I published here (in late January) and on SeekingAlpha.com a warning that the surge in private equity (with with emphasis on “private” or illiquid) in the past decade would reek havoc for institutional and individual investors alike.  We’re beginning to see the tip of the iceberg.

London (CNN Business) SoftBank warned Monday that it expected to post its first operating loss in 15 years because of a collapse in the value of its flagship tech investments.
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With the massive Vision Fund, Son and his company were able to take large stakes in flashy technology startups working on ride-hailing, robotics, agriculture and other areas that he felt were central to shaping the future. By cutting large checks, often totaling the hundreds of millions or even billions of dollars, the fund could help startups expand rapidly and sometimes boosted their valuations significantly.

The ‘boosting’ of valuations in private equity funds over the years, in pension fund, bank and insurance company portfolios will need to be reversed, or written down as there is a skinny market for publicly traded assets, never mind private ones.  Pension plans in particular, that have gone from fully funded to underfunded overnight, must now take another hit to their funded status.

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It’s not just private ‘equity’ that is an issue, but also private debt. Huge private debt funds, that count the same institutional investors but also HNW investors. For example, Bridging Finance Inc. is one of Canada’s largest bridge lenders to medium-sized businesses.  Yesterday (April 13th) the fund company announced it was:

“temporarily suspending all redemptions from the Funds. While a difficult decision, it is one that needs to be implemented to maintain investor value and limit pandemic effects. All redemptions in the Funds placed between February 1, 2020 to April 13, 2020 will therefore be suspended.”

Despite the apparent resilience of markets (albeit on extremely low volume) there will be continued pressure to sell what ‘can’ be sold (publicly traded securities) as liquidity issues continue to mount.

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

2 comments

  1. Call it what it is. A pyramid scheme. Without new money piling in, the jig is up. It’s not criminal like madhoff but the losses will be real. The profits were illusory. The accounting rules for writing up investments will change. The investment rules for the ‘’open” yet “private” equity fund will change. ie if its ‘private’ it’s closed until it’s wound up.

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