Private Markets and the End of Cheap Money

A paradigm shift from an era of free money — that’s how industry veteran Jeremy Coller, founder and CIO of his eponymous firm, described the impact of rising interest rates on the private equity industry to PEI senior editor Adam Le. As this era comes to an end, it’s “very clear to me that people are going to be caught with their pants down”, he added.

Exactly how the rising cost of borrowing is playing out across the private equity industry is what various editorial teams from the PEI Group stable have been looking into over the past few months for our podcast series, Private Markets and the End of Cheap Money.

In this first episode, we look at how higher interest rates are playing out in private equity transactions and why certain areas of M&A (deals in the mid-market, in particular) may be facing outcomes different from what you might expect.

Mary Kathleen Flynn, editor-in-chief of PE Hub, spoke with a wide range of dealmakers, including private equity firm leaders, lenders and investment bankers, about the impact of high interest rates and other factors like high inflation on private equity-backed transactions.

In this second installment, we look at how higher interest rates are impacting limited partners and their ability to provide private equity funds with fundraising capital, the lifeblood of the industry.

Chris Witkowsky, editor of affiliate title Buyouts, spoke with LPs and consultants about how institutional investors are approaching the higher-rate environment, including by potentially shifting asset allocations. Significantly, LPs discuss what they are looking for in GPs amid the new environment.

In this episode, we speak to those on the front line about both the challenges and opportunities for private debt as we head into 2023.

Andy Thomson, senior editor of affiliate title Private Debt Investor, and Robin Blumenthal, Americas editor, discovered much optimism as the banks once again pull back from lending activities – widening the space for private debt to move into. They were also told of the difficulties borrowers are likely to face as rising rates put pressure on their ability to service debt. It’s a mixed picture as the asset class heads into a new year.

In our fourth episode, PEI Group editors Adam Le, Graham Bippart and Alex Lynn, based in London, New York and Hong Kong, respectively, discuss how currency fluctuations are creating opportunities for some investors; how currency hedging products are on the rise; how private capital capital has been moving away from China to regions such as Southeast Asia; and how private credit funds are stepping in to fill the role of banks more in some global regions than others.

In this final episode, we hear from LPs and GPs who share what key indicators they keep their eyes on to help make sense of the rising interest rate environment. Executives from Corsair Capital, BC Partners, British Columbia Investment Management Corporation, Investment Management Corporation of Ontario, MidEuropa Partners, RIAM Alternatives and Oaktree Capital Management told us what signs and signals they look for. These include: inflation, currency moves and, surprisingly, the cost of energy in Europe and unsolicited offers for portfolio companies.

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Exactly how the rising cost of borrowing is playing out across the private equity industry is what various editorial teams from the PEI Group stable have been looking into over the past few months for our podcast series, Private Markets and the End of Cheap Money.

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