Top 5 Areas of Interest in Private Equity Right Now

June 8th, 2017

1. Lower Middle-Market Buy and Build Middle market buyout funds may provide a more attractive opportunity than mega-buyout funds which have surged in popularity and purchase valuations since 2010. Middle-market private equity firms target smaller companies that can be purchased at lower valuations. Many use a buy-and-build strategy which seeks to combine two or more smaller companies with the intention of squeezing out operational synergies and selling the combination to a larger strategic acquirer at a premium valuation.

2. International Markets

Opportunity develops as international private equity markets grow to maturity. European private equity weathered Brexit and geopolitical fears to raise an impressive $107 billion in 2016. Venturing eastward, there are high hopes for the Asia Pacific region. Firms have professionalized the process of making innovative American business models relevant to the Asian marketplace, as in the case of Alibaba and Tencent. And in Japan, deal flow has benefited from the surge in founders nearing retirement and looking for successors.

3. Uncorrelated Markets

Private investment in uncorrelated assets, such as movie and music royalties, can help to create a balanced private market portfolio. These strategies tend to be less correlated with public markets and may provide income earlier in the life of PE investment. For example, we didn’t see much of a correlation between the royalties for “Dude, Where’s My Car?” and the stock market. Even during recessions, people still need to laugh.

4. Healthcare Venture Capital (VC)

Healthcare VC has made a bit of a comeback. Valuations for Series A & B investments have increased due to improving market sentiment and the promise of deregulation. While buyout firms are beginning to take an increasingly large role in healthcare with notable transactions such as TPG’s buyout of Par Pharmaceuticals and Clayton, Dubilier & Rice’s acquisition of Envision Healthcare, venture capital is better positioned to invest in the early stages of innovation.

5. U.S. Energy

We like U.S. energy for two reasons: (1) Oil falling from around $100 per barrel in 2014 to $50 per barrel today has created an opportunity to invest in distressed assets at an attractive discount and (2) The shale oil boom. Proximity to newly developed fields and improving technology is creating a lot of interest.

Glenmede’s Top 5 is intended to be an unconstrained review of matters of possible interest to Glenmede Trust Company clients and friends and is not intended as personalized investment, estate planning, tax or legal advice. Investment and wealth advice depends on many individual facts and circumstances we cannot account for here. For legal and tax advice, consult your lawyer or accountant. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information gathered from other sources is assumed to be reliable, but accuracy is not guaranteed. Outcomes (including performance) may differ materially from expectations herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. Private investments may not be suitable for every investor due to inherent illiquidity and other risks, and are only available to clients who meet specific qualification requirements.  There is no guarantee that any of the investments mentioned here, or equivalent investments, will be available even to qualified investors. All investments have risk. Please contact your Glenmede representative to discuss the applicability of any matter discussed herein.