Managing the great private equity portfolio revaluation: Linedata can help.
Private Equity has been a major beneficiary of quantitative easing and ultra-low interest rates for more than a decade. With institutional investors searching for higher yields, PE firms have witnessed an unprecedented increase in their AUM. A massive influx of capital combined with readily available leverage, low inflation, and rock-bottom interest rates created a deal-making frenzy, driving private asset prices up to record highs.
But the easy pickings in private as well as public equity markets may well be over. With quantitative tightening, the reckoning was already on its way. Added to this, the long-term effects of Covid-19 and massive geopolitical upheavals such as the Russia-Ukraine crisis have meant major disruptions across global supply chains and a surge in energy prices. These factors have together resulted in growing, potentially runaway inflation – a problem that leading world economies have not dealt with in decades.
Central banks across the globe are raising interest rates, increasing the cost of capital, and putting an end to this era of cheap, easy credit. Global recession is once again a reality, and inflation (or more likely its evil twin stagflation) is back in a big way, reducing public and private asset values and depressing profit forecasts. Equity and fixed income markets are both affected. This is a perfect storm.
Continual revaluation of private equity portfolios is now a reality
The private equity industry has been massively affected. As valuations have fallen, returns have diminished. Macroeconomic worries and rising inflation have caused many PE players and trusts to write down their unlisted holdings. As one example, Scottish Mortgage made over 350 modifications to valuations across more than 80 different instruments; 96% of their private portfolio underwent at least two revaluations, with the majority of holdings being written down.
This example shows just how much workflow is being generated as product control teams and valuation groups within private equity firms recalibrate discount rates and other valuation parameters for their underlying positions. And meanwhile, the PE industry is bracing itself for even more work as distressed assets become increasingly available with the economic slowdown.
How Linedata can get you through the storm
We are a valuations support solutions provider to the global private equity industry. Linedata guarantees that our private markets clients have immediate access to highly skilled and versatile teams who can provide additional support when the situation demands it.
In this period of rising salary expectations amid declining profit margins, we give our clients breathing space. You can enjoy a stable, cost-effective solution to augment and sharpen your middle office capabilities through our proven global outsourcing capabilities.
Our analysts, who are Masters or MBAs in finance (many are CFAs or FRMs), provide specialized services to leading hedge funds, CLO managers, private equity, and private credit firms. They hit the ground running, conducting asset revaluations, and can take the weight off the shoulders of already hard-pressed and expensive in-house staff, freeing them to focus on evaluating new opportunities.
If you and your team need to revise and recalibrate valuation parameters for multiple underlying GP positions for example, or draft memos to rationalize revised valuation assumptions and methodologies, our analysts are there to take the pressure off your team.
Our experts can maintain and create trackers to constantly monitor risky exposures and gather required documentation to support the numbers in valuation models.
Perhaps most importantly from a vital regulatory point of view, they can quickly respond to queries from auditors and other third-party administrators.
Why Linedata as opposed to other outsourced valuation agencies?
Compared to many global financial consultancies or outsourcing experts, Linedata’s capabilities are not spread across different industries or verticals.
We have a 20-year record as independent operators within private equity and credit markets. In fact, if we trace back the origins of the company’s principals, we offer decades of experience in servicing asset managers, particularly in hedge fund and global private equity management.
Combined with that, we focus on integrating our technological capabilities with our deep expertise in research, analysis, and the valuation of private equity portfolios. This combination allows us to address situations through our domain experts. We also have the capabilities to initiate and implement automation through Artificial Intelligence (AI) and Machine Learning (ML), using whichever IT platforms are best suited to a given situation. We can also provide customized solutions as opposed to standardized reports and models which are not individually tailored to a company’s specific operations.
To sum up, we have our roots in technology combined with deep domain knowledge in private finance, whether in valuations or research, thus delivering value across your operations.
About the author, Bishnupada Patnaik
Bishnupada Patnaik, Senior Director, Linedata heads Linedata’s Investment Data Analytics business. He has two decades of experience setting up outsourcing, co-sourcing, and offshoring solutions that help global and regional investment managers achieve efficiencies and scale in their risk, research, and data analytics processes.