Key takeaways from this edition
Private credit
The current environment is extremely conducive to executing conservatively structured transactions. Leverage levels on new transactions across the market have declined, while Loan-to Value (LTV) metrics have meaningfully improved. Given the improved structures, current transactions are being completed with significant equity in a first-loss position. We are anticipating an improved opportunity set within distressed and special situations debt, as the $6 trillion market across leveraged credit is quite sizable on an absolute basis. Meanwhile, commercial real estate debt is anticipated to remain highly attractive, especially for those with favourable sources of financing.
Private equity
We have seen a heightened focus on growth equity strategies, with illustrated growth equity representing roughly one out of every five deals during the quarter. The growth equity deal count is on pace to potentially exceed total LBO volume, if you exclude add-on transactions. This highlights the continued theme, reflecting a more favourable opportunity set for companies that can rely on organic growth to drive return.
Real assets
Capital markets are disrupted as yields and cap rates are increasing in reaction to elevated interest rates. While asset values continue to reprice, banks are focused on existing loan books and so offer limited new liquidity. This is impacting the volume of real estate transactions in all key markets.
Infrastructure
The level of dry powder remains elevated and valuations, similar to those in real estate, have not backed up with base rates. However, near term fundamentals are strong and secular tailwinds are supportive.
Commodities
Commodity prices remain volatile and rangebound across most sub-complexes. While our secular trend assessment is currently net attractive, we caution it is subject to sudden change.
