Investors Seek Exits, Leading to Discounted Unloading of Private Equity Stakes

Ukadike Micheal

Economic

Bond

Stocks

Summary:

US institutional investors are increasingly selling their private equity holdings at reduced prices to reduce exposure to illiquid assets and raise capital. This trend reflects a growing reliance on the secondary market to meet liquidity needs.

US institutional investors are increasingly offloading their private equity holdings at discounted rates as they seek to reduce exposure to illiquid assets. This trend, led by pension funds and endowments, reflects a growing reliance on the secondary market to address liquidity needs.

According to Jefferies, 99% of private equity holdings were sold at or below their net asset value on the secondary market in the previous year, marking a significant increase from previous years. This surge in secondary sales comes amidst subdued activity in traditional exit avenues such as stock listings and mergers and acquisitions.

Public pension funds, in particular, are facing pressure to generate cash for payouts to beneficiaries, prompting them to expedite the process through secondary market transactions. This shift in strategy underscores a realization among investors that liquidity considerations are crucial, even in high-return asset classes like private equity.

While institutional investors have historically viewed private equity as a low-risk, high-return investment, the current environment challenges this perception. The rise in allocations to private equity over recent years, coupled with subdued exit opportunities, has prompted investors to reevaluate their portfolios.

The secondary market has experienced significant growth, with global transactions reaching $112 billion last year, driven by investors seeking to rebalance their portfolios and reduce overallocation to private equity. Higher interest rates have also contributed to discounts in the secondary market, as investors seek higher yields in fixed-income assets.

In response to market dynamics, pension funds like the New York State Teachers' Retirement System have actively engaged in secondary sales to realign their portfolio allocations. These transactions serve as rebalancing measures to bring allocations in line with target levels.

Despite recent shifts in market sentiment, discounts on the secondary market remain prevalent, reflecting investors' urgency to liquidate illiquid assets. Sellers, eager to address liquidity concerns, have been willing to accept lower prices, even at a greater discount than anticipated.

Looking ahead, the trajectory of the private equity secondary market will likely be influenced by broader economic factors and investor sentiment. While recent indications of a potential interest rate decrease by the Federal Reserve may alleviate some pressure on discounts, the overall outlook remains uncertain.

The increased activity in the private equity secondary market underscores the evolving investment landscape for institutional investors. As they navigate market volatility and liquidity constraints, strategic asset allocation and prudent risk management will be paramount in optimizing portfolio performance.

Source: Financial Times

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Ukadike Micheal

Commodity

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Forex

Economic

Global markets experienced a notable upswing on Thursday, driven by optimism surrounding potential U.S. rate cuts and positive economic indicators. The yen weakened against most currencies, while gold remained near record highs. Industrial commodities such as oil and copper saw significant gains, boosting shares in basic materials and energy sectors.

The surge in global shares was fueled by supply disruptions, geopolitical tensions, and a positive outlook on global growth, supported by recent PMI data, especially from China. Federal Reserve Chair Jerome Powell's reaffirmation of potential rate cuts further bolstered market sentiment, despite the uncertainty surrounding the timing of such actions.

In the U.S., S&P 500 and Nasdaq futures posted gains, while Europe's STOXX 600 index also showed a slight uptick. Government bonds, which experienced volatility earlier in the week, stabilized following a price rally. The case for easing was reinforced by a decline in the U.S. services sector's prices paid index, offsetting concerns raised by the manufacturing sector's data.

The Institute for Supply Management (ISM) survey played a significant role in shaping market expectations, overshadowing the strong ADP jobs report. Investors eagerly awaited the official payrolls report, with Goldman Sachs revising its forecast upwards based on the recent data.

Market dynamics have shifted as investors reassess the pace and extent of potential rate cuts by the Fed. Expectations have moderated, with a reduced likelihood of a June rate cut and a more gradual decline in rates throughout the year and into 2025. This adjustment has impacted Treasury yields, pushing them to a four-month high before a slight retreat.

The strengthening dollar, particularly against the yen, has been a notable trend, prompting concerns about potential intervention. Other major currencies have also experienced fluctuations, with the euro and Canadian dollar showing resilience. Gold prices surged to a new high, driven by various factors including momentum fund activity.

