In this year’s Outlook we highlight the following:
- Private Equity valuations are elevated both in the U.S. and Europe. High valuations drove record 2014 exit volume and may have also muted investment activity.
- Middle market buyouts are attractive as they generally trade at lower multiples, use less debt and have a wide range of exit options as compared to larger buyouts.
- Private capital continues to be compensated for originating loans both in the U.S. and Europe.
- High-yield bond defaults are at record lows but issuance volume and a market correction could create a large future distressed opportunity.
- Recent pricing of secondaries at or near par is less than ideal. However, current PE investment activity at high valuations may provide a favorable future entry point.
- Managers that have unique sourcing angles, operational expertise, investment patience during times of elevated valuations, and an opportunistic approach to selling appear capable of generating attractive returns.