May 16, 2022

Stormy weather an opportune climate for private equity investment

May 11, 2022 | Anastasia Amoroso| iCapital

With the stock market volatile and continuing to slide, and fixed income only selectively offering protection, investors are scrambling for alternatives. Historical data suggests a downturn might be just the time to target private equity and venture capital funds.

Equities have been on a wild ride since the start of the year, unfortunately far more down than up. Falls have been sharp and rallies have been brief. This has only intensified of late, with the S&P 500 has recorded three daily declines exceeding 3% since April 29.¹ The index is down more than 16% year-to-date, with the Nasdaq falling even more sharply, off 25% over the same period.² And though we see some value starting to emerge in pockets of fixed income such as short dated municipal bonds, fixed income as a whole has offered little shelter from the equity slump so far in 2022.³ Indeed, there are signs that we may be entering a new market paradigm, wherein stocks and bonds are actually positively correlated, reversing a two-decade-long negative correlation.⁴

So the question for investors is, where might be a port in this market storm? Investors with a longer time horizon might want to consider allocating to private equity (PE) and venture capital (VC), for which a downturn may actually be a very good time to invest.⁵

(1) Source: Investing.com, as of May 10, 2022.
(2) Source: Bloomberg, as of May 10, 2022.
(3) Source: Bloomberg, as of May 10, 2022.
(4) Source: PGIM, “US stock-bond correlation: what are the macroeconomic drivers?”, May 6, 2021.
(5) Source: PitchBook, as of May 10, 2022.

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