Oil prices remained elevated amid geopolitical tensions, with Brent crude hovering near a five-month high. Copper prices also saw an uptick, reaching levels not seen since early 2023. The market outlook remains influenced by ongoing global events, including the conflict between Israel and Hamas.

The current market landscape reflects a delicate balance between economic indicators, geopolitical developments, and central bank policies. Investors are closely monitoring data releases and geopolitical events for cues on market direction. The evolving narrative underscores the interconnectedness of global markets and the need for a cautious yet proactive approach to investment decisions.

Source: Reuters

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Ukadike Micheal

Forex

Economic

The European Central Bank (ECB) asserts its independence from the Federal Reserve as it prepares to initiate interest rate cuts ahead of the US counterpart. However, despite this claim, the ECB's subsequent policy decisions may still be influenced by developments in the US economy, as trends in the world's largest economy tend to swiftly spill over into other regions, impacting financing conditions, exchange rates, and various economic metrics.

For ECB officials convening to deliberate on the timing and magnitude of monetary easing, the interconnectedness of global economies underscores the necessity of closely monitoring US developments. Although they emphasize charting their own course, ECB policymakers acknowledge the gravitational pull exerted by the Fed's actions on the broader economic landscape. US Economic Trends Expected to Influence Euro-Area Economy, Despite ECB's Stance_1

US Economic Trends Expected to Influence Euro-Area Economy, Despite ECB's Stance_1

While the ECB may move independently before the Fed, the prospect of sustained divergence in policies becomes challenging over an extended period. Ultimately, decisions made by the Fed are likely to reverberate across the Eurozone, influencing economic dynamics and policy considerations.

Traders anticipate multiple rate cuts by the ECB in response to rapidly easing price pressures, contrasting with uncertainty surrounding the Fed's rate trajectory. Despite recent resilience in the US economy, characterized by robust hiring and economic growth, the possibility of policy accommodation by the Fed remains uncertain, reflecting Chairman Jerome Powell's cautious approach to rate reductions.

The interplay between US and Eurozone economies extends beyond monetary policy, encompassing factors such as inflation trends and business confidence. Recent indicators suggest a tentative recovery in Europe, with business sentiment improving alongside moderate inflation rates. However, challenges persist, underscoring the ECB's cautious approach to easing monetary policy.

While Economics forecasts a slowdown in Eurozone inflation, aligning with the ECB's target, the path of monetary easing remains subject to uncertainty. ECB policymakers must navigate evolving economic conditions and balance the need for stimulus against potential risks to financial stability.

The ECB's ability to diverge from the Fed's path has been demonstrated in the past, indicating the potential for independent policy action amid global economic dynamics. However, the Swiss National Bank's recent decision to lower borrowing costs highlights the interconnectedness of central bank actions in responding to economic challenges.

While the ECB aims to assert its autonomy in navigating economic challenges, the influence of US economic trends remains significant. As policymakers weigh monetary policy decisions, they must carefully consider the implications of global economic interdependencies, ensuring stability and resilience in the Eurozone economy.

Source: Bloomberg

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Ukadike Micheal

Economic

Forex

Swiss inflation unexpectedly slowed in March, rising only 1% year-on-year, contrary to economists' predictions of a 1.3% increase. This unexpected easing validates the Swiss National Bank's recent surprise decision to cut interest rates, signaling the possibility of further rate cuts in the future.

The central bank's move, the first rate reduction by a Group-of-10 central bank since the global inflation shock, was prompted by outgoing President Thomas Jordan's belief that there's "very little risk" of price gains exceeding the 2% upper limit of the bank's target range. Despite this, the central bank had previously forecasted a slight acceleration in inflation over the second and third quarters, largely attributed to anticipated rent hikes. Unexpected Slowdown in Swiss Inflation Validates SNB Rate Reduction_1

Unexpected Slowdown in Swiss Inflation Validates SNB Rate Reduction_1

Following the release of the inflation data, the Swiss franc weakened against the euro, reaching its lowest level since June. This depreciation, coupled with the surprise rate cut, has intensified speculation about further rate reductions by the SNB.

The decline in Swiss inflation in March was driven by factors such as holiday lets, cars, and private transportation. Even the core inflation gauge, which excludes volatile elements like energy and food, experienced a decrease.

