Daily Update: Secondary Markets Grow in Private Equity

Today is Tuesday, October 29, 2024, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global.?Subscribe?to be notified of each new?Daily?Update.?

Once upon a time, private equity was simple — buy a company, clean it up, sell it off. The specifics of leveraged buyouts and debt financing may have gotten complex, but the basic business model was to buy a private company, find a way to unlock value, and sell it for more than you’d paid for it. That model worked well, provided you could find someone to buy the company. But an increasingly convoluted exit landscape has made it difficult to cash out. This has added a new wrinkle — the secondary market, where private equity firms buy and sell companies between themselves. Sellers in that market can realize some of the profit they have unlocked in their portfolio company and return money to investors. Buyers can get undervalued assets while exits are difficult.

S&P Global Market Intelligence recently held a webinar on “The PE secondaries surge: Identifying trends, strategies and challenges,” with the key takeaways published in an article.

Private equity firms (general partners) and investors (limited partners) have grown frustrated by the slow pace of exits and the illiquidity of private equity investments. Rising interest rates have limited the influx of cheap capital into private markets, reducing the number of buyers. As a result, secondary investments have grown significantly as an asset class in private markets. The size of the market and the pace of growth seem to indicate that secondaries are here to stay, even if the pace of exits picks up again.

Another challenge for private equity funds has been the relative paucity of quality target companies; the sheer volume of dry powder indicates a market where buyers are not tempted by the assets available. However, “trophy assets” in the secondary market can help a private equity firm with its next round of fundraising.

For regulators, there is some concern about self-dealing between private equity firms to support unrealistic portfolio company valuations. Transparency, education and consistency are three ways that private equity companies can build a standardized valuation framework. There is debate in the market about continuation funds, which extend the holding period of assets or portfolios. Some participants see these funds as occupying a moral gray area, where the same general partners are sitting on both sides of a transaction. Others believe that continuation funds, like secondary markets in general, can introduce liquidity and dynamism into private markets.

Today is Tuesday, October 29, 2024, and here is today’s essential intelligence.

Written by Nathan Hunt.

Sustainability

The CCS Imperative: Enhancing Capacity To Mitigate Upstream Emissions In Asia-Pacific

The deployment of carbon capture and storage is crucial to achieve substantial reductions in upstream emissions. CCS has the potential to reduce lifecycle emissions of upstream oil and gas assets by up to 60%, according to Vantage Upstream Enhanced Emissions datasets from S&P Global Commodity Insights. This reduction is contingent upon several factors, including the CO2 content of resources, and the timeline between hydrocarbon production and CCS implementation.

—Read the article from S&P Global Commodity Insights

Read all Sustainability insights

Economy

Mexican Structured Finance Market Update: Spotting Opportunities Amid Economic Challenges

Mexico's challenging economic landscape has significantly impeded structured finance issuance. However, the market still has significant potential, and there are growing opportunities in several sectors. S&P Global Ratings recently held a series of meetings with several market participants, including arrangers, bankers and investors.

—Read the article from S&P Global Ratings

Read all Economy insights

Capital Markets

Private Equity Flows To UK Renewables Surpass Investment In US

Global private equity and venture capital investment in the UK renewables sector during the first nine months of 2024 outpaced flows to the US. Renewable energy companies based in the UK pulled in $7.96 billion year to date through Sept. 30, surpassing the combined total of the previous four years, according to S&P Global Market Intelligence data. The amount also far exceeds private equity flows during the same period to the US renewables sector, which has typically attracted more investments than the UK in past years.

—Read the article from S&P Global Market Intelligence

Read all Capital Markets insights

Global Trade

Asian Cobalt Market To Face Pressure From Oversupply, Weak Demand In Q4

Asian cobalt sulfate and hydroxide prices are expected to remain under pressure due to a combination of oversupply and weaker-than-anticipated demand in the battery sector heading into the fourth quarter of 2024. Market sentiment for cobalt sulfate is expected to stay bearish, as demand from nickel-manganese-cobalt (NMC) batteries in electric vehicles (EV) softens amid the shift in battery and EV preferences.

—Read the article from S&P Global Commodity Insights

Read all Global Trade insights

Energy & Commodities

Listen: State Support: UK Makes Great British Energy As Clean-Energy Champion

The United Kingdom established state-owned Great British Energy in July 2024 to develop domestic clean energy supply, create jobs and advance the country's net-zero ambition. Glenn Rickson joins EnergyCents hosts Hill Vaden and Sam Humphreys to discuss what role this company will play in the renewable power sector and impact this will have on risk tolerance for future clean energy developments.

—Listen and subscribe to the podcast from S&P Global Commodity Insights

Read all Energy & Commodities insights

Technology & Innovation

Cyber Risk Brief: UK Public Sector Is Increasingly Under Threat

The UK public sector remains a key target for cyber attacks. The increasing digitalization of public services, including the use of artificial intelligence, is adding to public sector entities' financial and operational risk. Despite increasing investments in cyber security overall, S&P Global Ratings believes that further cyber attacks could occur, potentially disrupting critical services and leading to financial and reputational damage.

—Read the article from S&P Global Ratings

Read all Technology & Innovation insights

Events & Webinars

On-Demand Webinar: US Election: Calculating The Impact On The Automotive Ecosystem

As the 2024 US election approaches, uncertainty looms over the automotive industry. Significant shifts in policy — including regulations, incentives and tariffs — could be coming, depending on election outcomes. So how can businesses prepare for what's next? In this 20-minute webinar, S&P Global Mobility experts will show you how you can assess the potential impact of different election scenarios on your company and the automotive ecosystem.

—Watch the on-demand webinar from S&P Global Mobility

View all S&P Global events