Market Tenor
The market provided maneuvering room for private equity and credit funds during the second quarter as it relates to quarter-end marks. Following a dramatic four week sell-off that occurred during the last week of February through March 23, both equity and credit markets staged strong rebounds during the second quarter as liquidity returned to markets.
Sponsors probably breathed a sigh of relief that second quarter mark downs were not as severe as feared at the end of March when funds and their advisors were still assessing what was transpiring.
Arguably, the elephant in the room is the Federal Reserve, which launched a series of asset purchases on its own (U.S. Treasuries and Agency MBS) and in conjunction with the U.S. Treasury via special purpose vehicles. Although limited, Fed purchases included investment grade credits purchased in the primary and secondary markets and, more controversially, recent fallen Angel junk bonds that were investment grade rated as of March 22 (e.g., Ford Motor Company) and high yield ETFs. The Fed also launched direct lending programs.
The Fed’s actions raise an important question: Is the rebound in risk assets a function of an improved outlook for the economy and company fundamentals; or, is it a function of a liquidity deluge?
As it relates to marking private equity and credit positions, we at Mercer Capital monitor market data; however, we are keenly focused on company and industry fundamentals as the long-term driver of investment returns. We acknowledge the challenge of establishing fair value marks when it is unclear if earning power should be based upon pre-COVID and/or post-COVID earnings.
If your fund or management firm need assistance in assessing fundamentals and market data to establish markets or obtain a second opinion, please call. We have nearly four decades of experience analyzing both.
Also in This Issue
Updated Metrics for
Private Credit and Equity
Publicly Traded Private Credit
Venture Capital