While SNB Vice President Martin Schlegel attributed most of Switzerland's consumer price growth to rising service prices, he reiterated the central bank's commitment to maintaining price stability over the medium term.

In contrast to the subdued inflation in Switzerland, the surrounding euro area saw prices rise by an annual 2.4% in March. Switzerland's gauge, based on the European Union's harmonized measure, came in at 1.1%.

From a technical perspective, the unexpected slowdown in Swiss inflation raises questions about the underlying drivers of economic activity in the country. Factors such as holiday lets, car sales, and private transportation costs play a significant role in shaping consumer spending patterns and overall inflation trends. Moreover, the Swiss National Bank's decision to cut interest rates in response to subdued inflation highlights the delicate balance between supporting economic growth and maintaining price stability. As policymakers navigate these challenges, they must carefully monitor inflationary pressures and adjust monetary policy accordingly to ensure sustainable economic expansion.

Overall, the unexpected easing of Swiss inflation underscores the challenges facing the economy and the central bank's efforts to maintain stability. The potential for further rate cuts reflects a proactive approach to address economic headwinds, although the impact on monetary policy remains uncertain. As markets digest these developments, attention will be on future inflation data and central bank decisions, shaping investor sentiment and market dynamics in the coming months.

Source: Bloomberg

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Stocks

Commodity

Stocks edge higher as Chairman Powell sounds reassuring

The market continues to be driven by fundamentals, reacting to almost every single piece of data. We remain in the “bad data is good news” phase as the market yesterday tried to largely ignore the stronger ADP employment report, which has lost some of its predictive ability regarding Friday's non-farm payroll, and focused on the weaker ISM services PMI.

While the decrease in the headline ISM was decent, the stock market probably got a bit excited when it drilled down the data and discovered that the prices paid subindex dropped to the lowest point since March 2020. This is probably the strongest indication to date of abating inflationary pressures in the US economy.

Therefore, tomorrow's labour market report is even more important for sentiment. US stock indices finished Wednesday's session in the green but there is angst and uncertainty about the short-term outlook which could quickly result in a sizeable correction if tomorrow's data fails to point to a weakening labour market.

Fed Chairman Powell tried to downplay the importance of the stronger data prints and reassure the market about the Fed's rate cut aspirations, but it is obvious that the US economic outlook remains positive.

This situation is fueling hawkish commentary from some Fed officials, which the market does not enjoy. On Wednesday, Atlanta Fed Governor Bostic, a 2024 voter, talked about the first rate cut taking place in the final quarter of 2024. Eight more Fed speakers will be on the wires during today's session covering the entire spectrum of doves and hawks and potentially impacting today's market sentiment.

Oil rallies as euro area inflation eases further

In the meantime, oil prices continue to rise with certain investment houses pointing to further upside. Various reasons could explain the current move including geopolitical developments, supply issues and the renewed dollar weakness, but some market participants are pointing to China's growth picking up pace. If this is indeed the case, it could prove to be the most important development in 2024 so far with strong implications across the globe and especially the euro area.

Yesterday's euro area aggregate inflation report confirmed expectations for a weaker print with the core indicator dropping below 3% for the first time since March 2022. There is a strong belief that the ECB is preparing for its rate cut announcement in June with the foundation possibly being laid out at next week's ECB meeting. Today, the minutes from the last ECB meeting will be released but they do not tend to be market-moving.

Gold reached $2,300, bitcoin under pressure

Gold continued its journey north reaching a new all-time high above $2,300 earlier today, benefiting from the renewed dollar weakness. On the flip side, bitcoin remains under pressure, matching partly the US stock markets' performance and preparing for an action-packed Friday session.

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Thomas

Cryptocurrency

Commodity

Spot gold prices have reached an all-time high, resulting in a resurgence of Bitcoin derision from the precious yellow metal’s investors.

Gold hit an all-time high of $2,304 per ounce on April 3, according to the American Hartford Gold Group, posting an 11.5% year-to-date gain for the usually slow-moving asset.

Gold started gaining momentum in mid-February, rising from around $2,000 per ounce to over $2,200 in late March, having held up well alongside other safe-haven assets due to growing global tensions, uncertainty over possible interest-rate cuts and de-dollarization Hartford Funds investment strategist Nanette Abuhoff Jacobson told MarketWatch on April 3.

