The Stock Market Is Loving Private Equity’s New Normal
The rally in buyout firms’ stocks has gained further fuel from quarterly updates. As sentiment improves, the margin for error narrows.
CVC will get another crack at an IPO at a higher valuation.
Photographer: Bloomberg/BloombergThe private equity industry has rediscovered its mojo. The latest updates from the publicly traded firms specializing in the asset class satisfied investors’ appetite for bullish vibes from the leadership teams. As shares in alternative investment managers build on an already strong recovery, the risks of disappointment can only mount.
The stunning change in sentiment around private capital managers is driven by confidence that interest rates have peaked, bringing some predictability to the cost of capital. Spreads – the extra cost to reflect the risk of the borrower – have fallen. Buyout firms should find it easier to refinance existing investments and initiate new transactions that see idle client funds — “dry powder” — start earning fees.