> There is a LOT of money still sitting on the sidelines waiting to be deployed. And it WILL be deployed, that’s what investors do.
Reminds me of the saying: "Venture Capital starts with too many good ideas chasing too little money, and ends with too much money chasing too few good ideas."
checkout the citrix bond situation. unable to raise targeted goal through issuing corporate yields. its really scary we are seeing corporate bond yields spiking and liquidity drying up.
if a legitimate large corporation is having trouble raising money, its a huge red flag.
Citrix was struggling to borrow $4Bn for a leveraged buyout, they issued bonds that effectively yield 10% annually. That's a massive return we haven't seen forever in fixed income.
Yeah, sure. That being said, the fact that there haven't been any other deals like this this year is a suggestion that the market for them has changed, mostly independently of the company involved.
its not just Citrix but corporate bond liquidity was highlighted in 2019 then the pandemic happened and everybody just glossed over it. now the pace of liquidity crunch across all corporate bonds is picking up as rates pick up.
The curious part is that even with insane returns, they still struggled to get attention from institutional investors who appear to be a mix of cash and short positions.
If you have to ask, probably the better approach is to buy a junk bond ETF like any of the ones on [0]. This will give you a more diversified portfolio than just betting on Citrix.
It’s definitely a buyout specific problem; deals that were inked before the Fed’s rate increases have pretty unattractive terms compared to the current market conditions. There’s a supply glut of buyout debt at those terms, underwriting banks are the ones holding the bag.
the thing is this corporate bond liquidity issue is not new. first alarms were raised in 2019, then they printed money like crazy in 2020, and now they are tightening and we are seeing bond liquidity meltingdown.
theres a very real chance that 10% yield will spike further and downgraded
It’s like leasing a building to a first time restaurant owner or a big public company doing restaurants and getting identical rent. One is more durable (and valuable) than the other. But it gets left out of cash flow.
i don't think it's that simple. pretty much every asset class posting shitty returns this year, hell even bonds are in a bear market. so institutionals are gonna look at other managers and see a bunch of red and not necessarily stop alt allocations.
it's also relevant that you can't just ask for capital back as an LP. it's committed to a fund. you can not commit to another one but the price of much greater returns in alt assets is much lower liquidity.
Surely 'all asset classes' can only drop relative to some exception, where is everyone taking their money? I know we have significant inflation, are people going into cash despite it?
Well no. Valuations are based at least in part off discounted future cashflows at a very basic level. If projected cashflows drop enough due to bad economic conditions the value of everything will drop. If you think at a basic level there is less capital to return to shareholders via buybacks or dividends.
Also the fed finally stopped propping up valuations with QE, money is leaving the economy (about damn time).
FWIW VC/PE/some other private stuff isn't actually down yet at least not on paper. But this is bc they are not marked to market very often at all. The reason activity is still good is bc valuations are way down, like half in a lot of cases.
The saying might just be an observation, but I'm not sure what else people should be saying about VC. VC matches people-with-ideas to money. Have they ever advertised being anything else (while sober)?
Reminds me of the saying: "Venture Capital starts with too many good ideas chasing too little money, and ends with too much money chasing too few good ideas."