Goldbugs Renew Mocking Bitcoin as the Yellow Metal Hits All-Time High_1

Bitcoin is sometimes referred to as “digital gold,” but the real gold's price peak sparked renewed mockery from goldbugs and Bitcoin belittlers.

Gold bull and Bitcoin detractor Peter Schiff said in an April 3 X post that so far in the second quarter of 2024, Bitcoin is down 7% while silver and gold are respectively up 8.7% and 3.4%, claiming: “The results speak for themselves.”

However, the second quarter began three days ago at the time of Schiff’s post and BTC has gained 55% this year, eclipsing gold’s gains over the same time by a factor of five.

In a follow-up post, Schiff claimed it might be the “last chance to sell your Bitcoin and buy some gold and silver at favorable prices.”

“If you fail to act, have fun staying poor,” he claimed.

The irony was not lost on some of the respondents, crypto trader “Quasar” said that they didn’t “have another 60 years to wait for gold to go up another $1,500.”

Bytetree analyst and researcher Charlie Morris also took a swipe at Bitcoin in an April 3 X post, commenting that gold has reached its all-time high “without electricity consumption” — referring to Bitcoin’s power-intensive mining process.

However, environmentalist and Bitcoin ESG researcher Daniel Batten was quick to point out that the energy required for gold extraction is mostly from fossil fuels, adding:

“[Gold] has a much higher environmental impact and emission intensity than Bitcoin mining, which is fully electrified, and does not leave mercury or arsenic in the local land and water supply.”

Goldbugs Renew Mocking Bitcoin as the Yellow Metal Hits All-Time High_2

Swan co-founder Brady Swenson added: “How can you be a gold bug and not understand the gold mining process[?] I visited a gold mine once, it was apocalyptic.”

Meanwhile, the 14 leading gold-tracking exchange-traded funds (ETFs) had lost $2.4 billion from the start of the year to mid-February, in contrast to spot Bitcoin funds which had seen $3.89 billion in inflows over the same period.

Source: CoinTelegraph

Risk Warnings and Disclaimers

Add to Favorites

Economic

Stocks

Stocks higher as Chairman Powell sounds reassuming

The market continues to be driven by fundamentals, reacting to almost every single piece of data. We remain in the “bad data is good news” phase as the market yesterday tried to largely ignore the stronger ADP employment report, which has lost some of its predictive ability regarding Friday’s non-farm payroll, and focused on the weaker ISM services PMI.

Therefore, tomorrow’s labour market report is even more important for sentiment. US stock indices finished Wednesday’s session in the green but there is angst and uncertainty about the short-term outlook which could quickly result in a sizeable correction if tomorrow’s data fails to point to a weakening labour market.

Fed Chairman Powell tried to downplay the importance of the stronger data prints and reassure the market about the Fed’s rate cut aspirations, but it is obvious that the US economy outlook remains positive.

This situation is fueling hawkish commentary from some Fed officials, which the market does not enjoy. On Wednesday, Atlanta Fed Governor Bostic, a 2024 voter, talked about the first rate cut taking place in the final quarter of 2024. Eight more Fed speakers will be on the wires during today’s session covering the entire spectrum of doves and hawks and potentially impacting today’s market sentiment.

Oil rallies as euro area inflation eases further

In the meantime, oil prices continue to rise with certain investment houses pointing to further upside. Various reasons could explain the current move including geopolitical developments, supply issues and the renewed dollar weakness, but some market participants are pointing to China’s growth picking up pace. If this is indeed the case, it could prove to be the most important development in 2024 so far with strong implications across the globe and especially the euro area.

Yesterday’s euro area aggregate inflation report confirmed expectations for a weaker print with the core indicator dropping below 3% for the first time since March 2022. There is a strong belief that the ECB is preparing for its rate cut announcement in June with the foundation possibly being laid out at next week’s ECB meeting. Today, the minutes from the last ECB meeting will be released but they do not tend to be market-moving.

Gold reached $2,300, bitcoin under pressure

Gold continued its journey north reaching a new all-time high above $2,300 earlier today, benefiting from the renewed dollar weakness. On the flip side, bitcoin remains under pressure, matching partly the US stock markets’ performance and preparing for an action-packed Friday session.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites