Happy New Year! Rather than reviewing the past, we wanted to take the opportunity to share our thoughts on the markets as we move into 2023, specifically where we see opportunity and why we believe that 2023 can be a banner year for alternatives.
- Private debt will fuel leveraged buyout markets: The leveraged buyout, a staple of the private equity industry, will be fueled by debt via private debt funds. With continued Fed tightening, given persistent inflationary pressures, the traditional sources for leveraged loans – banks – have vacated the market and created the opportunity for nonbank direct lenders to fill the void.
- Midmarket companies will dominate take-private opportunities: Taking public companies private has been a winning private equity strategy, and current valuations allow firms to buy public companies at attractive discounts. With broadly syndicated bank loans being replaced by private debt funds, the financing options for a midmarket opportunity will be significant. This same target group has not seen the rebound in share price experienced by larger incumbents in the public markets.
- Sponsor-to-sponsor transactions will be the primary source of private equity exits: With public listings screeching to a halt amid market volatility and corporate buyers being impacted by declining stock prices, sponsor-to-sponsor exits will dominate 2023. An ever-increasing number of PE managers combined with a large amount of dry powder will make this exit route the most attractive option for PE-backed companies.
- The continued rise of protection provisions in VC deals: There has been an increase in the use of protection provisions in recent funding rounds, such as liquidation preference multiples and participation rights, and we believe this trend will continue. We also expect to see more contingent funding, where a company receives a commitment amount but only receives an initial portion of the commitment, with the future amounts predicated on hitting certain milestones.
- Real Assets face headwinds but have strategic opportunities: Higher rates and borrowing costs have impacted the real estate market, and there will be opportunities to acquire pools of assets from public entities at discounted prices. Additionally, Private Infrastructure assets are well positioned with collateral-based cash flows and provide a level of resiliency given their essential nature in challenging macro environments.
We believe alternatives provide differentiated strategies to enhance returns, help reduce risk, and capitalize on opportunities not available through traditional investing channels. The current market conditions present investors with attractive opportunities to build a robust portfolio for the long term.
-Logan Henderson, Founder and CEO
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Live Webinar Thursday, January 26th at 11 am EST
Beyond the Public Markets: Maximizing Returns through a Multi-Asset Portfolio
In our first member webinar of 2023, we’ll be discussing how you can enhance your investing strategy by moving beyond the public markets and investing in a diversified portfolio of alternative assets. During the session you’ll learn about:
- The return dispersion in Public vs. Private Market Investing
- The evolution of Private Assets in portfolio construction
- How to achieve diversification through Thematic Portfolio funds
We’ll also be hearing from one of our members on how they’re utilizing Gridline’s Thematic Portfolios to help achieve their investing goals.
This webinar is open to Gridline Members. If you would like to join us, please complete the process to sign up for access and we will send you your personal link to join the live webinar.