaults underscores the cyclical nature of the market and the imperative of adaptive strategies in times of crisis.
March 26, 2024
TVPI & Revenue CAGR vs EV/EBITDA 2005-2023
The Great Financial Crisis (GFC) brought a sharp pricing dip, swiftly followed by a V-shaped recovery (1). Subsequent deals delivered outstanding returns and stable revenue growth (2). In 2019, revenues surged, peaking in 2020 (3). However, from 2020 to 2022, pricing reached unprecedented levels while money multiples dipped, alongside a downward trend in revenue CAGR (4). Amidst these fluctuations, the financial sector's resilience and adaptability endured, navigating through the complexities of the economic landscape.
Latest Insights
CEPRES' Private Credit Outlook for 2024-2025
As we move into 2024 with a 50 basis point rate cut already implemented, private credit faces a mixed yet promising outlook. Private credit is directly impacted by these rate changes.
Private Equity's New Playing Field: North American Sports Leagues
In late August, NFL owners voted to allow private equity funds to buy stakes in NFL teams, ushering in what could end up being a marked change in the financial makeup of America's most valuable sports league.
Forecasting Private Equity Fundraising
Fundraising forecasting, like portfolio forecasting, offers an intriguing opportunity, especially with recent advances in technologies like AI, for funds to develop more confident workflows, drive down costs, and lift overall fund performance.
CEPRES' Private Credit Outlook for 2024-2025
As we move into 2024 with a 50 basis point rate cut already implemented, private credit faces a mixed yet promising outlook. Private credit is directly impacted by these rate changes.
Private Equity's New Playing Field: North American Sports Leagues
In late August, NFL owners voted to allow private equity funds to buy stakes in NFL teams, ushering in what could end up being a marked change in the financial makeup of America's most valuable sports league.
Forecasting Private Equity Fundraising
Fundraising forecasting, like portfolio forecasting, offers an intriguing opportunity, especially with recent advances in technologies like AI, for funds to develop more confident workflows, drive down costs, and lift overall fund performance.