What Wall Street Law Firm Paul Weiss Has to Say about Private Equity - The Flight from Stocks to Alternative Investments

 

"This Could Be a Lost Decade for Stocks - U.S. shares could go nowhere for a while based on long-term valuations, or they could get it over with and crash" - The Wall Street Journal, May 18, 2022

The trend can be long-term: The smart money is moving away from stocks. And into alternative investments. So, how are newbies supposed to navigate that territory?

PRIVATE EQUITY 2021 BOOM

The alternative investment gaining noticeable traction has been private equity. At least in 2021.

Elite consulting firm Bain puts it this way:

“Private equity blew the doors in 2021 as trillions in pandemic-related stimulus produced a historic surge in dealmaking and exits.”

WHERE ARE WE IN PRIVATE EQUITY?

So, in this Law and More article, we will look at where private equity is right now. My source for that is the recent summary from law firm Paul Weiss. It specializes in financial transactions and financial litigation. Its chairman since 2008 is Brad Karp, whose signature is Wall Street SuperLawyer. 

The report has been prepared by its Private Equity practice. It provides a kind of snapshot where private equity fundraising is at.

Here is that comprehensive Paul Weiss Private Equity report.

LOOKING UNDER THE HOOD

And here are key highlights from Paul Weiss which provide insight.

The Importance of Continuation Funds. They have evolved into a key transaction format to provide LPs liquidity, ensure continuity of GP fund management, and potentially provide for new capital commitments.

As many know, continuation funds are formed to facilitate either of two things.

One is to allow existing funds to exit one or more extended-life funds investments. The other is to improve portfolio diversification.

For 2021, these funds accounted for 84% of GP-led transactions. That totaled $68 billion. So far, Paul Weiss observes no slowing down of this in 2022.

Current Number of Funds. The global count — 2,650 — is a record. That represents a 2% increase since Q4 2021.

SEC Rulemaking. The signals all point to more aggressive regulation of PE. Proposed rules suggest:

SEC’s Division of Exams Announcements. What has been disclosed are the priorities in examination regarding PE. Those include compliance risks related to fees and expenses, custody of client assets, fund audits, valuations, conflict of interest, allocation of investment opportunities, and disclosure of investment risks.

Congested Fundraising. During 2021, globally $669 billion had been raised. That represented the second largest amount on record. Shift to Q1 2022 and Paul Weiss cautions this: With so much activity, fundraising velocity may be stressing LP allocations.

Q1 2022. Globally there had been downward movement. Compared to Q4 2021, the decrease had been 10%: $115.7 billion versus $128.3 billion. And compared to Q1 2021, the decline had been 28%, from $187.9 billion.

Growth Strategy funds and buyout funds. The former represented 44% and the latter 38% of aggregate capital raised globally by PE funds in Q1 2022.

VOLATILITY

Of course, so much can change on a dime. And it probably will in alternative investments, including private equity.

Connect with Editor-in-Chief Jane Genova at janegenova374@gmail.com. Now and then Jane Genova does freelance communications assignments for Paul Weiss and a number of other law firms, defense and plaintiff. 

 

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