Market Tenor
The third quarter is off to a great start for private equity and credit. Public market and acquisition markets are strong; debt capital is plentiful and available at record low yields. SPAC IPOs have slowed (~$120 billion YTD) but SPACs have lots of capital to deploy and have become another liquidity option for VC-backed companies that by-pass a traditional IPO.
A buoyant environment for harvesting assets at high prices and often high realized returns creates a virtuous cycle to raise more capital based upon those returns. Arguably investing new capital today at high multiples sets the stage for low returns later, but the future is unknowable.
We will stay away from generalizations such as VC-backed private companies and freshly minted public ones are overvalued. Rather, we look to accounting guidance to marking private equity and credit positions. Fair value has a very specific meaning and must be measured accordingly; fair value is not the asset owner’s investment thesis.
Fair value is defined in the relevant accounting standards as:
“The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
Accounting definitions notwithstanding, the “exit market” is hot. Robinhood Markets is a good example. Its July IPO was one of the larger fintech IPOs in which $2 billion was raised in an IPO that valued the company at $32 billion. A few weeks later the market cap is nearing $50 billion.
High or not, there is nothing like transaction data to validate valuation marks for private assets.
FEATURE ARTICLE
The SEC Adopts New Rule 2a-5 for Valuation of Fund Portfolio Investments
Also in This Issue
Updated Metrics for
Private Credit and Equity
Publicly Traded Private Credit
Venture Capital