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.
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.
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.