In our most recent issue of Portfolio Valuation: Private Equity and Venture Capital Marks and Trends, we provide a brief digest and commentary of some of the most relevant market trends influencing the fair value of private equity and venture capital portfolio investments. Below are key highlights covered in our Second Quarter 2017 newsletter.
A robust environment to monetize PE investments has added to the allure of PE investing as an asset class. With more capital allocated to alternative investments such as PE and private credit funds, pricing for new investments is being pressured upward while traditional PE investors look further afield for opportunities. Technology, which has long been a favorite industry sector for venture capital, is finding increasing popularity within PE as well. Technology deals accounted for 20% of all first quarter buyouts, compared to 10-15% historically.
The environment of low liquidity and wide spreads experienced in the leveraged loan market during 1H16 has been forgotten. During 1Q17 yields trended up with LIBOR; however, ample liquidity limited the move and helped tighten spreads a bit as refinancing accounted for 76% of the $345 billion of loan originations.
After two consecutive quarters of lower VC-backed funding, VC investments ticked up in 1Q17 to $16.5 billion, perhaps in response to policies proposed by the Trump Administration that are perceived as being more friendly to business and capital; however, restrictions on visa programs and trade agreements with countries that supply labor and human capital to Silicon Valley startups could be problematic for VC-backed companies. Uncertainty remains an important theme when contemplating the future.
Realized returns are the handmaiden to attracting new capital. On that front, activity was encouraging during 1Q17 with $14.9 billion of VC-backed exits realized, helped in part by a pick-up in IPO activity. Some of the investments that were monetized will be reinvested in the sector. Among venture funds, 58 raised (or obtained commitments for) $7.9 billion of new capital in the first quarter.
Mercer Capital provides portfolio valuation services for hedge funds, business development companies, private equity firms, and insurance companies. We work with the company and its Board of Directors, audit committees, and fund administrators. Our professionals frequently research and publish on current market trends in the portfolio valuation and venture capital sector.
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